File No. 33-58366
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : June 30, 1997
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
April 10, 1997.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
288,148 UNITS
PROSPECTUS
Part One
Dated June 24, 1997
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The Growth & Municipal Trust, Series 1 (the "Trust") is a Unit investment
trust consisting of a portfolio containing zero coupon bonds issued by the
City of New Orleans, Louisiana and common stocks issued by companies which, at
the Initial Date of Deposit, provided income or were considered to have the
potential for capital appreciation. At May 16, 1997, each Unit represented a
1/288,148 undivided interest in the principal and net income of the Trust (see
"The Trust" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price per 100 Units is equal to the aggregate value of the
Securities in the Portfolio of the Trust, plus or minus cash, if any, in the
Income and Capital Accounts of the Trust divided by the number of Units
outstanding, multiplied by 100, plus a sales charge of 5.5% of the Public
Offering Price (5.820% of the net amount invested) excluding income and
principal cash. At May 16, 1997, the Public Offering Price per 100 Units was
$1,171.85 (see "Public Offering" in Part Two). The minimum purchase is 100
Units.
Please retain both parts of this Prospectus for future reference.
_____________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_____________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF MAY 16, 1997
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Aggregate Maturity Value of Zero Coupon Bonds
in the Trust $2,890,000
Number of Units 288,148
Fractional Undivided Interest in the Trust per Unit 1/288,148
Public Offering Price:
Aggregate Value of Securities in the Portfolio $3,184,981
Aggregate Value of Securities per 100 Units $1,105.33
Income and Principal cash in the Portfolio $6,319
Income and Principal cash per 100 Units $2.19
Sales Charge 5.820% (5.5% of Public Offering Price,
excluding income and principal cash) $64.33
Public Offering Price per 100 Units $1,171.85
Redemption Price and Sponsor's Repurchase Price per
100 Units ($64.33 less than the Public Offering
Price per 100 Units) $1,107.52
</TABLE>
Date Trust Established March 10, 1993
Mandatory Termination Date September 1, 2007
Evaluator's Annual Fee: $.30 per 100 Units outstanding. Evaluations for
purposes of sale, purchase or redemption of Units are made as of the close of
trading (4:00 p.m. Eastern time) on the New York Stock Exchange on each day on
which it is open.
Supervisory fee payable to an affiliate Maximum of $.25 per 100
of the Sponsor Units outstanding annually
Trustee's Annual Fee: $.84 per 100 Units outstanding.
Capital Distribution Record Date and Distribution Date: Distributions from
the Capital Account will be made monthly payable on the last day of the month
to Unit holders of record on the fifteenth day of such month if the amount
available for distribution equals at least $1.00 per 100 Units.
Notwithstanding, distributions of funds in the Capital Account, if any, will
be made in December of each year.
Income Distribution Record Date: Fifteenth day of each June and December.
Income Distribution Date: Last day of each June and December.
A Unit holder who owns at least 2,500 Units may request an "In-Kind
Distribution" upon termination of the Trust. See "Rights of Unit Holders -
How are Income and Capital Distributed?" in Part Two.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 61,
Growth & Municipal Trust, Series 1
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
61, Growth & Municipal Trust, Series 1 as of February 28, 1997, and the
related statements of operations and changes in net assets for each of the
three years in the period then ended. These financial statements are the
responsibility of the Trust's Sponsor. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of February 28, 1997,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 61, Growth & Municipal Trust, Series 1 at February
28, 1997, and the results of its operations and changes in its net assets for
each of the three years in the period then ended in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 30, 1997
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities, at market value (cost, including accretion
on the zero coupon bonds, $2,942,263) (Note 1) $3,346,891
Dividends receivable 1,088
__________
3,347,979
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 458
Cash overdraft 15,511
__________
15,969
__________
Net assets, applicable to 307,081 outstanding
units of fractional undivided interest:
Cost of Trust assets, including accretion on
the zero coupon bonds (Note 1) $2,942,263
Net unrealized appreciation (Note 2) 404,628
Distributable funds (deficit) (14,881)
__________
$3,332,010
==========
Net asset value per 100 units $1,085.06
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
PORTFOLIO - See notes to portfolio.
February 28, 1997
<TABLE>
<CAPTION>
Maturity Market
value Name of Issuer and Title of Security value
<C> <S> <C>
City of New Orleans, Louisiana, General
Obligation Refunding Bonds, Series 1991
(AAA/Aaa Rated) (2) (AMBAC Insured) (3)
$3,085,000 (1) Zero Coupon, Due September 1, 2007 $1,815,337
==========
</TABLE>
<TABLE>
<CAPTION>
Number
of Shares Name of Issuer of Equity Securities
<C> <S> <C>
3,811 AutoZone, Inc. 94,322
2,543 BellSouth Corporation 119,203
2,195 Browning-Ferris Industries, Inc. 68,868
2,305 Century Telephone Enterprises, Inc. 70,591
3,645 (4) Coca-Cola Company 222,345
1,804 Cracker Barrel Old Country Store, Inc. 49,159
1,595 Dillard Department Stores (Class A) 48,049
1,631 Disney (Walt) & Co. 121,102
1,145 Home Depot, Inc. 62,546
3,163 J. B. Hunt Transport Services, Inc. 43,887
3,137 McDonald's Corporation 135,675
1,077 (5) Morrison Health Care, Inc. 14,540
806 (5) Morrison Fresh Cooking, Inc. 3,929
1,822 (5) Ruby Tuesday, Inc. 31,430
2,165 Russell Corporation 81,458
1,502 Safety-Kleen Corporation 27,036
2,579 Sara Lee Corporation 99,936
2,348 (6) Time Warner, Inc. 96,268
3,996 (7) Tyson Foods, Inc. (Class A) 81,418
2,267 Wal-Mart Stores, Inc. 59,792
__________
Total equity securities 1,531,554
__________
Total investments $3,346,891
==========
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
NOTES TO PORTFOLIO
February 28, 1997
(1) The zero coupon bonds have been purchased at a discount from their par
value because there is no stated interest income thereon. Over the life
of the zero coupon bonds the value increases, so that upon maturity the
holders will receive 100% of the principal amount thereof.
