File No. 33-56314
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
(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 : December 1, 1994
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
September 14, 1994.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
2,217 UNITS
PROSPECTUS
Part One
Dated November 22, 1994
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The CMO Unit Investment Trust, Series 2 (the "Trust") is a fixed portfolio of
taxable collateralized mortgage obligations (CMOs). At October 17, 1994, each
Unit represented a 1/2,217 undivided interest in the principal and net income
of the Trust (see "What is the First Trust Special Situations 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 per Unit
The Public Offering Price per Unit is equal to the aggregate value of the
Securities in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 5.5% of the Public Offering Price (5.820%
of the amount invested). At October 17, 1994, the Public Offering Price per
Unit was $423.49 plus net interest accrued to date of settlement (five
business days after such date) of $2.03 (see "Market for Units" in Part Two).
Please retain both parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 7.83% per annum on October 17,
1994. Estimated Long-Term Return to Unit holders was 8.12% per annum on
October 17, 1994. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price per
Unit. Estimated Long-Term Return is calculated using a formula which (1)
takes into consideration and determines and factors in the relative weightings
of the market values, yields (which take into account the amortization of
premiums and the accretion of discounts) and estimated average life of all of
the Securities in the Trust and (2) takes into account the expenses and sales
charge associated with each Unit of the Trust. Since the market values and
estimated average lives of the Securities and the expenses of the Trust will
change, there is no assurance that the present Estimated Current Return and
Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, exchange or sale of the underlying Securities and with changes in
the average life assumptions of the CMO securities. See "What are Estimated
Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
SUMMARY OF ESSENTIAL INFORMATION AS OF OCTOBER 17, 1994
Sponsor: Nike Securities L.P.
Evaluator: First Trust Advisors L.P.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Securities in the Trust $1,006,689
Number of Units 2,217
Fractional Undivided Interest in the Trust per Unit 1/2,217
Public Offering Price:
Aggregate Value of Securities in the Portfolio $887,237
Aggregate Value of Securities per Unit $400.20
Sales Charge 5.820% (5.5% of Public Offering Price) $23.29
Public Offering Price per Unit $423.49*
Redemption Price and Sponsor's Repurchase Price per Unit
($23.29 less than the Public Offering Price per Unit) $400.20*
Liquidation Amount of the Trust $2,000,000
</TABLE>
Date Trust Established January 13, 1993
Mandatory Termination Date December 31, 2042
[FN]
*Plus net interest accrued to date of settlement (five business days after
purchase) (see "Public Offering Price per Unit" herein and "Redemption of
Units" and "Purchase of Units by the Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
SUMMARY OF ESSENTIAL INFORMATION AS OF OCTOBER 17, 1994
Sponsor: Nike Securities L.P.
Evaluator: First Trust Advisors L.P.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
SPECIAL INFORMATION
<S> <C>
Calculation of Estimated Net Annual Interest Income per Unit
(Excluding the Effect of Premiums and Discounts):
Estimated Annual Interest Income $35.51
Less: Estimated Annual Expense $2.35
______
Estimated Net Annual Interest Income per Unit $33.16
======
Estimated Daily Rate of Net Interest Accrual per Unit $.0921
======
Estimated Current Return Based on Public Offering Price 7.83%
======
Estimated Long-Term Return Based on Public Offering Price 8.12%
======
</TABLE>
Trustee's Annual Fee: $.90 per Unit outstanding, exclusive of expenses of the
Trust.
Evaluator's Annual Fee: $.30 per $1,000 principal amount of underlying
securities.
Supervisory Fee: Maximum of $.25 per Unit outstanding annually.
Distributions will generally be made on or shortly after the twenty-eighth day
of each month to Unit holders of record on the first day of such month.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 51, The
CMO Unit Investment Trust, Series 2
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
51, The CMO Unit Investment Trust, Series 2 as of July 31, 1994, and the
related statements of operations and changes in net assets for the year then
ended and for the period from the Date of Deposit, January 13, 1993, to
July 31, 1993. These financial statements are the responsibility of the
Trust's Trustee. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of July 31, 1994, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 51, The CMO Unit Investment Trust, Series 2 at
July 31, 1994, and the results of its operations and changes in its net assets
for the year then ended and for the period from the Date of Deposit,
January 13, 1993, to July 31, 1993, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 28, 1994
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities, at value (cost $1,087,123)
(Note 1) $1,044,506
Receivable from investment transaction 13,317
Accrued interest 7,315
Cash 16,982
__________
1,082,120
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Unit redemptions payable 17,214
Accrued liabilities 2,053
__________
19,267
__________
Net assets, applicable to 2,523 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $1,087,123
Unrealized depreciation (42,617)
Distributable funds 18,347
__________
$1,062,853
==========
Net asset value per unit $421.27
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
PORTFOLIO
July 31, 1994
The portfolio consists of the following collateralized mortgage obligations,
all of which are Support Class Bonds.
<TABLE>
<CAPTION>
Final
Name of issuer and Coupon distribution Principal
title of security rate date amount Value
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation Multiclass
Mortgage Participation
Certificates (Guaranteed),
Series, 1434-V 7.50% 12/15/2022 $609,178 552,719
Federal National Mortgage
Association Guaranteed
REMIC Pass-Through
Certificates, Fannie Mae
REMIC Trust, 1992-215,
Class 215-L 7.75 12/25/2022 530,000 491,787
_______________________
$1,139,178 1,044,506
=======================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Jan. 13, 1993, to
July 31, 1994 July 31, 1993
<S> <C> <C>
Interest income $229,350 232,143
Expenses:
Trustee's fees and related expenses (8,944) (3,380)
Evaluator's fees (907) (948)
Supervisory fees (1,415) (791)
_________________________
Investment income - net 218,084 227,024
Net gain (loss) on investments:
Net realized gain (loss) 259,145 1,350
Change in unrealized appreciation/
depreciation (420,872) 378,255
_________________________
(161,727) 379,605
_________________________
Net increase in net assets resulting
from operations $56,357 606,629
=========================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Jan. 13, 1993, to
July 31, 1994 July 31, 1993
<S> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $218,084 227,024
Net realized gain (loss) on investments 259,145 1,350
Change in unrealized appreciation/
depreciation on investments (420,872) 378,255
___________________________
56,357 606,629
Units redeemed (3,137 and 90 in 1994
and 1993, respectively):
Principal portion (2,320,632) (90,808)
Net interest accrued (5,932) (223)
___________________________
(2,326,564) (91,031)
Distributions to unit holders:
Investment income - net (243,915) (190,998)
Principal from investment transactions (2,162,938) -
___________________________
(2,406,853) (190,998)
___________________________
Total increase (decrease) in net assets (4,677,060) 324,600
Net assets:
At the beginning of the period 5,739,913 5,415,313
___________________________
At the end of the period (including
distributable funds applicable
to Trust units of $18,347 and
$33,195 at July 31, 1994 and
1993, respectively) $1,062,853 5,739,913
===========================
Trust units outstanding at the
end of the period 2,523 5,660
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Securities are stated at values as determined by First Trust Advisors L.P.
(formerly Nike Financial Advisory Services, L.P.), an affiliate of the
Sponsor. The values of the securities 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.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the
securities on the Date of Deposit, January 13, 1993. The premium or discount
is not being amortized. Realized gain (loss) from security transactions is
reported on an identified cost basis. 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 Trustee is United States Trust Company of New York. The Trustee's fees
are $.90 per unit outstanding, exclusive of expenses of the Trust. An annual
fee of $.30 per $1,000 principal amount of securities outstanding is payable
to the Evaluator. Additionally, the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
Distributions to unit holders -
Distributions to unit holders of investment income - net and principal are
presented on the accrual basis.
2. Unrealized appreciation and depreciation
An analysis of net unrealized depreciation at July 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(42,617)
Unrealized appreciation -
________
$(42,617)
========
</TABLE>
<PAGE>
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 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.
Selected data per unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Jan. 13, 1993, to
July 31, 1994 July 31, 1993
<S> <C> <C>
Interest income $48.30 40.44
Expenses (2.37) (.89)
______________________________
Investment income - net 45.93 39.55
Distributions to unit holders:
Investment income - net (52.20) (33.22)
Principal from investment transactions (535.58) -
Net gain (loss) on investments (51.00) 66.00
______________________________
Total increase (decrease)
in net assets (592.85) 72.33
Net assets:
Beginning of the period 1,014.12 941.79
______________________________
End of the period $421.27 1,014.12
==============================
</TABLE>
Accrued interest to the Date of Deposit totaling $14,083, plus net interest
accrued to the First settlement date, January 21, 1993, totaling $10,563, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution to unit holders, $1.78 of investment income - net per
unit, was paid on February 28, 1993, to all unit holders of record on
February 1, 1993.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
PART ONE
Must be Accompanied by Part Two
_____________________
P R O S P E C T U S
_____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: United States Trust Company of New York
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The CMO Unit Investment Trust Series
The First Trust Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated November 21, 1994
The Trust. The First Trust Special Situations Trust (the "Trusts"
and each a "Trust") are unit investment trusts consisting of a
fixed portfolio of taxable collateralized mortgage obligations
("CMOs"). The estimated average life of each Trust is set forth
in Part One for each Trust. CERTAIN TRUSTS ARE COMPRISED PRINCIPALLY
OF "SUPPORT CLASS" BONDS. FOR A DISCUSSION OF THE RISKS INHERENT
IN AN INVESTMENT IN SUPPORT CLASS BONDS, SEE "WHAT IS THE FIRST
TRUST SPECIAL SITUATIONS TRUST?-THE SECURITIES-LIFE OF THE SECURITIES
AND OF THE TRUSTS." AN INVESTMENT IN SUCH A TRUST MAY NOT BE SUITABLE
FOR AN INVESTOR WHO SEEKS A FIXED RATE OF RETURN FOR A SPECIFIED
PERIOD OF TIME. THE RATE OF PREPAYMENT ON THE UNDERLYING MORTGAGES
OF SUPPORT CLASS CMOS IN A TRUST WILL CAUSE FLUCTUATION, WHICH
MAY BE SUBSTANTIAL, BOTH IN THE AMOUNT OF INCOME EARNED BY THE
TRUST AND IN THE TIMING OF THE PRINCIPAL DISTRIBUTIONS. THIS FLUCTUATION
MAY ALSO ADVERSELY AFFECT THE REPURCHASE AND REDEMPTION PRICES
OF, AND TOTAL RETURN FROM, UNITS OF SUCH A TRUST.
The Objectives of each Trust are monthly distributions of interest
and principal and conservation of capital through an investment
in a portfolio of CMOs.
Attention Foreign Investors: Your interest income from the Trusts
may be exempt from Federal withholding taxes if you are not a
United States citizen or resident and certain conditions are met.