(2) Ratings are by Standard & Poor's Corporation and Moody's Investors
Service, Inc., respectively.
(3) Insurance has been obtained by the Bond issuer prior to the Initial Date
of Deposit. No insurance premium is payable by the Trust.
(4) The number of shares reflects the effect of a two for one stock split.
(5) In March 1996, Morrison Restaurants, Inc. (Morrison), one of the trust's
original holdings, split into three entities, Morrison Health Care,
Inc., Morrison Fresh Cooking, Inc., and Ruby Tuesday, Inc. Each
shareholder of Morrison received .3333, .25 and .50 shares of Morrison
Health Care, Inc., Morrison Fresh Cooking, Inc. and Ruby Tuesday, Inc.,
respectively, for each share of Morrison held.
(6) The number of shares reflects the effect of a three for two stock split.
(7) In October 1996, Turner Brodcasting System, Inc.(Turner), one of the
Trust's original holdings, was acquired by Time Warner, Inc. (Time
Warner). Each shareholder of Turner received .75 shares of Time Warner
for each share of Turner held.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995
<S> <C> <C> <C>
Interest income $107,023 148,791 190,666
Dividends 19,706 27,555 35,987
________________________________
Total investment income 126,729 176,346 226,653
Expenses:
Trustee's fees and related expenses (6,654) (9,915) (9,845)
Evaluator's fees (1,201) (1,582) (2,123)
Supervisory fees (1,056) (1,513) (1,755)
________________________________
Total expenses (8,911) (13,010) (13,723)
________________________________
Investment income - net 117,818 163,336 212,930
Net gain (loss) on investments:
Net realized gain (loss) 81,371 5,454 (251,309)
Change in net unrealized appreciation
or depreciation 86,339 390,591 (41,366)
________________________________
167,710 396,045 (292,675)
________________________________
Net increase (decrease) in net assets
resulting from operations $285,528 559,381 (79,745)
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $117,818 163,336 212,930
Net realized gain (loss) on investments 81,371 5,454 (251,309)
Change in net unrealized appreciation
or depreciation on investments 86,339 390,591 (41,366)
__________________________________
285,528 559,381 (79,745)
Units redeemed (122,149, 204,870 and
154,900 in 1997, 1996 and 1995,
respectively) (1,244,315) (1,942,161) (1,321,745)
Distributions to unit holders:
Investment income - net (8,193) (14,184) (19,708)
Principal from investment transactions - (61,091) -
__________________________________
(8,193) (75,275) (19,708)
__________________________________
Total increase (decrease) in net assets (966,980) (1,458,055) (1,421,198)
Net assets:
At the beginning of the year 4,298,990 5,757,045 7,178,243
__________________________________
At the end of the year (including
distributable funds (deficit)
applicable to Trust units of
$(14,881), $3,952 and $9,031
at February 28, 1997, February 29,
1996 and February 28, 1995,
respectively) $3,332,010 4,298,990 5,757,045
==================================
Trust units outstanding at the end of
the year 307,081 429,230 634,100
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
The zero coupon bonds are stated at values as determined by Securities
Evaluation Service, Inc. (the Evaluator), certain shareholders of which are
officers of the Sponsor. The values are based on (1) current bid prices for
the securities obtained from dealers or brokers who customarily deal in
securities comparable to those held by the Trust, (2) current bid prices for
comparable securities, (3) appraisal or (4) any combination of the above.
The equity securities are stated at the closing sale prices of listed equity
securities and the bid prices of over-the-counter traded equity securities as
reported by the Evaluator.
Investment income -
Dividends on each equity security are recognized on such equity security's ex-
dividend date. Interest income consists of amortization of original issue
discount and market discount or premium on the zero coupon bonds. Such
amortization is included in the cost of the zero coupon bonds and not in
distributable funds because it is not currently available for distribution to
unit holders.
Security cost -
Cost of the Trust's zero coupon bonds is based on the offering price of the
zero coupon bonds on the dates the zero coupon bonds were deposited in the
Trust, plus amortization of original issue discount and amortization of market
discount or premium. Cost of the equity securities is based on the market
value of such securities on the dates the securities were deposited in the
Trust. The cost of securities sold is determined using the average cost
method. Sales of securities are recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services which is based on $.84 per annum per
100 units outstanding based on the largest aggregate number of units
outstanding during the calendar year. Prior to September 1, 1995, the Trustee
was United States Trust Company of New York; effective September 1, 1995, The
Chase Manhattan Bank succeeded United States Trust Company of New York as
Trustee. In addition, the Evaluator will receive an annual fee based on $.30
per 100 units outstanding. The Trust also pays recurring financial reporting
costs and an annual supervisory fee payable to an affiliate of the Sponsor.
<PAGE>
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at February 28, 1997 follows:
<TABLE>
<CAPTION>
Zero
Coupon Equity
Bonds securities Total
<S> <C> <C> <C>
Unrealized appreciation $66,682 411,091 477,773
Unrealized depreciation - (73,145) (73,145)
___________________________________
$66,682 337,946 404,628
===================================
</TABLE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the zero coupon bonds and the aggregate underlying value of
the equity securities on the date of an investor's purchase, plus a sales
charge of 5.5% of the public offering price which is equivalent to
approximately 5.820% of the net amount invested.
Distributions to unit holders -
Income distributions to unit holders are made semiannually on June 30 and
December 31 to unit holders of record on June 15 and December 15,
respectively. Principal distributions to unit holders, if any, are made on
the last day of each month to unit holders of record on the fifteenth day of
such month if the amount available for distribution equals at least $1.00 per
100 units. Notwithstanding, principal distributions, if any, will be made in
December of each year.