See "What is the Federal Tax Status of Unit Holders?"
The Trusts may be well suited for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other tax-deferred retirement
plans. The minimum purchase is 1 Unit. Investors should consult
with their tax advisers before investing. See "Why are Investments
in the Trusts Suitable for Retirement Plans?"
For Information on Estimated Current Return and Estimated Long-Term
Return, see "Special Information" appearing in Part One for each
Trust.
Public Offering Price The secondary market Public Offering Price
per Unit will be equal to the aggregate bid price of the Securities
in the portfolio of a Trust divided by the number of Units outstanding,
plus a sales charge as indicated in Part One for each Trust. The
sales charge is reduced on a graduated scale for sales involving
at least that amount specified in Part One for each Trust. See
"How is the Public Offering Price Determined?" for the method
of evaluation.
Monthly Distributions of principal, prepayments of principal,
if any, and interest received by a Trust will be paid in cash
unless the Unit holder elects to have them automatically reinvested
as described herein. See "How Can Distributions to Unit Holders
be Reinvested?" Investors, at the time of purchase, will have
the ability to designate that only principal payments (including
prepayments) or only interest payments or both are to be reinvested.
Monthly distributions will be made on those dates specified in
Part One for each Trust.
The Sponsor, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid
price of the Securities in the Trusts. In the absence of such
a market, a Unit holder will nonetheless be able to dispose of
the Units through redemption at prices based upon the bid prices
of the underlying Securities (see "How May Units be Redeemed?").
BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
The CMO Unit Investment Trust 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
a portfolio containing taxable collateralized mortgage obligations
("CMOs"). Each Trust was created under the laws of the State of
New York pursuant to a Trust Agreement (the "Indenture"), dated
the Initial Date of Deposit, with Nike Securities L.P., as Sponsor,
United States Trust Company of New York, as Trustee and First
Trust Advisors L.P., as Evaluator and Portfolio Supervisor.
The objectives of each Trust are monthly distributions of interest
and principal and conservation of capital through an investment
in a portfolio of Securities (the "Portfolio"). Because certain
of the Securities from time to time may be prepaid or will mature
in accordance with their terms or may be sold under circumstances
described herein, the Trusts are not expected to retain their
present size and composition. Units will remain outstanding until
redeemed upon tender to the Trustee by any Unit holder (which
may include the Sponsor) or until the termination of the Trusts
pursuant to the Indenture.
In selecting Securities for deposit in the Trusts, the following
factors, among others, were considered by the Sponsor: (i) the
types of such CMOs available; (ii) the prices and yields of such
Securities relative to other comparable securities, including
the extent to which such securities are trading at a premium or
at a discount from par; (iii) the estimated average lives of the
Securities; (iv) the payment provisions applicable to the Securities;
and (v) whether the Securities were issued after July 18, 1984.
See "Portfolio" appearing in Part One for each Trust for information
with respect to the Securities in the Trusts.
An investment in Units of a Trust should be made with an understanding
of the risks which an investment in fixed rate long-term debt
obligations may entail, including the risk that the value of a
Portfolio and hence of the Units will decline with increases in
interest rates. The value of the underlying Securities will fluctuate
inversely with changes in interest rates. In addition, the potential
for appreciation of the underlying Securities, which might otherwise
be expected to occur as a result of a decline in interest rates,
may be limited or negated by increased principal prepayments in
respect of the underlying mortgages. The high inflation of the
early 1980s, together with the fiscal measures adopted to attempt
to deal with it, has resulted in wide fluctuations in interest
rates and, thus, in the value of fixed rate long-term debt obligations
generally. The Sponsor cannot predict whether such fluctuations
will continue in the future.
The Portfolios of the Trusts may contain Securities which were
acquired at a market discount. Such Securities trade at less than
par value because the interest rates thereon are lower than interest
rates on comparable debt securities being issued at currently
prevailing interest rates. If such interest rates for newly issued
and otherwise comparable securities increase, the market discount
of previously issued securities will become greater, and if such
interest rates for newly issued comparable securities decline,
the market discount of previously issued securities will be reduced,
other things being equal. Investors should also note that the
value of securities purchased at a market discount will increase
in value faster than securities purchased at a market premium
if interest rates decrease. Conversely, if interest rates increase
the value of securities purchased at a market discount will decrease
faster than securities purchased at a premium. In addition, if
interest rates rise, the prepayment risk of higher yielding, premium
securities and the prepayment benefit for lower yielding, discount
securities will be reduced. Prepayments of principal on securities
purchased at a market discount will result in some gain on investment.
Market discount attributable to interest changes does not indicate
a lack of market confidence in the issue. Neither the Sponsor
nor the Trustee shall be liable in any way for any default, failure
or defect in any of the Securities.
Page 2
The Portfolios of the Trusts may contain Securities which were
acquired at a market premium. Such Securities trade at more than
par value because the interest coupons thereon are higher than
interest coupons on comparable debt securities being issued at
currently prevailing interest rates. If such interest rates for
newly issued and otherwise comparable securities decrease, the
market premium of previously issued securities will be increased,
and if such interest rates for newly issued comparable securities
increase, the market premium of previously issued securities will
be reduced, other things being equal. The current returns of securities
trading at a market premium are initially higher than the current
returns of comparably rated debt securities of a similar type
issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity
when the face amount becomes payable. Because part of the purchase
price is thus returned not at maturity but through current income
payments, early redemption of a premium security at par or early
prepayments of principal will result in a reduction in yield.
Prepayments of principal on securities purchased at a market premium
are more likely than prepayments on securities purchased at par
or at a market discount and the level of prepayments will generally
increase if interest rates decline. Prepayments of principal on
securities purchased at a market premium will result in some loss
on investment. Market premium attributable to interest changes
does not indicate market confidence in the issue.
The Securities. The Securities in the Trusts may consist of one
or more of several classes of CMOs, including:
Standard Bonds: This class of CMO accrues interest at a fixed
rate on its outstanding principal amount. The interest is payable
monthly, quarterly or semi-annually as specified. Holders of Standard
Bonds receive only interest until all CMOs issued in the same
series with earlier final distribution dates have been paid in
full.
Compound Interest Bonds: Interest accrues upon this class of CMO
but is not payable until all classes of CMOs issued in the same
series with earlier final distribution dates have been paid in
full. Interest that accrues but is not paid is added to the principal
amount of the Compound Interest Bonds.
Adjustable Rate Bonds: Interest rates on these classes of CMOs
may increase or decrease at one or more dates in the future according
to the documentation governing their issuance.
Floating Rate Bonds: Interest rates on these classes of CMOs vary
directly or inversely (although not necessarily proportionately)
to an interest rate index. The interest rate is usually capped
to limit the extent to which it is required to over-collateralize
the CMOs in the series with mortgage backed securities in order
to ensure that there is sufficient cash flow to service all the
classes of CMOs in that series.
Support Class Bonds and Planned Amortization Bonds or Targeted
Amortization Bonds: These classes of CMOs receive payments of
principal according to a planned schedule to the extent that prepayments
on the underlying mortgage backed securities occur within a broad
time period (the "Protection Period"). The principal is reduced
only in specified amounts at specified times resulting in greater
predictability of payment for the Planned Amortization Bonds or
Targeted Amortization Bonds. IF PREPAYMENTS ON THE UNDERLYING
MORTGAGE BACKED SECURITIES OCCUR AT A RATE GREATER OR LESS THAN
THAT PROVIDED FOR BY THE PROTECTION PERIOD, THEN THE EXCESS OR
DEFICIENCY OF CASH FLOWS GENERATED IS ABSORBED BY THE OTHER SUPPORT
CLASSES OF CMOS IN THE PARTICULAR SERIES UNTIL THE PRINCIPAL AMOUNT
OF EACH OF THE OTHER SUPPORT CLASSES HAS BEEN PAID IN FULL, RESULTING
IN LESS PREDICTABILITY FOR THOSE OTHER SUPPORT CLASSES. The principal
reduction schedule of the Planned Amortization Bonds or Targeted
Amortization Bonds may be determined according to an interest
rate index. If the index rises or falls, then more or less, respectively,
of the payments on the underlying mortgage backed securities will
be applied to amortize the Planned Amortization Bonds or Targeted
Amortization Bonds.
Principal Only Bonds: This class of stripped CMO has the right
to all principal payments from the underlying mortgage backed
securities. Principal Only Bonds sell at a deep discount. The
return on a Principal Only Bond increases the faster prepayments
are received at par. The return on a Principal Only Bond decreases
if the rate of prepayment is slow.
Page 3
Interest Only Bonds: This class of CMO has the right to receive
only payments of interest from the pool of underlying mortgage
backed securities. Interest Only Bonds have only a notional principal
amount and are entitled to no payments of principal. The Interest
Only Bond sells at a substantial premium and therefore the return
on an Interest Only Bond increases as the rate of prepayment decreases
because the notional principal amount upon which interest accrues
remains large for a longer period of time.
A Trust may also invest in CMOs which contain or exhibit combinations
of the foregoing classes of CMOs.
Ginnie Maes, Fannie Maes or Freddie Macs, guaranteed by GNMA,
FNMA and FHLMC, respectively, will be pledged as collateral to
secure the payment of principal and interest on CMOs in a Trust.
GNMA. The Government National Mortgage Association is a wholly-owned
corporate instrumentality of the United States within the Department
of Housing and Urban Development. The National Housing Act of
1943, as amended, authorizes GNMA to guarantee the timely payment
of the principal of, and interest on, certificates which are based
on and backed by a pool of mortgage loans insured by the Federal
Housing Administration ("FHA"), or guaranteed by the Veteran's
Administration ("VA"). In order to meet its obligations under
such guaranty, GNMA may issue its general obligations to the United
States Treasury in an amount which is at any time sufficient to
enable GNMA, with no limitations as to amount, to perform its
obligations under its guaranty. In the event it is called upon
at any time to make good its guaranty, GNMA has the full power
and authority to borrow from the Treasury of the United States,
if necessary, amounts sufficient to make payments of principal
and interest on the Ginnie Maes.
Ginnie Maes. Ginnie Maes are mortgage backed securities of the
"fully modified pass-through" type, the terms of which provide
for timely monthly payments by the issuers to the registered holders
of their pro rata shares of the scheduled principal payments,
whether or not collected by the issuers, on account of the mortgages
backing such Ginnie Maes, plus any prepayment of principal of
such mortgages received, and interest (net of servicing and guarantee
charges) on the aggregate unpaid principal balance of such Ginnie
Maes, whether or not interest on account of such mortgages has
been collected by the issuers. Ginnie Maes will be guaranteed
as to timely payment of principal and interest by GNMA. The full
faith and credit of the United States is pledged to the payment
of all amounts which may be required to be paid under the guaranty.