<PAGE>
Selected data per 100 units of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended Year ended Year ended
Feb. 28, Feb. 29, Feb. 28,
1997 1996 1995
<S> <C> <C> <C>
Investment income - interest and
dividends $35.29 33.79 32.28
Expenses (2.48) (2.49) (1.95)
__________________________________
Investment income - net 32.81 31.30 30.33
Distributions to unit holders:
Investment income - net (2.30) (2.74) (2.87)
Principal from investment transactions - (13.54) -
Net gain (loss) on investments 52.99 78.63 (29.34)
__________________________________
Total increase (decrease) in
net assets 83.50 93.65 (1.88)
Net assets:
Beginning of the year 1,001.56 907.91 909.79
__________________________________
End of the year $1,085.06 1,001.56 907.91
==================================
</TABLE>
Investment income - interest and dividends, Expenses and Investment income -
net per 100 units have been calculated based on the weighted average number of
units outstanding during each year (359,076, 521,788 and 702,069 units during
the years ended February 28, 1997, February 29, 1996 and February 28, 1995,
respectively). Distributions to unit holders of Investment income - net per
100 units reflects the Trust's actual distributions of approximately $1.05 per
100 units to 397,642 units on June 30, 1996, approximately $1.25 per 100 units
to 320,117 units on December 31, 1996, approximately $1.37 per 100 units to
584,397 units on June 30, 1995, approximately $1.37 per 100 units to 451,092
units on December 29, 1995, approximately $1.19 per 100 units to 734,400 units
on June 30, 1994 and approximately $1.68 per 100 units to 652,700 units on
December 30, 1994. Distributions to unit holders of principal from investment
transactions reflects the Trust's actual distribution of approximately $13.54
per 100 units to 451,092 units on December 29, 1995.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
PART ONE
Must be Accompanied by Part Two
____________________
P R O S P E C T U S
____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
GROWTH & MUNICIPAL TRUST SERIES
The First Trust (registered trademark) Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated June 30, 1997
The Trust. The First Trust Special Situations Trust (the "Trust") is a
unit investment trust consisting of a portfolio containing zero coupon
bonds issued by the City of New Orleans, Louisiana and common stocks
issued by companies which provide income or are considered to have the
potential for capital appreciation.
The objectives of the Trust are to protect Unit holders' capital and
provide for potential capital appreciation or income by investing a
portion of its portfolio in zero coupon bonds issued by the City of New
Orleans, Louisiana (the "Zero Coupon Bonds"), and the remainder of the
Trust's portfolio in common stocks issued by companies which provide
income or are considered to have the potential for capital appreciation
(the "Equity Securities"). Collectively the Zero Coupon Bonds and the
Equity Securities are referred to herein as the "Securities." See
"Portfolio" appearing in Part One. The Trust has a Mandatory Termination
Date as set forth in Part One. The Zero Coupon Bonds evidence the right
to receive fixed payments at future dates from the City of New Orleans,
Louisiana. The market value of the Zero Coupon Bonds and the Units of
the Trust will fluctuate and, prior to maturity, may be worth more or
less than a purchaser's acquisition cost. There is, of course, no
guarantee that the objectives of the Trust will be achieved.
Each Unit of the Trust represents an undivided fractional interest in
all the Securities deposited in the Trust. The Trust has been organized
so that purchasers of Units should receive, at the termination of the
Trust, an amount per Unit at least equal to $10.00 (which is equal to
the per Unit value upon maturity of the Zero Coupon Bonds), even if the
Trust never paid a dividend and the value of the Equity Securities were
to decrease to zero, which the Sponsor considers highly unlikely. This
feature of the Trust provides Unit holders who purchase Units at a price
of $10.00 or less per Unit with total principal protection, including
any sales charges paid, although they might forego any earnings on the
amount invested. To the extent that Units are purchased at a price less
than $10.00 per Unit, this feature may also provide a potential for
capital appreciation. UNIT HOLDERS DISPOSING OF THEIR UNITS PRIOR TO THE
MATURITY OF THE TRUST MAY RECEIVE MORE OR LESS THAN $10.00 PER UNIT,
DEPENDING ON MARKET CONDITIONS ON THE DATE UNITS ARE SOLD OR REDEEMED.
The Zero Coupon Bonds deposited in the Trust on the Initial Date of
Deposit will mature on September 1, 2007 (the "Zero Coupon Bonds
Maturity Date"). The Zero Coupon Bonds in the Trust had an aggregate
maturity value equal to or greater than the aggregate Public Offering
Price (which includes the sales charge) of the Units of the Trust on the
Initial Date of Deposit. The Equity Securities deposited in the Trust's
portfolio have no fixed maturity date and the value of these underlying
Equity Securities will fluctuate with changes in the values of stocks in
general and with changes in the conditions and performance of the
specific Equity Securities owned by the Trust. See "Portfolio."
Insurance guaranteeing the scheduled payment of all principal and
interest on the Zero Coupon Bonds in the Trust was obtained directly by
the Bond issuer prior to the Initial Date of Deposit from AMBAC
Indemnity Corporation. Such insurance is effective so long as the Zero
Coupon Bonds are outstanding. The insurance relates only to the Zero
Coupon Bonds in the Trust and not to the Units offered hereby. See "How
are the Zero Coupon Bonds Insured?" on page 12. No representation is
made as to AMBAC Indemnity Corporation's ability to meet its commitments.
BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
Public Offering Price. The secondary market Public Offering Price per
Unit will be based upon a pro rata share of the bid prices of the Zero
Coupon Bonds and the aggregate underlying value of the Equity Securities
in the Trust (generally determined by the closing sale prices of listed
Equity Securities and the bid prices of over-the-counter traded Equity
Securities) plus or minus a pro rata share of cash, if any, in the
Capital and Income Accounts of the Trust plus a maximum sales charge of
5.5% (equivalent to 5.820% of the net amount invested). The minimum
purchase is 100 Units. The sales charge is reduced on a graduated scale
for sales involving at least 10,000 Units. See "How is the Public
Offering Price Determined?"