FNMA. The Federal National Mortgage Association is a Federally
chartered, privately owned corporation organized and existing
under the Federal National Mortgage Association Charter Act. It
is the nation's largest supplier of residential mortgage funds,
with a net portfolio of approximately $134.086 billion of mortgage
loans as of March 31, 1992. FNMA was originally established in
1938 as a United States Government agency to provide supplemental
liquidity to the mortgage market but was transformed into a stockholder
owned and privately managed corporation by legislation enacted
in 1968. The Secretary of Housing and Urban Development exercises
general regulatory power over FNMA. FNMA nevertheless maintains
certain relationships with the United States Government. Although
thirteen members of its board of directors are authorized to be
elected by the shareholders, five are appointed by the President
of the United States. The President can also remove board members,
including those elected by the shareholders. Although the Secretary
of the Treasury has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's obligations
or to assist FNMA in any other matter, and obligations issued
by FNMA are not guaranteed by and do not constitute a debt or
obligation of the United States or of any agency or instrumentality
thereof other than FNMA. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders,
thereby replenishing funds for additional lending. FNMA acquires
funds to purchase home mortgage loans from many capital market
investors which may not ordinarily invest in mortgages, thereby
expanding the total amount of funds available for housing.
Fannie Maes. Fannie Maes are certificates of beneficial interest
evidencing pro rata undivided ownership interests in pools of
residential mortgages either previously owned by FNMA or purchased
by it in connection with the formation of a pool. FNMA guarantees
the full and timely payment of principal and interest
Page 4
(adjusted to the pass-through rate) on the mortgage loans in the
pool, whether or not received by FNMA or recovered by it in foreclosure.
If FNMA were unable to fulfill its guaranty, distributions to
holders of Fannie Maes would consist solely of payments and other
recoveries upon the underlying mortgages, and, accordingly, delinquencies
and defaults would diminish distributions to the holders. The
obligations of FNMA under its guaranty are solely those of FNMA
and are not backed by the full faith and credit of the United
States. Moreover, neither the United States nor any of its agencies
is obligated to finance the operations of FNMA or to assist it.
FHLMC. The Federal Home Loan Mortgage Corporation is a corporate
instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970 (the "FHLMC Act"). FHLMC's common stock
is owned by the Federal Home Loan Banks. FHLMC was established
primarily for the purpose of increasing the availability of mortgage
credit for the financing of urgently needed housing. It seeks
to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary
markets for conventional mortgages. The principal activity of
FHLMC currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans
and the resale of the mortgage loans so purchased in the form
of mortgage securities, primarily Freddie Macs. All mortgage loans
purchased by FHLMC must meet certain standards set forth in the
FHLMC Act. Mortgages retained by FHLMC are financed with debt
and equity capital.
Freddie Macs. Freddie Macs represent undivided interests in a
group of mortgages (a "FHLMC Certificate Group") purchased by
FHLMC. Each mortgage loan must meet the applicable standards set
forth in the FHLMC Act. A FHLMC Certificate Group may include
whole loans, participation interests in whole loans and undivided
interest in whole loans or participations comprising another FHLMC
Certificate Group. There are two types of Freddie Macs commonly
referred to as "Original PCs" and "Gold PCs." In the case of Original
PCs, FHLMC guarantees the timely payment of interest, at the rate
provided for by Freddie Macs, on the unpaid principal balance
outstanding on the underlying mortgage loans in the FHLMC Certificate
Group represented by the Freddie Macs, whether or not received,
and also guarantees collection of all principal on the underlying
mortgage loans, without any offset or deduction, but does not
guarantee the timely payment of scheduled principal. Unlike Original
PCs, Gold PCs guarantee the timely payment of both interest and
scheduled principal, thus producing a more predictable payment
stream. Gold PCs also offer a shorter payment delay than that
of conventional mortgage pass-through securities (FHLMC advances
payment to Gold PC holders 14 days after the borrower's scheduled
principal and interest payments are due), and a shorter period
(approximately 45 days) between the first day of the month in
which the Gold PCs are issued and the initial payment date. Freddie
Macs are not guaranteed by the United States or by any Federal
Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of
FHLMC under its guarantee are obligations solely of FHLMC and
are not backed by, nor entitled to, the full faith and credit
of the United States. If FHLMC were unable to fulfill its guaranty,
distributions to holders of Freddie Macs would consist solely
of payments and other recoveries upon the underlying mortgages,
and, accordingly, delinquencies and defaults would diminish distributions
to the holders.
Liquidity. The Securities in the Trusts have been registered under,
or are exempt from registration under, the Securities Act of 1933
and, therefore, may be sold by the Trusts at any time to provide
funds for purposes of redemption of Units. However, the Securities
are generally not listed on a national securities exchange or
on the National Association of Securities Dealers Automated Quotation
System, Inc. Whether or not the Securities are listed, the principal
trading market for the Securities will generally be in the over-the-counter
market. As a result, the existence of a liquid trading market
for the Securities may depend on whether dealers will make a market
in the Securities. There can be no assurance that a market will
be made for any of the Securities, that any market made for the
Securities will be maintained or of the liquidity of the Securities
in any markets made. The Trusts may be restricted under the Investment
Company Act of 1940 from selling Securities to the Sponsor. The
price at which the Securities may be sold to meet redemptions
and the value of the Trusts will be adversely affected if trading
markets for the Securities are limited
Page 5
or absent. However, taking into account the foregoing and other
factors, the Sponsor believes that the nature of the GNMA, FNMA
or FHLMC guarantees or other enhancement features of any Securities,
and the nature of the collateral securing payments of principal
and interest due on the Securities make the Securities adequately
marketable for purposes of redemptions of Units by the Trustee.
See "How May Units be Redeemed?"
Limited Assets and Limited Liability. Except as indicated under
"Portfolio" appearing in Part One for each Trust and except for
any Securities that were issued by GNMA, FNMA or FHLMC, the issuers
of the Securities are limited purpose corporations, trusts or
other entities ("Limited Purpose Issuers"), organized solely for
the purpose of issuing CMOs collateralized by Ginnie Maes, Fannie
Maes, Freddie Macs, mortgage loans, or certificates or other participations
evidencing an interest in mortgage loans. None of the securities
(including the Securities deposited in the Trusts) are guaranteed
by the parent company or any other affiliate of any Limited Purpose
Issuer. Consequently, holders of these securities (including the
Trusts) must rely upon payments on the Ginnie Maes, Fannie Maes,
Freddie Macs, the mortgage loans or other certificates or participations
evidencing an interest in mortgage loans, and upon any credit
enhancement and any other collateral securing the securities (including
the Securities deposited in the Trusts) for the payment of principal
and interest due on the securities. If the collateral securing
the securities of each Limited Purpose Issuer is insufficient
to make payments on those securities, it is unlikely that any
other asset of the Limited Purpose Issuer will be available for
payment of the deficiency. The collateral securing the CMOs of
each Issuer (including the Securities deposited in the Trusts)
will be held by the CMO trustee as security for the CMOs of that
Issuer. Although payment of principal of and interest on Ginnie
Maes, Fannie Maes and Freddie Macs securing certain of the Securities
is guaranteed by GNMA, FNMA and FHLMC, respectively, the CMOs
(including the Securities deposited in the Trusts except for any
Securities which have been issued directly or indirectly by GNMA,
FNMA or FHLMC) represent obligations solely of the Issuers and
are not insured or guaranteed by GNMA, FNMA or FHLMC or any other
governmental agency. The Units of the Trusts are also not guaranteed
by any of GNMA, FNMA or FHLMC, the United States or any of its
agencies. A default with respect to the securities of a particular
Issuer (including the Securities of an Issuer deposited in the
Trusts) may not necessarily result from a corresponding default
with respect to the underlying Ginnie Maes, Fannie Maes, Freddie
Macs or any credit enhancement.
For any Securities that have been issued by issuers other than
GNMA, FNMA or FHLMC, the Sponsor has been informed that each issuer
of such Securities has received an opinion of counsel or similar
assurances to the effect that it is not an investment company
or that it has been exempted from the definition of an investment
company by order of the Securities and Exchange Commission.
Investors should note that some of the CMOs in the Trusts have
been issued by trusts, corporations or other entities that have
elected to be treated as Real Estate Mortgage Investment Conduits
("REMICs"). As such, Unit holders will be required to include
in income their respective pro rata share of interest on each
such Security (whether or not the Security has original issue
discount) as interest accrues, whether or not the Unit holder
is an accrual method taxpayer.
Life of the Securities and of the Trusts. CMOs are generally issued
as a series of different classes. An issue of CMOs tends to be
backed by a larger number of mortgages than Ginnie Maes, Fannie
Maes or Freddie Macs, thus allowing greater statistical prediction
of prepayment characteristics. Interest and principal payments
on the mortgages underlying any series will first be applied to
meet the interest payment requirements of each class in the series
other than any class in respect of which interest accrues but
is not paid or any principal only class. Then, principal payments
on the underlying mortgages are generally applied to pay the principal
amount of the class that has the earliest maturity date. Once
that class is retired, the principal payments on the underlying
mortgages are applied to the class with the next earliest maturity
date. This is repeated until all classes are paid. Therefore,
while each class of CMOs remains subject to prepayment as the
underlying mortgages prepay, structuring several classes of CMOs
in the stream of principal payments generally allows a closer
estimate of the period of time when any one class is likely to
be repaid. The estimate can be even closer with a class of Planned
Amortization Bonds or Targeted Amortization
Page 6
Bonds. The amortization schedule for these CMOs is structured
so that, at specified prepayment rates within a relatively wide
range, their principal will be repaid at specified times and in
specified amounts. However, if any series of CMOs contains a class
of Planned Amortization Bonds or Targeted Amortization Bonds,
then the other classes in that series may not be retired in an
order of priority determined strictly with reference to their
maturity dates.