Dividend and Capital Distributions. Distributions of dividends and
capital, if any, received by the Trust will be paid in cash on the
Distribution Date to Unit holders of record on the Record Date as set
forth in Part One. Any distribution of income and/or capital will be net
of the expenses of the Trust. Distributions of funds in the Capital
Account, if any, will be made at least annually in December of each
year. THE ZERO COUPON BONDS DO NOT PROVIDE FOR THE PAYMENT OF ANY
CURRENT INTEREST AND PROVIDE FOR PAYMENT OF PRINCIPAL AND INTEREST AT
MATURITY AT FACE VALUE UNLESS SOLD SOONER. UNIT HOLDERS WHO ARE
RESIDENTS OF THE STATE OF LOUISIANA WILL BE EXEMPT FROM LOUISIANA INCOME
TAX WITH RESPECT TO THE AMORTIZATION OF ORIGINAL ISSUE DISCOUNT ON THE
ZERO COUPON BONDS. UNIT HOLDERS OTHER THAN RESIDENTS OF THE STATE OF
LOUISIANA MAY BE SUBJECT TO STATE INCOME TAX WITH RESPECT TO THE
AMORTIZATION OF ORIGINAL ISSUE DISCOUNT ON THE ZERO COUPON BONDS AS IF A
DISTRIBUTION OF INCOME HAD OCCURRED. With certain exceptions applicable
to corporate Unit holders, tax-exempt original issue discount which
accrues with respect to the Zero Coupon Bonds will retain its status as
tax-exempt original issue discount for Federal income tax purposes. See
"What is the Federal Tax Status of Unit Holders?" Additionally, upon
termination of the Trust, the Trustee will distribute, upon surrender of
Units for redemption, to each Unit holder his pro rata share of the
Trust's assets, less expenses, in the manner set forth under "Rights of
Unit Holders-How are Income and Capital Distributed?"
Secondary Market for Units. While under no obligation to do so, the
Sponsor may maintain a market for Units of the Trust and offer to
repurchase such Units at prices which are based on the aggregate bid
side evaluation of the Zero Coupon Bonds and the aggregate underlying
value of Equity Securities in the Trust (generally determined by the
closing sale prices of listed Equity Securities and the bid prices of
over-the-counter traded Equity Securities) plus or minus cash, if any,
in the Capital and Income Accounts of the Trust. As of the date of this
Prospectus, the Sponsor is maintaining a secondary market. If a
secondary market is not maintained in the future, a Unit holder may
redeem Units through redemption at prices based upon the aggregate bid
price of the Zero Coupon Bonds plus the aggregate underlying value of
the Equity Securities in the Trust (generally determined by the closing
sale prices of listed Equity Securities and the bid prices of over-the-
counter traded Equity Securities) plus or minus a pro rata share of
cash, if any, in the Capital and Income Accounts of the Trust. See "How
May Units be Redeemed?"
Termination. Commencing on the Zero Coupon Bonds Maturity Date, Equity
Securities will begin to be sold in connection with the termination of
the Trust. The Sponsor will determine the manner, timing and execution
of the sale of the Equity Securities. Written notice of any termination
of the Trust specifying the time or times at which Unit holders may
surrender their certificates for cancellation shall be given by the
Trustee to each Unit holder at his address appearing on the registration
books of the Trust maintained by the Trustee. At least 60 days prior to
the Zero Coupon Bonds Maturity Date the Trustee will provide written
notice thereof to all Unit holders and will include with such notice a
form to enable Unit holders to elect a distribution of shares of Equity
Securities (reduced by customary transfer and registration charges) if
such Unit holder owns at least 2,500 Units of the Trust, rather than to
receive payment in cash for such Unit holder's pro rata share of the
amounts realized upon the disposition by the Trustee of Equity
Securities. All Unit holders will receive their pro rata portion of the
Zero Coupon Bonds in cash by the termination of the Trust. To be
effective, the election form, together with surrendered certificates and
other documentation required by the Trustee, must be returned to the
Trustee at least five business days prior to the Zero Coupon Bonds
Maturity Date. Unit holders not electing a distribution of shares of
Equity Securities will receive a cash distribution from the sale of the
remaining Securities within a reasonable time after the Trust is
terminated. See "Rights of Unit Holders-How are Income and Capital
Distributed?"
Page 2
GROWTH & MUNICIPAL TRUST SERIES
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust is one of a series of
investment companies created by the Sponsor under the name of The First
Trust Special Situations Trust, all of which are generally similar but
each of which is separate and is designated by a different series number
(the "Trust"). The 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, The Chase
Manhattan Bank, as Trustee, Securities Evaluation Service, Inc., as
Evaluator, and First Trust Advisors L.P., as Portfolio Supervisor.
The objectives of the Trust are to protect Unit holders' capital and
provide for potential capital appreciation or income by investing a
portion of its portfolio in zero coupon bonds issued by the City of New
Orleans, Louisiana (the "Zero Coupon Bonds"), and the remainder of the
Trust's portfolio in common stocks issued by companies which provide
income or are considered to have the potential for capital appreciation
(the "Equity Securities"). Collectively, the Zero Coupon Bonds and the
Equity Securities are referred to herein as the "Securities." See
"Portfolio" appearing in Part One. The Trust has a Mandatory Termination
Date as set forth in Part One. The Zero Coupon Bonds evidence the right
to receive fixed payment at a future date from the City of New Orleans,
Louisiana. The market value of the Zero Coupon Bonds and the Units of
the Trust will fluctuate and, prior to maturity, may be worth more or
less than a purchaser's acquisition cost. The Equity Securities in the
Trust consist of common stocks of companies which provide income or are
considered to have the potential for capital appreciation. There is, of
course, no guarantee that the objectives of the Trust will be achieved.
Insurance guaranteeing the scheduled payment of all principal and
interest on the Zero Coupon Bonds in the Trust was obtained directly by
the Bond issuer prior to the Date of Deposit from AMBAC Indemnity
Corporation. Such insurance is effective so long as such Zero Coupon
Bonds are outstanding. See "How are the Zero Coupon Bonds Insured?"
Each Unit of the Trust represents an undivided fractional interest in
all the Securities deposited in the Trust. The Trust has been organized
so that purchasers of Units should receive, at the termination of the
Trust, an amount per Unit at least equal to $10.00 per Unit (which is
equal to the per Unit value at the maturity of the Zero Coupon Bonds),
even if the Equity Securities never paid a dividend and the value of the
Equity Securities in the Trust were to decrease to zero, which the
Sponsor considers highly unlikely. The receipt of only $10.00 per Unit
at the termination of the Trust (an event which the Sponsor believes is
unlikely) represents a substantial loss on a present value basis.