These other classes are often referred to as "support classes"
because their function is to support the amortization schedule
of the Planned Amortization Bonds or Targeted Amortization Bonds
by absorbing the prepayment risks associated with an investment
in a CMO. IF THE RATE OF PREPAYMENTS ON THE UNDERLYING MORTGAGES
IS FASTER THAN ASSUMED, THEN CLASSES WITH MATURITY DATES LATER
THAN THE PLANNED AMORTIZATION BONDS OR TARGETED AMORTIZATION BONDS
MAY BE RETIRED EARLIER THAN ESTIMATED TO ENSURE THAT THE PLANNED
AMORTIZATION BONDS OR TARGETED AMORTIZATION BONDS RECEIVE THE
PRINCIPAL PAYMENTS REQUIRED BY THEIR AMORTIZATION SCHEDULE. SIMILARLY,
IF THE RATE OF PREPAYMENTS IS SLOWER THAN ANTICIPATED, EARLIER
SUPPORT CLASSES MAY BE RETIRED LATER THAN ESTIMATED. HENCE, SUPPORT
CLASSES OF A SERIES THAT CONTAINS PLANNED AMORTIZATION BONDS OR
TARGETED AMORTIZATION BONDS HAVE LESS PREDICTABLE PREPAYMENT CHARACTERISTICS
THAN CLASSES OF A SERIES THAT DOES NOT. THIS LACK OF PREDICTABILITY
REGARDING PREPAYMENTS ALSO CAUSES SUPPORT CLASS BONDS TO HAVE
GREATER MARKET VALUE FLUCTUATION THAN OTHER CLASSES OF A CMO AND
CAUSES FLUCTUATION, WHICH MAY BE SUBSTANTIAL, BOTH IN THE AMOUNT
OF INCOME EARNED BY A TRUST CONTAINING SUCH SECURITIES AND IN
THE TIMING OF THE PRINCIPAL DISTRIBUTIONS FROM SUCH A TRUST. TO
THE EXTENT SUCH SECURITIES ARE CONTAINED IN A TRUST THIS FLUCTUATION
MAY ADVERSELY AFFECT THE REPURCHASE AND REDEMPTION PRICES OF,
AND TOTAL RETURN FROM THE UNITS. See "Portfolio" appearing in
Part One for each Trust for the number of Planned Amortization
Bonds, Target Amortization Bonds and Support Class Bonds, if any,
contained in a Trust. The rate of prepayment on the underlying
mortgages of a CMO will most likely decline as interest rates
increase. If the rate of prepayment declines, the weighted average
life of the Support Class Bonds will most likely increase and,
in some cases, the decline will impact the yield and market value
of these Securities. This may cause an investor's principal in
a Support Class Bond to be outstanding for a longer period of
time than initially anticipated. Conversely, if interest rates
decline, prepayments on the underlying mortgages will most likely
increase, and the weighted average life of the Support Class Bonds
may be shorter than anticipated. A holder of a Support Class Bond
in these situations may be unable to reinvest the proceeds of
these principal distributions at an effective interest rate equal
to the specified coupon rate on the original Support Class Bond.
THEREFORE, AN INVESTOR EXPECTING TO EARN A FIXED RETURN FOR A
FIXED NUMBER OF YEARS MAY FIND THE LIFE OF A SUPPORT CLASS INVESTMENT
DECREASES AS INTEREST RATES FALL AND INCREASES AS THEY RISE.
In contrast, with Ginnie Maes, Fannie Maes or Freddie Macs, estimation
of repayment is more difficult as the cash flow on the underlying
mortgages is simply passed through on a pro rata basis to the
holders. However, any estimate of the repayment period for any
class of CMO is based upon certain assumptions as to the repayment
speed of the underlying mortgages, which assumptions may prove
to be inaccurate over time. In addition, the prepayment characteristics
of the CMOs which are not guaranteed by GNMA, FNMA or FHLMC may
be influenced by factors that are different than those for Ginnie
Maes, Fannie Maes or Freddie Macs. See "What are Estimated Current
Return and Estimated Long Term Return?"
ALL OF THE MORTGAGES IN THE POOLS BACKING THE SECURITIES IN A
TRUST ARE SUBJECT TO PREPAYMENT WITHOUT ANY SIGNIFICANT PREMIUM
OR PENALTY AT THE OPTION OF THE MORTGAGORS (I.E., THE HOMEOWNERS).
BECAUSE CERTAIN OF THE SECURITIES FROM TIME TO TIME MAY BE REDEEMED
OR PREPAID OR WILL MATURE IN ACCORDANCE WITH THEIR TERMS OR MAY
BE SOLD UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN, NO ASSURANCE
CAN BE GIVEN THAT A TRUST WILL RETAIN FOR ANY LENGTH OF TIME ITS
PRESENT SIZE AND COMPOSITION.
While the mortgages on the 1 to 4 family dwellings underlying
the Securities are amortized over a period of up to 30 years,
it has been the experience of the mortgage industry that the average
life of comparable mortgages, owing to prepayments, is considerably
less. Prepayments on mortgages are commonly measured relative
to a prepayment standard or model. The prepayment model of the
Public Securities Association (the "Prepayment Model") represents
an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of new mortgage loans.
100% of the Prepayment Model assumes
Page 7
prepayment rates of 0.2% per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life
of the mortgage loans and an additional 0.2% per annum in each
month thereafter until the 30th month. Beginning in the 30th month
and in each month thereafter during the life of the mortgage loans,
100% of the Prepayment Model assumes a constant prepayment rate
of 6% per annum. The principal repayment behavior of any individual
mortgage will likely vary from these assumptions. The extent of
this variation will depend on a variety of factors, including
the relationship between the coupon rate on a mortgage and prevailing
mortgage origination rates. As prevailing mortgage origination
rates increase in relationship to a mortgage coupon rate, the
likelihood of prepayment of that mortgage decreases. Conversely,
during periods in which prevailing mortgage origination rates
are significantly less than a mortgage coupon rate, prepayment
of that mortgage becomes increasingly likely. Research analysts
use complex formulae to scrutinize the prepayments of mortgage
pools in an attempt to predict more accurately the average life
of any particular class of mortgage backed bonds. The basis for
the calculation of estimated average life and the relationship
of this calculation for Estimated Long Term Return is more fully
described under "What are Estimated Current Return and Estimated
Long Term Return?"
Generally speaking, a number of factors, including mortgage market
interest rates and homeowners' mobility, will affect the average
life of the Ginnie Maes, Fannie Maes, Freddie Macs or mortgages
which back the Securities in a Trust and, accordingly, there can
be no assurance that the prepayment levels which will actually
be realized will conform to the estimated levels. Changes in prepayment
patterns, as reported by each of GNMA, FNMA, FHLMC and other mortgage
lenders on a periodic basis, if generally applicable to the mortgage
pools related to specific CMOs, could influence yield assumptions
used in pricing the Securities. Shifts in prepayment patterns
are influenced by changes in housing cycles and mortgage refinancing
and are also subject to certain limitations on the gathering of
the data. It is impossible to predict how new statistics will
affect the yield assumptions that determine mortgage industry
norms and pricing of CMOs. Moreover, there is no assurance that
the pools of mortgage loans relating to the Securities in a Trust
will conform to prepayment experience as reported by GNMA, FNMA
or FHLMC on a periodic basis or the prepayment experience of other
mortgage lenders.
While the value of CMOs generally fluctuates inversely with changes
in interest rates, it should also be noted that the potential
for appreciation on CMOs, which could otherwise be expected to
result from a decline in interest rates, may tend to be limited
by any increased prepayments by mortgagors as interest rates decline
(except for Principal Only Bonds whose yield increases with the
speed at which payments of principal are received at par). Accordingly,
the termination of a Trust might be accelerated as a result of
prepayments made as described above. In addition, it is possible
that, in the absence of a secondary market for the Units or otherwise,
redemption of Units may occur in sufficient numbers to reduce
a Trust to a size resulting in the early termination of such Trust.
Early termination of a Trust may have important consequences to
the Unit holders, e.g., to the extent that Units were purchased
with a view to an investment of longer duration, the overall investment
program of the investor may require readjustment, or the overall
return on investment may be less or greater than anticipated,
depending in part on whether the purchase price paid for Units
represented the payment of an overall premium or a discount, respectively,
above or below the stated principal amounts of the underlying
mortgages. In addition, a capital gain or loss may result for
tax purposes from termination of a Trust.
What is the Rating of the Units?
Standard & Poor's Corporation has rated Units of the Trusts "AAA."
This is the highest rating assigned by Standard & Poor's Corporation.
See "Description of Standard & Poor's Corporation Rating." The
obtaining of this rating by a Trust should not be construed as
an approval of the offering of the Units by Standard & Poor's
Corporation or as a guarantee of the market value of a Trust or
the Units. Standard & Poor's Corporation has indicated that this
rating is not a recommendation to buy, hold or sell Units nor
does it take into account the extent to which expenses of a Trust
or sales by a Trust of Securities for less than the purchase price
paid by the Trust will reduce payment to Unit holders of the interest
and principal required to be paid on such Securities. There is
no guarantee that the "AAA" investment rating with respect to
the Units will
Page 8
be maintained. Standard & Poor's Corporation will be compensated
by the Sponsor for its services in rating Units of a Trust.
What are Estimated Current Return and Estimated Long-Term Return?
Debt securities are customarily offered to investors on a "yield
price" basis (as contrasted to a "dollar price" basis) at the
lesser of the price as computed to maturity of such debt security
or to an earlier redemption date. Since Units of the Trusts are
offered on a dollar price basis, the estimated rate of return
on an investment in Units of a Trust is stated in terms of "Estimated
Current Return" and "Estimated Long-Term Return."
The Estimated Current Return and the Estimated Long-Term Return
for each Trust is as set forth under "Special Information" appearing
in Part One for each Trust. Estimated Current Return is computed
by dividing the Estimated Net Annual Interest Rate per Unit by
the Public Offering Price per Unit. The Estimated Net Annual Interest
Rate per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities. Therefore, there is no assurance that the present
Estimated Current Return will be realized in the future. Estimated
Current Return does not take into account timing of distributions
of income and other amounts (including delays in distribution
to Unit Holders), and it only partially reflects the effects of
premiums paid and discounts realized in the purchase price of
Units.
Unlike Estimated Current Return, Estimated Long-Term Return is
a measure of the estimated return to the investor earned over
the estimated life of a Trust. The Estimated Long-Term Return
represents an average of the yields to estimated average life
of the Securities in a Trust adjusted to reflect expenses and
sales charges. Estimated average life is an essential factor in
the calculation of Estimated Long-Term Return. When a Trust has
a shorter average life than is estimated, Estimated Long-Term
Return will be higher if the Trust contains Securities priced
at a discount and lower if the Securities are priced at a premium.
Conversely, when the Trust has a longer average life than is estimated,
Estimated Long-Term Return will be lower if the Securities are
priced at a discount and higher if the Securities are priced at
a premium.
In order to calculate estimated average life, an estimated prepayment
rate for the remaining term of the mortgage pools underlying the
Securities must be determined. Each of the primary market makers
in CMOs has sophisticated computer models which are used to determine
the estimated prepayment rate for CMOs. Each computer model takes
into account a number of factors and assumptions including: actual
prepayment data reported for recent periods on a particular pool,
the impact of aging on the prepayment of mortgage pools, the current
interest rate environment, the coupon, the housing environment,
historical trends on CMOs as a group, geographical factors and
general economic trends. Because of differences in the weighting
of such factors and assumptions, such computer models maintained
by the market makers in CMOs produce estimated prepayment rates
which vary. In connection with the deposit of Securities in a
Trust, the Sponsor, in determining an estimated prepayment rate,
has utilized information provided by a market maker in CMOs which
it believes to be reliable. However, it is possible that another
computer model might provide an estimated prepayment rate which
would prove over the life of the Securities to be more accurate.