Furthermore, the $10.00 per Unit in no respect protects investors
against diminution in the purchasing power of their investment due to
inflation (although expectations concerning inflation are a component in
determining prevailing interest rates, which in turn determine present
values). To the extent that Units of the Trust are redeemed, the
aggregate value of the Securities in the Trust will be reduced and the
undivided fractional interest represented by each outstanding Unit of
the Trust will increase. See "How May Units be Redeemed?" The Trust has
a Mandatory Termination Date as set forth in Part One.
What are the Expenses and Charges?
At no cost to the Trust, the Sponsor has borne all the expenses of
creating and establishing the Trust, including the cost of the initial
preparation, printing and execution of the Indenture and the
certificates for the Units, legal and accounting expenses, expenses of
the Trustee and other out-of-pocket expenses. The Sponsor will not
receive any fees in connection with its activities relating to the
Trust. 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 in Part One, for providing portfolio supervisory
services for the Trust. Such fee is based on the number of Units
outstanding in the Trust on January 1 of each year except for the year
or years in which an initial offering period occurs in which case the
fee for a month is based on the number of Units outstanding at the end
of such month. The fee may exceed the actual costs of providing such
supervisory services for this Trust, but at no time will the total
amount received for portfolio supervisory services rendered to unit
Page 3
investment trusts of which Nike Securities L.P. is the Sponsor in any
calendar year exceed the aggregate cost to First Trust Advisors L.P. of
supplying such services in such year.
The Evaluator will receive a fee as indicated in Part One. The Trustee
pays certain expenses of the Trust for which it is reimbursed by the
Trust. The Trustee will receive for its ordinary recurring services to
the Trust an annual fee computed at $.84 per annum per 100 Units in the
Trust outstanding based upon the largest aggregate number of Units of
the Trust outstanding at any time during the year. For a discussion of
the services performed by the Trustee pursuant to its obligations under
the Indenture, reference is made to the material set forth under "Rights
of Unit Holders."
The Trustee's and the above described fees are payable from the Income
Account of the Trust to the extent funds are available and then from the
Capital Account of the Trust. Since the Trustee has the use of the funds
being held in the Capital and Income Accounts for payment of expenses
and redemptions and since such Accounts are noninterest-bearing to Unit
holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to the Trust is expected to result from
the use of these funds.
Each of the above-mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor.
The following additional charges are or may be incurred by the Trust:
all legal and annual auditing expenses of the Trustee incurred by or in
connection with its responsibilities under the Indenture; the expenses
and costs of any action undertaken by the Trustee to protect the 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 the Trust; indemnification of the Sponsor for any
loss, liability or expense incurred without gross negligence, bad faith
or willful misconduct in acting as Depositor of the Trust; all taxes and
other government charges imposed upon the Securities or any part of the
Trust (no such taxes or charges are being levied or made or, to the
knowledge of the Sponsor, contemplated). The above expenses and the
Trustee's annual fee, when paid or owing to the Trustee, are secured by
a lien on the Trust. In addition, the Trustee is empowered to sell
Securities in the Trust in order to make funds available to pay all
these amounts if funds are not otherwise available in the Income and
Capital Accounts of the Trust except that the Trustee shall not sell
Zero Coupon Bonds to pay Trust expenses. Since the Equity Securities are
all common stocks and the income stream produced by dividend payments is
unpredictable, the Sponsor cannot provide any assurance that dividends
will be sufficient to meet any or all expenses of the Trust. As
described above, if dividends are insufficient to cover expenses, it is
likely that Equity Securities will have to be sold to meet Trust
expenses. These sales may result in capital gains or losses to Unit
holders. See "What is the Federal Tax Status of Unit Holders?"
The Indenture requires the Trust to be audited on an annual basis at the
expense of the Trust by independent auditors selected by the Sponsor. So
long as the Sponsor is making a secondary market for the Units, the
Sponsor is required to bear the cost of such annual audits to the extent
such cost exceeds $.50 per 100 Units. Unit holders of the Trust covered
by an audit may obtain a copy of the audited financial statements upon
request.
What is the Federal Tax Status of Unit Holders?
The following is a general discussion of certain of the Federal income
tax consequences of the purchase, ownership and disposition of the Units
of the Trust. The summary is limited to investors who hold the Units as
"capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the
"Code"). Unit holders should consult their tax advisers in determining
the Federal, state, local and any other tax consequences of the
purchase, ownership and disposition of Units in the Trust. At the time
of issuance of the Zero Coupon Bonds, an opinion relating to the
validity thereof and to the exclusion of interest and original issue
discount thereon from Federal gross income were rendered by bond counsel
to the issuing authority. Neither the Sponsor nor Chapman and Cutler has
made any special review for the Trust of the proceedings relating to the
issuance of the Zero Coupon Bonds or of the basis for such opinion. If
the interest on a Zero Coupon Bond should be determined to be taxable,
Page 4
the Zero Coupon Bond would generally have to be sold at a substantial
discount. In addition, investors could be required to pay income tax on
original issue discount accrued prior to the date on which interest is
determined to be taxable. Gain realized on the sale or redemption of the
Zero Coupon Bonds by the Trustee or of a Unit by a Unit holder is
includable in gross income for Federal income tax purposes and may be
includable in gross income for state tax purposes. (Such gain does not
include any amounts received in respect of accrued tax-exempt original
issue discount, if any.) For purposes of the following opinions, it is
assumed that each Zero Coupon Bond is debt, the interest on which is
excluded for Federal income tax purposes, and each Equity Security is
equity for Federal income tax purposes.