Once an appropriate estimated prepayment rate is ascertained,
an estimated average life is calculated.
The estimated average life of any Security in a Trust involves
the use of a formula to apply the estimated rate of principal
payments on the mortgage pool to amortize the Ginnie Maes, Fannie
Maes, Freddie Macs and mortgage loans or certificates or other
participations evidencing an interest in mortgage loans which
back the Securities and to retire the principal amount of each
CMO class of the same series, including the Security itself, according
to the specific principal reduction schedule of that series. This
results in an estimate of the point at which the principal of
any Security will begin to be paid and how long it will take for
the principal to be fully paid. If any Security was issued in
a series that contains Planned Amortization Bonds or Targeted
Amortization Bonds, then the estimated rate of principal payments
on the underlying mortgages will be applied to the other classes
(Support Classes) in that series in a manner that takes account
Page 9
of the amortization schedule of the Planned Amortization Bonds
or Targeted Amortization Bonds. This results in less predictable
prepayment characteristics for Support Classes. The estimated
average life for a Trust is subject to change with alterations
in the data used in any of the underlying assumptions. The actual
average lives of the Securities and the actual long term returns
will be different from the estimated average lives and the estimated
long term returns. In calculating Estimated Long-Term Return,
the average yield for the Portfolio is derived by weighting each
Security's yield by the market value of the Security and by the
amount of time remaining to its estimated average life. Once the
average yield on the Securities of a Trust is computed, this figure
is then adjusted for estimated expenses and the effect of the
maximum sales charge paid by investors. The Estimated Long-Term
Return calculation does not take into account certain delays in
distributions of income and the timing of other receipts and distributions
on Units and may, depending on maturities, over or understate
the impact of sales charges. Both of these factors may result
in a lower return.
Both Estimated Current Return and Estimated Long-Term Return are
subject to fluctuation with changes in the composition of the
Portfolio of a Trust, principal payments and prepayments, changes
in market value of the underlying Securities and changes in fees
and expenses, including sales charges. Therefore, these returns
can be materially different than the figures set forth under "Special
Information" appearing in Part One of each Trust. In addition,
return figures may not be directly comparable to yield figures
used to measure other investments, and since return figures are
based on certain assumptions and variables, the actual returns
received by a Unit holder may be higher or lower.
Payments received in respect of the mortgages underlying the Securities
in a Trust will consist of a portion representing interest and
a portion representing principal. Although the aggregate monthly
payment made by the obligor on each mortgage remains constant
(aside from optional prepayments of principal), in the early years
most of each such payment will represent interest, while in later
years, the proportion representing interest will decline and the
proportion representing principal will increase. However, by reason
of optional prepayments, principal payments in the earlier years
on the mortgages underlying the Securities may be substantially
in excess of those required by the amortization schedules of such
mortgages. Therefore, principal payments in later years may be
substantially less since the aggregate unpaid principal balances
of such underlying mortgages may have been greatly reduced. To
the extent that the underlying mortgages bearing higher interest
rates in a Trust are prepaid faster than the other underlying
mortgages, the Net Annual Interest Rate per Unit and the Estimated
Returns on the Units with respect to such Trust can be expected
to decline. Monthly payments to the Unit holders will reflect
all of the foregoing factors.
In order to acquire certain of the Securities contracted for by
the Sponsor for deposit in a Trust, it may be necessary to pay
on the settlement dates for delivery of such Securities amounts
covering accrued interest on such Securities which exceed the
amounts furnished by the Sponsor. The Trustee has agreed to pay
for any amounts necessary to cover any such excess and will be
reimbursed therefor, without interest, when funds become available
from interest payments on the particular Securities with respect
to which such payments have been made.
Record Dates and Distribution Dates for monthly distributions
of principal and interest are those dates as set forth in Part
One for each Trust.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a security
from the last day on which interest thereon was paid. Interest
on Securities in each Trust is paid monthly. However, interest
on the Securities in a Trust is accounted for daily on an accrual
basis. Because of this, each Trust always has an amount of interest
earned but not yet collected by the Trustee. For this reason,
the Public Offering Price of Units will have added to it the proportionate
share of accrued and undistributed interest to the date of settlement.
Because of the varying interest payment dates of the Securities,
accrued interest at any point in time will be greater than the
amount of interest actually received by the Trusts and distributed
to Unit holders. If a Unit holder sells or redeems all or a portion
of his Units, he will be entitled to receive his proportionate
share of the accrued interest from the purchaser of his Units.
Since the Trustee has the use of the interest held in the Interest
Page 10
Account for distributions to Unit holders and since such Account
is non-interest bearing to Unit holders, the Trustee benefits
thereby.
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing each Trust, including the cost of
the initial preparation, printing and execution of the Indenture
and the certificates for the Units, legal, accounting and other
out-of-pocket expenses. The Sponsor will not receive any fees
in connection with its activities relating to the Trusts. However,
First Trust Advisors L.P., an affiliate of the Sponsor, will receive
an annual supervisory fee, which is not to exceed the amount set
forth under "Summary of Essential Information" appearing in Part
One for each Trust, for providing portfolio supervisory services
for the Trusts. The fee may exceed the actual costs of providing
such supervisory services for the Trusts, but at no time will
the total amount received for portfolio supervisory services rendered
to unit investment trusts of which Nike Securities L.P. is the
Sponsor in any calendar year exceed the aggregate cost to First
Trust Advisors L.P. of supplying such services in such year.
For purposes of evaluation of the Securities in the Trusts, the
Evaluator will receive a fee as indicated in "Summary of Essential
Information" appearing in Part One for each Trust. The Trustee
pays certain expenses of each Trust for which it is reimbursed
by such Trust. The Trustee will receive for its ordinary recurring
services to a Trust an annual fee computed at $.90 per Unit outstanding
annually. For a discussion of the services performed by the Trustee
pursuant to its obligations under the Indentures, reference is
made to the material set forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date from the Interest Account to the extent
funds are available and then from the Principal Account. Since
the Trustee has the use of the funds being held in the Principal
and Interest Accounts for future distributions, payment of expenses
and redemptions and since such Accounts are non-interest bearing
to Unit holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to a Trust is expected to result
from the use of these funds. Both fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate
increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department
of Labor.
The following additional charges with respect to a Trust are or
may be incurred by the Trusts: all expenses (including legal and
annual auditing expenses) of the Trustee incurred in connection
with its responsibilities under the Indentures, except in the
event of negligence, bad faith or willful misconduct on its part;
the expenses and costs of any action undertaken by the Trustee
to protect a Trust and the rights and interests of the Unit holders;
fees of the Trustee for any extraordinary services performed under
the Indenture; indemnification of the Trustee for any loss, liability
or expense incurred by it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its
acceptance or administration of a Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor
of a Trust; all taxes and other government charges imposed upon
the Securities or any part of a Trust (no such taxes or charges
are being levied or made upon termination of a Trust). The above
expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell Securities in order to make funds
available to pay all these amounts if funds are not otherwise
available in the Interest and Principal Accounts. Due to the minimum
principal amount in which Securities may be required to be sold,
the proceeds of such sales may exceed the amount necessary for
the payment of such fees and expenses.
Unless the Sponsor determines that such an audit is not required,
the Indenture requires the accounts of a Trust shall 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 Units, the Sponsor shall bear the cost
of such annual audits to the extent such cost exceeds $.50 per
Unit. Unit holders of a Trust covered by an audit may obtain a
copy of the audited financial statements from the Trustee upon
request.
Page 11
What is the Tax Status of Unit Holders?
The following is a general discussion of certain of the Federal
income tax consequences of the purchase, ownership and disposition
of the Units. The summary is limited to investors who hold the
Units as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code
of 1986 (the "Code"). Unit holders should note that certain provisions
of the Code that may be relevant to Unit holders, particularly
the real estate mortgage investment conduit ("REMIC") provisions
and the provisions dealing with original issue discount, market
discount, bond premium amortization, and stripped debt instruments,
have recently been enacted or amended. The Internal Revenue Service
(the "IRS") has not yet provided final guidance on many aspects
of these provisions as now in effect. Thus, no assurance can be
provided that the interpretations of law discussed herein will
be reflected in future guidance from the IRS, which could apply
retroactively. This summary does not address the Federal tax consequences
to all categories of investors, some of which (for example, non-U.S.
persons, insurance companies, pension funds or other tax-exempt
organizations, and real estate investment trusts) may be subject
to special rules. Investors should consult their own tax advisers
in determining the Federal, state, local and other tax consequences
of the purchase, ownership and disposition of the Units.
Neither the Sponsor nor Chapman and Cutler has reviewed the Securities
deposited in the Trusts. Rather, they have assumed that for Federal
income tax purposes the Securities qualify as debt instruments
or "REMIC regular interests" and that none of the Securities constitute
"REMIC residual interests."
As discussed below, Chapman and Cutler has opined that the Unit
holders will be treated as indirectly owning an interest in the
Securities held by a Trust. Investors owning REMIC regular interests
are subject to special rules. These rules impact the timing of
income (and loss) recognition, a holder's basis in such interests,
the character of income recognized upon the sale or other disposition
of such interests, and have other special tax consequences as
well. In addition, the REMIC rules of the Code impose additional
taxes (the prohibited transactions tax, the tax on income from
foreclosure property, the contributions tax, and the tax on transfers
of REMIC residual interests to prohibited persons) that could
reduce amounts available for distribution to holders of such interests,
including Unit holders. Unit holders should consult their own
tax advisers regarding the special tax consequences relating to
REMIC regular interests.
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing law:
The Trusts are not associations taxable as corporations for Federal
income tax purposes.
Each Unit holder of a Trust is considered to be the owner of a
pro rata portion of such Trust under subpart E, subchapter J of
chapter 1 of the Internal Revenue Code of 1986 (hereinafter the
"Code"). Each Unit holder will be considered to have received
his pro rata share of interest derived from each Trust asset when
such interest is received by a Trust. Each Unit holder will be
required to include in income his respective pro rata share of
interest on each Security as such interest accrues or is received
by the Trust, depending upon such Unit holder's method of accounting
for tax purposes, except that a Unit holder must include in income
his respective pro rata share of interest on each REMIC regular
interest Security as interest accrues, regardless of such Unit
holder's method of tax accounting. Each Unit holder will also
be required to include in taxable income for Federal income tax
purposes, original issue discount with respect to his interest
in any Securities held by a Trust at the same time and in the
same manner as though the Unit holder were the direct owner of
such interest as discussed below.
Each Unit holder will have a taxable event when a Trust disposes
of a Security, or when the Unit holder redeems or sells his Units.
Unit holders must reduce the tax basis of their Units for their
share of accrued interest received, if any, on Securities delivered
after the date the Unit holders pay for their Units and, consequently,
such Unit holders may have an increase in taxable gain or reduction
in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis
of the Units. If the Trustee disposes of Securities (whether by
sale, exchange, payment on maturity, redemption or otherwise),
gain or loss is recognized to the Unit holder. The amount of any
such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with his
basis for his fractional interest in the
Page 12
asset disposed of. In the case of a Unit holder who purchases
his Units, such basis is determined by apportioning the tax basis
for the Units among each of the Trusts' assets ratably according
to value as of the date of acquisition of the Units. The basis
of each Unit and of each Security which was issued with original
issue discount must be increased by the amount of accrued original
issue discount, and the basis of each Unit and each Security which
was purchased by a Trust at a premium must be reduced by the annual
amortization of premium which the Unit holder has properly elected
to amortize under Section 171 of the Code. The tax cost reduction
requirements of the Code relating to amortization of bond premium
may, under some circumstances, result in the Unit holder realizing
a taxable gain when his Units are sold or redeemed for an amount
equal to or less than his original cost.
Each Unit holder's pro rata share of each expense paid by a Trust
is deductible by the Unit holder to the same extent as though
the expense had been paid directly by him, subject to the following
limitation. It should be noted that as a result of the Tax Reform
Act of 1986 (the "Act"), certain miscellaneous itemized deductions,
such as investment expenses, tax return preparation fees and employee
business expenses will be deductible by an individual only to
the extent they exceed 2% of such individual's adjusted gross
income. Temporary regulations have been issued which require Unit
holders to treat certain expenses of the Trust as miscellaneous
itemized deductions subject to this limitation.
Certain of the Securities in the Trusts may have been acquired
with "original issue discount." In the case of any Securities
in the Trusts acquired with "original issue discount" that exceeds
a "de minimis" amount as specified in the Code, such discount
is includable in taxable income of the Unit holders on an accrual
basis computed daily, without regard to when payments of interest
on such Securities are received. The Code provides a complex set
of rules regarding the accrual of original issue discount. These
rules provide that original issue discount generally accrues on
the basis of a constant compound interest rate over the term of
the Securities. In the case of certain collateralized mortgage-backed
securities, REMIC regular interest securities, and certain other
debt instruments subject to prepayment risk, including certain
of the Securities, the Code requires the accrual of original issue
discount under a special set of rules that take into account the
original prepayment assumptions relating to such Securities. Unit
holders should consult their tax advisers as to the amount of
original issue discount which accrues.
Special original issue discount rules apply if the purchase price
of the Security by a Trust exceeds its original issue price plus
the amount of original issue discount which would have previously
accrued based upon its issue price (its "adjusted issue price").
Unit holders should also consult their tax advisers regarding
these special rules. Similarly these special rules would apply
to a Unit holder if the tax basis of his pro rata portion of a
Security issued with original issue discount exceeds his pro rata
portion of its adjusted issue price.
If a Unit holder's tax basis in his pro rata portion of Securities
is less than the allocable portion of such Security's stated redemption
price at maturity (or, if issued with original issue discount,
the allocable portion of its "revised issue price"), such difference
will constitute market discount unless the amount of market discount
is "de minimis" as specified in the Code. Market discount accrues
daily computed on a straight line basis, unless the Unit holder
elects to calculate accrued market discount under a constant yield
method. As discussed above relating to original issue discount,
the accrual of market discount with respect to certain Securities
must take into account the original prepayment assumptions relating
to such Securities. Unit holders should consult their tax advisers
as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income
to the Unit holders as ordinary income for Federal tax purposes
upon the receipt of serial principal payments on the Securities,
on the sale, maturity or disposition of such Securities by a Trust,
and on the sale by a Unit holder of Units, unless a Unit holder
elects to include the accrued market discount in taxable income
as such discount accrues. If a Unit holder does not elect to annually
include accrued market discount in taxable income as it accrues,
deductions for any interest expenses incurred by the Unit holder
which is incurred to purchase or carry his Units will be reduced
by such accrued market discount. In general, the portion of any
interest expense which was not currently deductible would ultimately
be deductible when the accrued market discount is included
Page 13
in income. Unit holders should consult their tax advisers regarding
whether an election should be made to include market discount
in income as it accrues and as to the amount of interest expense
which may not be currently deductible.
If a Unit holder's tax basis of his pro rata portion in any Securities
held by a Trust exceeds the amount payable by the issuer of the
Securities with respect to such pro rata interest upon maturity
of the Security, such excess would be considered "acquisition
premium" which may be amortized by the Unit holder at the Unit
holder's election as provided in Section 171 of the Code. Congress
intended that regulations will provide rules for computing the
amortization of acquisition premium with respect to certain collateralized
mortgage-backed securities, REMIC regular interest securities,
and certain other debt instruments subject to prepayment risk,
including certain of the Securities, that take into account the
original prepayment assumptions relating to such Securities. Unit
holders should consult their tax advisers regarding whether such
election should be made and the manner of amortizing acquisition
premium.
The tax basis of a Unit holder with respect to his interest in
a Security is increased by the amount of original issue discount
(and market discount, if the Unit holder elects to include market
discount, if any, on the Securities held by a Trust in income
as it accrues) thereon properly included in the Unit holder's
gross income as determined for Federal income tax purposes and
reduced by the amount of any amortized acquisition premium which
the Unit holder has properly elected to amortize under Section
171 of the Code. A Unit holder's tax basis in his Units will equal
his tax basis in his pro rata portion of all of the assets of
a Trust.
A Unit holder will recognize taxable gain (or loss) when all or
part of his pro rata interest in a Security is disposed of in
a taxable transaction for an amount greater (or less) than his
tax basis therefor. As previously discussed, gain realized on
the disposition of the interest of a Unit holder in any Security
deemed to have been acquired with market discount will be treated
as ordinary income to the extent the gain does not exceed the
amount of accrued market discount not previously taken into income.
In addition, gain from the disposition of REMIC regular interest
Securities that might otherwise be capital gain will be treated
as ordinary income to the extent that such gain does not exceed
the excess, if any, of (i) the amount that would have been includable
in income had the yield on the Security equalled 110% of the Applicable
Federal Rate as of the date of purchase over (ii) the amount actually
includable in income (the "110% Test"). Any gain to which the
110% Test does not apply recognized on a sale or exchange and
not constituting a realization of accrued "market discount" and
any loss will, under current law, generally be capital gain or
loss. Any capital gain or loss arising from the disposition of
a Security by a Trust or the disposition of Units by a Unit holder
will be short-term capital gain or loss unless the Unit holder
has held his Units for more than one year in which case such capital
gain or loss will be long-term. For taxpayers other than corporations,
net capital gains are presently subject to a maximum stated marginal
tax rate of 28 percent. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates
and could affect relative differences at which ordinary income
and capital gains are taxed. The tax cost reduction requirements
of the Code relating to amortization of bond premium may, under
some circumstances, result in a Unit holder realizing taxable
gain when his Units are sold or redeemed for an amount equal to
or less than his original cost.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised
tax rates on ordinary income while capital gains remain subject
to a 28% maximum stated rate. Because some or all capital gains
are taxed at a comparatively lower rate under the Tax Act, the
Tax Act includes a provision that recharacterizes capital gains
as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions
entered into after April 30, 1993. Unit holders and prospective
investors should consult with their tax advisers regarding the
potential effect of this provision on their investment in Units.
If the Unit holder disposes of a Unit, he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets
including his pro rata portion of all of the Securities represented
by the Unit. This may result in a portion of the gain, if any,
on such sale being taxable as ordinary income under the market
discount rules (assuming no election was made by the Unit holder
to include market discount in income as it accrues), the original
issue discount rules or under the 110% Test as previously discussed.
Page 14
A Unit holder who is a foreign investor (i.e., an investor other
than a United States citizen or resident or a United States corporation,
partnership, estate or trust) will not be subject to United States
Federal income taxes, including withholding taxes, on interest
income (including any original issue discount) on, or any gain
from the sale or other disposition of, his pro rata interest in
any Security or the sale of his Units provided that all of the
following conditions are met: (i) the interest income or gain
is not effectively connected with the conduct by the foreign investor
of a trade or business within the United States, (ii) if the interest
is United States source income (which is the case for each Security
held by a Trust), then the foreign investor does not own, directly
or indirectly, 10% or more of the total combined voting power
of all classes of voting stock of the issuer of the Security and
the foreign investor is not a controlled foreign corporation related
(within the meaning of Section 864(d)(4) of the Code) to the issuer
of the Security, (iii) with respect to any gain, the foreign investor
(if an individual) is not present in the United States for 183
days or more during his or her taxable year and (iv) the foreign
investor provides all certification which may be required of his
status (foreign investors may contact the Sponsor to obtain a
Form W-8 which must be filed with the Trustee and refiled every
three calendar years thereafter). Foreign investors should consult
their tax advisers with respect to United States tax consequences
of ownership of Units.
It should be noted that the Tax Act includes a provision which
eliminates the exemption from United States taxation, including
withholding taxes, for certain "contingent interest." The provision
applies to interest received after December 31, 1993. No opinion
is expressed herein regarding the potential applicability of this
provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units
as a result thereof. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect
of this provision on their investment in Units.
Each Unit holder (other than a foreign investor who has properly
provided the certifications described above) will be requested
to provide the Unit holder's taxpayer identification number to
the trustee and to certify that the Unit holder has not been notified
that payments to the Unit holder are subject to back-up withholding.
If the proper taxpayer identification number and appropriate certification
are not provided when requested, distributions by a Trust to such
Unit holder will be subject to back-up withholding.
In the opinion of special counsel to the Trusts for New York tax
matters, at the Initial Date of Deposit for each Trust, the Trusts
were not associations taxable as a corporations and the income
of the Trusts will be treated as the income of the Unit holders
under the existing income tax laws of the State and City of New
York.
The foregoing discussion relates only to United States Federal
and New York State and City income taxes. Unit holders may be
subject to state and local taxation in other jurisdictions (including
a foreign investor's country of residence). Unit holders should
consult their tax advisers regarding potential state, local, or
foreign taxation with respect to the Units.
Why are Investments in the Trusts Suitable for Retirement Plans?
The Trusts may be well suited for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other tax-deferred retirement
plans. Generally, the Federal income tax relating to capital gains
and income received in each of the foregoing plans is deferred
until distributions are received. Distributions from such plans
are generally treated as ordinary income but may, in some cases,
be eligible for special averaging or tax-deferred rollover treatment.