In the opinion of Chapman and Cutler, special counsel for the Sponsor,
under existing law:
1. The Trust is not an association taxable as a corporation for
Federal income tax purposes; each Unit holder will be treated as the
owner of a pro rata portion of each of the assets of the Trust under the
Code; and the income of the Trust will be treated as income of the Unit
holders thereof under the Code. Each Unit holder will be considered to
have received his pro rata share of income derived from each Trust asset
when such income is considered received by the Trust. Interest and
accrued original issue discount on Zero Coupon Bonds which is excludable
from gross income under the Internal Revenue Code of 1986 ("the Code")
will retain its status for Federal income tax purposes when distributed
to Unit holders; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations, and the environmental tax (the "Superfund Tax") as
noted below.
2. Each Unit holder will have a taxable event when the Trust disposes
of a Security (whether by sale, exchange, redemption, or payment at
maturity) or upon the sale or redemption of Units by such Unit holder.
The price a Unit holder pays for his Units, including sales charges, is
allocated among his pro rata portion of each Security held by the Trust
(in proportion to the fair market values thereof on the valuation date
closest to the date the Unit holder purchases his Units (before
adjustment for accrued original issue discount and amortization of bond
premiums, if any)) in order to determine his initial tax basis cost for
his pro rata portion of each Security held by the Trust. It should be
noted that certain legislative proposals have been made which could
affect the calculation of basis for Unit holders holding securities that
are substantially identical to the Equity Securities. If the Unit holder
disposes of a Unit, he is deemed thereby to have disposed of his entire
pro rata interest in all assets of the Trust. Legislative proposals have
been made that would treat certain transactions designed to reduce or
eliminate risk of loss and opportunities for gain as constructive sales
for purposes of recognition of gain (but not loss). Unit holders should
consult their own tax advisors with regard to the calculation of basis
and any such constructive sale rules. Gain or loss upon the sale or
redemption of Units is measured by comparing the proceeds of such sale
or redemption with the adjusted basis of Units. The amount of a Unit
holder's share of any gain or loss recognized upon the disposition of
Equity Securities or the Zero Coupon Bonds is measured by comparing the
Unit holder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed of. The
basis of each Unit and of each Zero Coupon Bond is increased by the Unit
holder's share of the amount of accrued tax-exempt original issue
discount. The tax basis reduction requirements of the Code relating to
amortization of bond premium may, under some circumstances, result in
the Unit holder realizing a taxable gain when his Units are sold or
redeemed for an amount less than or equal to his original cost. For
Federal income tax purposes, a Unit holder's pro rata portion of
dividends as defined by Section 316 of the Code paid with respect to an
Equity Security held by the Trust are taxable as ordinary income to the
extent of such corporation's current and accumulated "earnings and
profits". A Unit holder's pro rata portion of dividends paid on such
Equity Security which exceed such current and accumulated earnings and
profits will first reduce a Unit holder's tax basis in such Equity
Security, and to the extent that such dividends exceed a Unit holder's
tax basis in such Equity Security shall generally be treated as capital
gain. In general, any such capital gain will be short-term unless a Unit
holder has held his Units for more than one year.
3. A Unit holder's portion of gain, if any, upon the sale or
redemption of Units or the disposition of Securities held by the Trust
will generally be considered a capital gain except in the case of a
Page 5
dealer or a financial institution and, in general, will be long-term if
the Unit holder has held his Units for more than one year (the date on
which the Units are acquired (i.e., the trade date) is excluded for
purposes of determining whether the Units have been held for more than
one year). A Unit holder's portion of loss, if any, upon the sale or
redemption of Units or the disposition of Securities held by the Trust
will generally be considered a capital loss except in the case of a
dealer or a financial institution and, in general, will be long-term if
the Unit holder has held his Units for more than one year. Unit holders
should consult their tax advisers regarding the recognition of such
capital gains and losses for Federal income tax purposes.
4. Insurance proceeds received by the Trust under any insurance
policies which represent maturing interest on defaulted Zero Coupon
Bonds will be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid in the
normal course by the issuer of the defaulted Zero Coupon Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Zero Coupon Bonds, rather than the
insurer, will pay debt service on the Zero Coupon Bonds.
Dividends Received Deduction. A Unit holder will be considered to have
received all of the dividends paid on his pro rata portion of each
Equity Security when such dividends are received by the Trust. Unit
holders will be taxed in this manner regardless of whether distributions
from the Trust are actually received by the Unit holder or are
automatically reinvested.
A corporation that owns Units will generally be entitled to a 70%
dividends received deduction with respect to such Unit holder's pro rata
portion of dividends received by the Trust (to the extent such dividends
are taxable as ordinary income, as discussed above) in the same manner
as if such corporation directly owned the Equity Securities paying such
dividends (other than corporate shareholders, such as "S" corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding corporation tax).
However, a corporation owning Units should be aware that Sections 246
and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations
include a requirement that stock (and therefore Units) must generally be
held at least 46 days (as determined under Section 246(c) of the Code).
Final regulations have been issued which address special rules that must
be considered in determining whether the 46-day holding requirement is
met. Moreover, the allowable percentage of the deduction will be reduced
from 70% if a corporate Unit holder owns certain stock (or Units) the
financing of which is directly attributable to indebtedness incurred by
such corporation. It should be noted that various legislative proposals
that would affect the dividends received deduction have been introduced.
Unit holders should consult with their tax advisors with respect to the
limitations on and possible modifications to the dividends received
deduction.
Computation of Original Issue Discount. Sections 1288 and 1272 of the
Code provide a complex set of rules governing the accrual of original
issue discount. These rules provide that original issue discount accrues
either on the basis of a constant compounded interest rate or ratably
over the term of the Zero Coupon Bond, depending upon the date the Zero
Coupon Bond was issued. In addition, special rules apply if the purchase
price of a Zero Coupon Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price ("adjusted issue price") to prior owners. The
application of these rules will also vary depending on the value of the
Zero Coupon Bond on the date a Unit holder acquires his Unit, and the
price the Unit holder pays for his Unit. Because of the complexity of
these rules relating to the accrual of original issue discount, Unit
holders should consult their tax advisers as to how these rules apply.