Investors considering participation in any such plan should review
specific tax laws related thereto and should consult their attorneys
or tax advisers with respect to the establishment and maintenance
of any such plan. Such plans are offered by brokerage firms and
other financial institutions. The Trusts will waive the $1,000
minimum investment requirement for tax-deferred retirement plan
accounts. The minimum investment is $250 for tax-deferred retirement
plans such as IRA accounts. Fees and charges with respect to such
plans may vary.
How Can Distributions to Unit Holders be Reinvested?
The Sponsor has entered into an arrangement with Oppenheimer Management
Corporation which permits Unit holders of the Trusts to elect
to have each distribution of interest income or principal, or
both, on their Units automatically reinvested in shares of mutual
funds distributed by Oppenheimer Fund Management,
Page 15
Inc. at net asset value. The objectives and policies of each
Fund are presented in more detail in the prospectus pertaining
to such Fund.
After electing participation, each distribution of interest income
or principal, or both, on the participant's Units will automatically
be applied by the Trustee to purchase shares (or fractions thereof)
of the Fund selected without a sales charge and with no minimum
initial and subsequent investment requirements.
The transfer agent for the Fund will mail to each participant
in the Reinvestment Option confirmations of all transactions undertaken
for such participant in connection with the receipt of distributions
from the Trusts and the purchase of shares (or fractions thereof)
of the Fund.
A participant may at any time, by so notifying the Trustee in
writing, elect to terminate his participation in the Reinvestment
Option and receive future distributions on his Units in cash.
There will be no charge or other penalty for such termination.
The Sponsor and Oppenheimer Fund Management, Inc. all have the
right to terminate the Reinvestment Option, in whole or in part.
It should be remembered that even if distributions are reinvested
through the Reinvestment Option they are still treated as distributions
for income tax purposes.
Unit holders of a Trust participating in IRAs, Keogh Plans, pension
funds and other tax-deferred retirement plans may find it highly
advantageous to participate in the Reinvestment Option in order
to keep the monies in the account fully invested at all times.
Should such option be selected, an account with an identical registration
to that established at the time the Units of a Series of the Trust
are purchased will be set up as selected by the investor. Investors
should consult with their plan custodian as to the appropriate
disposition of distributions. Unless participants in IRAs, Keogh
Plans and other tax-deferred retirement plans elect the Reinvestment
Option, cash distributions will be sent to the custodian of the
retirement plan and will not be sent to the investor. See "Why
are Investments in the Trusts Suitable for Retirement Plans?"
Public Offering
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. During the secondary
market, the Public Offering Price is based on the Evaluator's
determination of the aggregate bid price of the Securities in
each Trust, including any money in the Principal Account other
than money required to redeem tendered Units, and also includes
a sales charge as indicated in Part One for each Trust. Also added
to the Public Offering Price is a proportionate share of interest
accrued but unpaid on the Securities from the last Record Date
to the date of settlement of Units (see "How is Accrued Interest
Treated?").
The sales charge is reduced by a discount as indicated below for
volume purchases:
<TABLE>
<CAPTION>
Dollar Amount of
Transaction at Public Discount
Offering Price per Unit
_____________________ ________
<S> <C>
$250,000 - $499,999 $2.50
$500,000 - or more $5.00
</TABLE>
Any such reduced sales charge shall be the responsibility of the
selling dealer. The reduced sales charge structure will apply
on all purchases of Units in a Trust by the same person on any
one day from any one dealer. Additionally, Units purchased in
the name of the spouse of a purchaser or in the name of a child
of such purchaser under 21 years of age will be deemed, for the
purposes of calculating the applicable sales charge, to be additional
purchases by the purchaser. The reduced sales charges will also
be applicable to a trustee or other fiduciary purchasing securities
for a single trust estate or single fiduciary account. The purchaser
must inform the dealer of any such combined purchase prior to
the sale in order to obtain the indicated discount. In addition,
with respect to the employees, officers and directors (including
their immediate family members, defined as spouses, children,
grandchildren, parents, grandparents, mothers-in-law, fathers-in-law,
sons-in-law and daughters-in-law, and trustees, custodians or
fiduciaries for the benefit of such persons) of the Sponsor and
its subsidiaries, the sales charge is reduced by 2.0% of the Public
Offering Price for purchases of Units during the secondary public
offering period.
Page 16
The aggregate price of the Securities in the Trusts is determined
by First Trust Advisors L.P. acting as evaluator (the "Evaluator")
on the basis of bid prices, (1) on the basis of current market
prices for the Securities obtained from dealers or brokers who
customarily deal in Securities comparable to those held by the
Trust; (2) if such prices are not available for any of the Securities,
on the basis of current market prices for comparable securities;
(3) by determining the value of the Securities by appraisal; or
(4) by any combination of the above.
During the secondary market, a determination of the aggregate
price of the Securities in the Trusts is made by the Evaluator
on a bid price basis, as of the close of trading on the New York
Stock Exchange (4:00 p.m. Eastern time) on each day on which it
is open, effective for all sales, purchases or redemptions made
subsequent to the last preceding determination. No evaluation
will be made, however, on any day on which the markets in which
the Securities primarily trade are not generally open for business.
The Public Offering Price of the Units during the secondary market
is equal to the bid price per Unit of the Securities in a Trust
plus the applicable sales charge. In the past, the bid prices
of publicly offered issues of CMOs have been lower than the offering
prices by as much as 1.0% or more of face amount in the case of
inactively traded issues and as little as 0.5% in the case of
actively traded issues, but the difference between the offering
and bid prices has averaged about 0.75% of face amount.
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. Initial transaction
statements for Units held in uncertificated form representing
Units so ordered will be issued to the registered owner of such
Units within two business days of the issuance of such Units.
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?
It is the intention of the Sponsor to qualify Units of the Trusts
for sale in a number of states. Sales initially will be made to
dealers and others at prices which represent a concession or agency
commission of $30.00 per Unit, but the Sponsor reserves the right
to change the amount of the concession to dealers and others from
time to time. Certain commercial banks are making Units of the
Trusts available to their customers on an agency basis. A portion
of the sales charge paid by these customers is retained by or
remitted to the banks in the amounts indicated in the second preceding
sentence. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are
not permitted under such Act.
What are the Profits of the Sponsor?
The Sponsor will receive a gross sales commission as indicated
in Part One for each Trust, less any reduced sales charge for
quantity purchases as described under "Public Offering - How is
the Public Offering Price Determined?" In addition, the Sponsor
may be considered to have realized a profit or the Sponsor may
be considered to have sustained a loss, as the case may be for
a Trust, in the amount of any difference between the cost of the
Securities to the Trust and the cost of such Securities to the
Sponsor.
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between
the price at which Units are purchased (based on the bid prices
of the Securities in a Trust) and the price at which Units are
resold (which price is also based on the bid prices of the Securities
in such Trust and includes a sales charge as indicated in Part
One for each Trust) or redeemed (based on the bid prices of the
Securities in each Trust). The secondary market public offering
price of Units may be greater or less than the cost of such Units
to the Sponsor.
Page 17
Will There be a Secondary Market?
Although it is not obligated to do so, the Sponsor intends to
maintain a market for the Units and continuously to offer to purchase
Units at prices, subject to change at any time, based upon the
aggregate bid price of the Securities in the portfolio of the
Trusts plus interest accrued to the date of settlement. All expenses
incurred in maintaining a secondary market, other than the fees
of the Evaluator and the costs of the Trustee in transferring
and recording the ownership of Units, will be borne by the Sponsor.
If the supply of Units exceeds demand, or for some other business
reason, the Sponsor may discontinue purchases of Units at such
prices. IF A UNIT HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD
INQUIRE OF THE SPONSOR AS TO CURRENT MARKET PRICES PRIOR TO MAKING
A TENDER FOR REDEMPTION TO THE TRUSTEE.
Rights of Unit Holders
How is Evidence of Ownership Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units may be evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guarantee 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 issues 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 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 Interest and Principal Distributed?
Interest from a Trust, including moneys representing penalties
for the failure to make timely payments on Securities or liquidated
damages for default or breach of any condition or term of the
Securities will be distributed monthly on that date set forth
in Part One for each Trust on a pro rata basis to Unit holders
of record as of the preceding Record Date. All distributions will
be net of applicable expenses.
Page 18
The pro rata share of cash in the Principal Account will also
be computed as of the first day of each month and distributions
to the Unit holders as of such Record Date will be made on that
date set forth in Part One for each Trust. Proceeds from the disposition
of any of the Securities or amounts representing principal on
the Securities received after such Record Date and prior to the
following Distribution Date will be held in the Principal Account
and not distributed until the next Distribution Date. The Trustee
is not required to pay interest on funds held in the Principal
or Interest Account (but may itself earn interest thereon and
therefore benefits from the use of such funds) nor to make a distribution
from the Principal Account unless the amount available for distribution
shall equal at least $1.00 per Unit.
The Trustee will credit to the Interest Account all interest received
by a Trust, including moneys representing penalties for the failure
to make timely payments on Securities or liquidated damages for
default or breach of any condition or term of the Securities and
that part of the proceeds of any disposition of Securities which
represents accrued interest. Other receipts will be credited to
the Principal Account. Persons who purchase Units between a Record
Date and a Distribution Date will receive their first distribution
on the second Distribution Date after the purchase.
As of the first day of each month, the Trustee will deduct from
the Interest Account and, to the extent funds are not sufficient
therein, from the Principal Account, amounts necessary to pay
the expenses of a Trust. The Trustee also may withdraw from said
accounts such amounts, if any, as it deems necessary to establish
a reserve for any governmental charges payable out of a Trust.
Amounts so withdrawn shall not be considered a part of the assets
of such Trust until such time as the Trustee shall return all
or any part of such amounts to the appropriate account. In addition,
the Trustee may withdraw from the Interest Account and the Principal
Account such amounts as may be necessary to cover redemption of
Units by the Trustee.
Record Dates for monthly distributions will be the first day of
each month. Distributions will be made on or shortly after that
date set forth in Part One for each Trust. Distributions for an
IRA, Keogh, pension fund or other tax-deferred retirement plan
will not be sent to the individual Unit holder; these distributions
will go directly to the custodian of the plan to avoid the penalties
associated with premature withdrawals from such accounts.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of interest, if any, and
the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit. Within a reasonable
time after the end of each calendar year, the Trustee will furnish
to each person who at any time during the calendar year was a
Unit holder of record, a statement as to (1) the Interest Account:
interest received (including amounts representing interest received
upon any disposition of Securities, penalties for the failure
to make timely payments on Securities or liquidated damages for
default or breach of any condition or term of the Securities),
deductions for payment of applicable taxes and for fees and expenses
of the Trusts, redemption of Units and the balance remaining after
such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share
per Unit outstanding on the last business day of such calendar
year; (2) the Principal Account: payments of principal on Securities,
the dates of disposition of any Securities and the net proceeds
received therefrom (excluding any portion representing interest),
deduction for payment of applicable taxes and for fees and expenses
of the Trusts, redemptions of Units, and the balance remaining
after such distributions and deductions expressed both as a total
dollar amount and as a dollar amount per Unit; (3) the Securities
held and the number of Units outstanding on the last business
day of such calendar year; (4) the Redemption Price per Unit based
upon the last computation thereof made during such calendar year;
(5) the dollar amounts actually distributed during such calendar
year from the Interest Account and from the Principal Account,
separately stated; and (6) such other information as the Trustee
may deem appropriate. Unit holders of Units in uncertificated
form shall receive no less frequently than once each year a dated
written statement containing the name, address and taxpayer identification
number, if any, of the registered owner, the number of Units registered
in the name of the registered owner on the date of the statement
and certain other information, that will be provided as required
under applicable law.