The Tax Act subjects tax-exempt bonds to the market discount rules of
the Code effective for bonds purchased after April 30, 1993. In general,
market discount is the amount (if any) by which the revised issue price
exceeds an investor's purchase price (except to the extent that such
difference, if any, is attributable to original issue discount not yet
accrued) subject to a statutory de minimis rule. Market discount can
arise based on the price a Trust pays for Zero Coupon Bonds or the price
a Unit holder pays for his or her Units. Under the Tax Act, accretion of
market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that
accretes while the Trust holds a Bond would be recognized as ordinary
Page 6
income by the Unit holders when principal payments are received on the
Bond, upon sale or at redemption (including early redemption) or upon
the sale or redemption of the Units, unless a Unit holder elects to
include market discount in taxable income as it accrues. The market
discount rules are complex and Unit holders should consult their tax
advisers regarding these rules and their application.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by
the Trust or Disposition of Units. As discussed above, a Unit holder may
recognize taxable gain (or loss) when a Security is disposed of by the
Trust or if the Unit holder disposes of a Unit. For taxpayers other than
corporations, net capital gains are subject to a maximum marginal tax
rate of 28%. However, it should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect
relative differences at which ordinary income and capital gains are
taxed. The Tax Act raised the 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.
Limitation on Deductibility of Trust Expenses by Unit holders. Each Unit
holder's pro rata share of each expense paid by the Trust is deductible
by the Unit holder to the same extent as though the expense had been
paid directly by such Unit holder subject to the following limitation.
It should be noted that as a result of the Tax Reform Act of 1986,
certain miscellaneous itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will be
deductible by an individual only to the extent they exceed 2% of such
individual's adjusted gross income. Unit holders may be required to
treat some or all of the expenses of the Trust as miscellaneous itemized
deductions subject to this limitation.
Special Tax Consequences of In-Kind Distributions Upon Termination of
the Trust. As discussed in "Rights of Unit Holders-How are Income and
Capital Distributed?", under certain circumstances a Unit holder who
owns at least 2,500 Units may request an In-Kind Distribution upon the
termination of the Trust. The Unit holder requesting an In-Kind
Distribution will be liable for expenses related thereto (the
"Distribution Expenses") and the amount of such In-Kind Distribution
will be reduced by the amount of the Distribution Expenses. See "Rights
of Unit Holders-How are Income and Capital Distributed?" Zero Coupon
Bonds held by the Trust will not be distributed to a Unit holder as part
of an In-Kind Distribution. The tax consequences relating to the sale of
Zero Coupon Bonds are discussed above. As previously discussed, prior to
the termination of the Trust, a Unit holder is considered as owning a
pro rata portion of each of the Trust assets for Federal income tax
purposes. The receipt of an In-Kind Distribution upon the termination of
the Trust would be deemed an exchange of such Unit holder's pro rata
portion of each of the shares of stock and other assets held by the
Trust in exchange for an undivided interest in whole shares of stock
plus, possibly, cash.
The potential tax consequences that may occur under an in-Kind
Distribution will depend on whether a Unit holder receives cash in
addition to Equity Securities. An "Equity Security" for this purpose is
a particular class of stock issued by a particular corporation (and does
not include the Zero Coupon Bond). A Unit holder will not recognize gain
or loss with respect to the Equity Security if a Unit holder only
receives Equity Securities in exchange for his pro rata portion in each
share of the Securities held by the Trust. However, if a Unit holder
also receives cash in exchange for a fractional share of an Equity
Security held by the Trust, such Unit holder will generally recognize
gain or loss based upon the difference between the amount of cash
received by the Unit holder for the fractional share and his tax basis
in such fractional share of an Equity Security held by the Trust. In
either case, a Unit holder who receives cash in exchange for his
interest in the Zero Coupon Bond will generally recognize gain or loss
based upon the difference between the amount of cash received by the
Unit holder for the Zero Coupon Bond and his tax basis in the Zero
Coupon Bond.
Because the Trust will own many Securities, a Unit holder who requests
an In-Kind Distribution will have to analyze the tax consequences with
respect to each Equity Security owned by the Trust. The amount of
taxable gain (or loss) recognized upon such exchange will generally
equal the sum of the gain (or loss) recognized under the rules described
above by such Unit holder with respect to each Equity Security owned by
Page 7
the Trust. Unit holders who request an In-Kind Distribution are advised
to consult their tax advisers in this regard.
Collateral Tax Consequences Relating to the Zero Coupon Bonds. In
general, Section 86 of the Code provides that Social Security benefits
are includible in gross income in an amount equal to the lesser of (1)
50% of the Social Security benefits received or (2) 50% of the excess of
"modified adjusted gross income" plus 50% of the Social Security
benefits received over the appropriate "base amount." The base amount is
$25,000 for unmarried taxpayers, $32,000 for married taxpayers filing a
joint return and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns. Modified
adjusted gross income is adjusted gross income determined without regard
to certain otherwise allowable deductions and exclusions from gross
income and by including tax-exempt interest and original issue discount.
To the extent that Social Security benefits are includible in gross
income, they will be treated as any other item of gross income. In
addition, under the Tax Act, for taxable years beginning after December
31, 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income"
plus 50% of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for unmarried taxpayers,
$44,000 for married taxpayers filing a joint return, and zero for
married taxpayers who do not live apart at all times during the taxable
year and who file separate returns.