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 furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
or, in the case of uncertificated Units, delivery of a request
for redemption, duly endorsed or accompanied by proper instruments
of transfer with signature guaranteed as explained above (or by
providing satisfactory indemnity, as in connection with lost,
stolen or destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading on the New York Stock Exchange (4:00 p.m. Eastern
time), the date of tender is the next day on which such Exchange
is open for trading and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the redemption
price computed on that day. Units so redeemed shall be canceled.
Accrued interest to the settlement date paid on redemption shall
be withdrawn from the Interest Account or, if the balance therein
is insufficient, from the Principal Account. All other amounts
paid on redemption shall be withdrawn from the Principal Account.
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 Securities in a Trust. As of the close of trading
on the New York Stock Exchange (4:00 p.m. Eastern time) on the
date any such determination is made. The Redemption Price per
Unit is the pro rata share of each Unit determined by the Trustee
on the basis of (1) the cash on hand in a Trust or moneys in the
process of being collected, (2) the value of the Securities in
a Trust based on the prices of the Securities and (3) interest
accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of a Trust and (b) the accrued
expenses of such Trust. The Evaluator may determine the value
of the Securities in a Trust (1) on the basis of current bid prices
of the Securities obtained from dealers or brokers who customarily
deal in securities comparable to those held by such Trust, (2)
on the basis of bid prices for securities comparable to any securities
for which bid prices are not available, (3) by determining the
value of the Securities by appraisal, or (4) by any combination
of the above.
The difference between the bid and offering prices of such Securities
has averaged about 0.50%- 0.75% of face amount. Therefore, the
price at which Units may be redeemed could be less than the price
paid by the Unit holder.
The Trustee is empowered to sell underlying Securities 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. Due to the minimum principal amount in which Securities
may be required to be sold, the proceeds of such sales may exceed
the amount necessary for payment of Units redeemed. Such excess
proceeds will be placed in the Principal Account and be eligible
for distribution pro rata to all remaining Unit holders of record.
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Securities is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit.
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
Page 20
notifying the Trustee before the close of business on the second
succeeding business day and by making payment therefor to the
Unit holder not later than the day on which the Units would otherwise
have been redeemed by the Trustee. Units held by the Sponsor may
be tendered to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
How May Securities be Removed from a Trust?
The Sponsor is empowered, but not obligated, to direct the Trustee
to dispose of Securities in the event certain events occur that
adversely affect the value of Securities including default in
payment of interest or principal, default in payment of interest
or principal of other obligations guaranteed or backed by the
full faith and credit of the United States of America, institution
of legal proceedings, default under other documents adversely
affecting debt service, decline in price or the occurrence of
other market or credit factors.
If any default in the payment of principal or interest on any
Security occurs and if the Sponsor fails to instruct the Trustee
to sell or to hold such Security within thirty days after notification
by the Trustee to the Sponsor of such default, the Trustee may,
in its discretion, sell the defaulted Security and not be liable
for any depreciation or loss thereby incurred.
The Trustee is also empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder, and for the payment of expenses
for which funds may not be available, such of the Securities in
a list furnished by the Sponsor as the Trustee in its sole discretion
may deem necessary.
Information as to Sponsor, Trustee and Evaluator
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,743,032 (audited). (This paragraph relates only to
the Sponsor and not to the Trust or to any series thereof or to
any other Underwriters. The information is included herein only
for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Trust may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the Securities. For information relating to
the responsibilities of the Trustee under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
Page 21
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
30 days after notification, the retiring trustee may apply to
a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only
when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which a Trustee shall be a party, shall
be the successor Trustee. The Trustee must be a banking corporation
organized under the laws of the United States or any State and
having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and 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 Series of the Trust which the Trustee
may be required to pay under any present or future law of the
United States of America or of any other taxing authority having
jurisdiction. In addition, the Indenture contains other customary
provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate a Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is First Trust Advisors L.P., an Illinois limited
partnership formed in 1991 and an affiliate of the Sponsor. The
Evaluator's address is 1001 Warrenville Road, Lisle, Illinois
60532. 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.
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 amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units issuable thereunder or to permit the deposit or acquisition
of securities either in addition to or in substitution for any
of the Securities initially deposited in a Trust, except for the
substitution of Replacement
Page 22
Securities for Failed Securities or the purchase of additional
Securities pursuant to the Indenture. In the event of any amendment,
the Trustee is obligated to notify promptly all Unit holders of
the substance of such amendment.
The Trusts may be liquidated at any time by consent of 100% of
the Unit holders or by the Trustee when the principal amount of
the Securities owned by such Trust as shown by any evaluation,
is less than the lower of $2,000,000 or 40% of the total principal
amount of the Securities deposited in such Trust during the primary
offering period, or in the event that Units not yet sold aggregating
more than 60% of the Units initially deposited are tendered for
redemption by the Underwriters, including the Sponsor. If a Trust
is liquidated because of the redemption of unsold Units by the
Underwriters, the Sponsor will refund to each purchaser of Units
the entire sales charge paid by such purchaser. The Indenture
will terminate upon the redemption, sale or other disposition
of the last Security held thereunder, but in no event shall it
continue beyond the Mandatory Termination Date as indicated in
Part One. In the event of termination, written notice thereof
will be sent by the Trustee to all Unit holders. Within a reasonable
period after termination, the Trustee will sell any Securities
remaining in a Trust, and, after paying all expenses and charges
incurred by a Trust, will distribute to each Unit holder (including
the Sponsor if it then holds any Units), upon surrender for cancellation
of his Units, his pro rata share of the balances remaining in
the Interest and Principal Accounts, all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, as counsel for
the Sponsor. Carter, Ledyard & Milburn, 2 Wall Street, New York,
New York 10005, acts as counsel for the Trustee.
Experts
The financial statements, including the portfolio, of the Trust
contained in Part One of the Prospectus and Registration Statement
has been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing therein and in the
Registration Statement, and is included in reliance upon such
report given upon the authority of such firm as experts in accounting
and auditing.
Description of Standard & Poor's Corporation Rating*
* As described by Standard & Poor's Corporation.
A Standard & Poor's Corporation's rating on the units of a unit
investment trust (hereinafter referred to collectively as "units"
and "trust") is a current assessment of creditworthiness with
respect to the investments held by such trust. This assessment
takes into consideration the financial capacity of the issuers
and of any guarantors, insurers, lessees or mortgagors with respect
to such investments. The assessment, however, does not take into
account the extent to which trust expenses or portfolio asset
sales for less than the trust's purchase price will reduce payment
to the Unit holder of the interest and principal required to be
paid on the portfolio assets. In addition, the rating is not a
recommendation to purchase, sell, or hold units, inasmuch as the
rating does not comment as to market price of the units or suitability
for a particular investor.
Trusts rated "AAA" are composed exclusively of assets that are
rated "AAA" by Standard & Poor's or have, in the opinion of Standard
& Poor's, credit characteristics comparable to assets rated "AAA,"
or certain short-term investments. Standard & Poor's defines its
"AAA" rating for such assets as the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest
and repay principal is very strong.
Page 23
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
The First Trust Special Situations Trust-
The CMO Unit Investment Trust Series:
What is the First Trust Special Situations Trust? 2
What is the Rating of the Units? 8
What are Estimated Current Return and Estimated
Long-Term Return? 9
How is Accrued Interest Treated? 10
What are the Expenses and Charges? 11
What is the Tax Status of Unit Holders? 12
Why are Investments in the Trusts Suitable
for Retirement Plans? 15
How Can Distributions to Unit Holders be
Reinvested? 15
Public Offering:
How is the Public Offering Price Determined? 16
How are Units Distributed? 17
What are the Profits of the Sponsor? 17
Will There be a Secondary Market? 18
Rights of Unit Holders:
How is Evidence of Ownership Issued and
Transferred? 18
How are Interest and Principal Distributed? 18
What Reports Will Unit Holders Receive? 19
How May Units be Redeemed? 20
How May Units be Purchased by the Sponsor? 20
How May Securities be Removed from a Trust? 21
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 21
Who is the Trustee? 21
Limitations on Liabilities of Sponsor and Trustee 22
Who is the Evaluator? 22
Other Information:
How May the Indenture be Amended or
Terminated? 22
Legal Opinions 23
Experts 23
Description of Standard & Poor's Corporation Rating 23
</TABLE>
____________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET
FORTH IN THE REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO,
WHICH THE TRUST HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
FIRST TRUST (registered trademark)
THE CMO UNIT
INVESTMENT TRUST
SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
November 21, 1994
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
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
51 THE CMO UNIT INVESTMENT TRUST, SERIES 2, 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 December 1, 1994.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 51
THE CMO UNIT INVESTMENT TRUST, SERIES 2
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) December 1, 1994
the General Partner )
of Nike Securities L.P. )
)
) Carlos E. Nardo
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Special Situations Trust, Series 18 (File No. 33-42683) and
the same is hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated October 28, 1994 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated November 22, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
November 21, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to Form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> THE CMO TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-01-1993
<PERIOD-END> JUL-31-1994
<INVESTMENTS-AT-COST> 1,087,123
<INVESTMENTS-AT-VALUE> 1,044,506
<RECEIVABLES> 20,632
<ASSETS-OTHER> 16,982
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,082,120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,267
<TOTAL-LIABILITIES> 19,267
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,087,123
<SHARES-COMMON-STOCK> 2,523
<SHARES-COMMON-PRIOR> 5,660
<ACCUMULATED-NII-CURRENT> 18,347
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42,617)
<NET-ASSETS> 1,062,853
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 229,350
<OTHER-INCOME> 0
<EXPENSES-NET> 11,266
<NET-INVESTMENT-INCOME> 218,084
<REALIZED-GAINS-CURRENT> 259,145
<APPREC-INCREASE-CURRENT> (420,872)
<NET-CHANGE-FROM-OPS> 56,357
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 243,915
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,162,938
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 3,137
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,677,060)
<ACCUMULATED-NII-PRIOR> 33,195
<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>