Although tax-exempt interest and original issue discount is included in
modified adjusted gross income solely for the purpose of determining
what portion, if any, of Social Security benefits will be included in
gross income, no tax-exempt interest or tax-exempt original issue
discount, including that received from the Trust, will be subject to
tax. A taxpayer whose adjusted gross income already exceeds the base
amount or the adjusted base amount must include 50% or 85%,
respectively, of his Social Security benefits in gross income whether or
not he receives any tax-exempt interest or tax-exempt original issue
discount. A taxpayer whose modified adjusted gross income (after
inclusion of tax-exempt interest and original issue discount) does not
exceed the base amount need not include any Social Security benefits in
gross income.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depend
upon the corporation's alternative minimum taxable income ("AMTI"),
which is the corporation's taxable income with certain adjustments. One
of the adjustment items used in computing the AMTI and the Superfund Tax
of a corporation (other than an S Corporation, Regulated Investment
Company, Real Estate Investment Trust, or REMIC) is an amount equal to
75% of the excess of such corporation's "adjusted current earnings" over
an amount equal to its AMTI (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax exempt interest, including interest on all of
the Zero Coupon Bonds in the Trust. Under current code provisions, the
Superfund Tax does not apply to tax years beginning on or after January
1, 1996. Legislative proposals have been introduced that would extend
the Superfund Tax. Under the provisions of Section 884 of the Code, a
branch profits tax is levied on the "effectively connected earnings and
profits" of certain foreign corporations which include tax exempt
interest such as interest on the Zero Coupon Bonds in the Trust. Unit
holder should consult their tax advisers with respect to the particular
consequences to them including the corporate alternative minimum tax,
the Superfund Tax and the branch profits tax imposed by Section 884 of
the Code.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35% effective for long-term capital gains realized
in taxable years beginning on or after January 1, 1993. For taxpayers
other than corporations, net capital gains are subject to the maximum
marginal stated tax rate of 28%. However, it should be noted that
legislative proposals are introduced from time to time tax affect tax
rates and could affect relative differences at which ordinary income and
capital gains are taxed. Under the Code, taxpayers must disclose to the
Internal Revenue Service the amount of tax-exempt interest earned during
the year. For purposes of computing the alternative minimum tax for
individuals and corporations and the Superfund Tax for corporations,
interest on certain private activity bonds (which includes most
industrial and housing revenue bonds) issued on or after August 8, 1996
is included as an item of tax preference. THE TRUST DOES NOT INCLUDE ANY
SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
Counsel for the Sponsor has also advised that under Section 265 of the
Code interest on indebtedness incurred or continued to purchase or carry
Page 8
Units of a Trust is not deductible for Federal income tax purposes. The
Internal Revenue Service has taken the position that such indebtedness
need not be directly traceable to the purchase of carrying of Units
(however, these rules generally do not apply to interest paid on
indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units would generally not be able to deduct any of the interest
expense attributable to ownership of such Units. Legislative proposals
have been made that would extend the financial institution rules to all
corporations. Investors with questions regarding these issues should
consult with their tax advisers.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any collateral consequences.
General. Each Unit holder will be requested to provide the Unit holder's
taxpayer identification number to the Trustee and to certify that the
Unit holder has not been notified that payments to the Unit holder are
subject to back-up withholding. If the proper taxpayer identification
number and appropriate certification are not provided when requested,
distributions by the Trust to such Unit holder (including amounts
received upon the redemption of Units) will be subject to back-up
withholding. Distributions by the Trust will generally be subject to
United States income taxation and withholding in the case of Units held
by non-resident alien individuals, foreign corporations or other non-
United States persons (accrual of tax-exempt original issue discount on
the Zero Coupon Bonds will not generally be subject to taxation or
withholding provided certain requirements are met). Such persons should
consult their tax advisers.
Unit holders will be notified annually of the amounts of tax-exempt
original issue discount and dividend income includable in the Unit
holder's gross income and allocable portion of Trust expenses which may
be claimed as itemized deductions.
Dividend income, long-term capital gains and accrual of tax-exempt
original issue discount may also be subject to state and local taxes.
Investors should consult their tax advisers for specific information on
the tax consequences of particular types of distributions.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trust for New York tax matters, under the existing income tax laws of
the State of New York, the Trust is not an association taxable as a
corporation and the income of the Trust will be treated as the income of
the Unit holders thereof.
Louisiana Tax Status. At the time of the closing for the Trust, Special
Counsel to the Fund for Louisiana tax matters, which relied explicitly
on the opinion of Chapman and Cutler regarding Federal income tax
matters, rendered an opinion under then existing Louisiana income tax
law applicable to taxpayers whose income is subject to Louisiana income
taxation substantially to the effect that:
The State of Louisiana imposes a tax upon the net income of resident
individuals, and with certain exceptions, resident corporations, estates
and trusts, and upon the income from Louisiana sources of nonresident
individuals, corporations, estates and trusts.
The mere ownership of Units will not subject a nonresident Unit holder
to the tax jurisdiction of Louisiana. Amounts received by a nonresident
Unit holder (who may for other reasons be subject to the tax
jurisdiction of Louisiana) with respect to Units held outside of
Louisiana will not constitute income from Louisiana sources, upon which
the Louisiana income tax would be imposed.
In the case of resident individuals, the calculation of Louisiana tax
table income begins with Federal adjusted gross income with certain
modifications, including the addition of interest on obligations of a
state or political subdivision thereof other than Louisiana. However,
Louisiana law specifically provides that interest on obligations (such
as the Zero Coupon Bonds) of the State of Louisiana, its political
subdivisions, public corporations created by them and constituted
authorities thereof authorized to issue obligations on their behalf,
title to which obligations are vested with a resident individual, shall
be excluded from tax table income and are exempt from Louisiana income
taxation. In addition, to the extent that any such interest paid to a
Unit holder is derived from the proceeds of a bond insurance policy
issued to the Trustee of the Fund or under individual policies obtained
by the issuer of the Bonds, the underwriter, the Sponsor or others, such
interest would be exempt from Louisiana income tax.
Page 9
In the case of corporations, estates, trusts, insurance companies and
foreign corporations, interest received upon obligations of the State of
Louisiana, or any political or municipal subdivision thereof, is exempt
from Louisiana income taxation.
The Trust is not an "association" taxable as a corporation under
Louisiana law with the result that income of the Trust will be deemed to
be income of the Unit holders.
Interest on the Zero Coupon Bonds that is exempt from Louisiana income
tax when received by the Trust will retain its tax-exempt status when
received by the Unit holders.
As a general rule, to the extent that gain (or loss) from the sale of
obligations held by the Trust (whether as a result of the sale of such
obligations by the Trust or as a result of the sale of a Unit by a Unit
holder) is includable in (or deductible in the calculation of) the
Federal adjusted gross income of a resident individual or the Federal
taxable income of a resident corporation, estate or trust, such gain
will be included (or loss deducted) in the calculation of the Unit
holder's Louisiana taxable income.
The State of Louisiana does not impose an intangibles tax on
investments, and therefore, Unit holders will not be subject to
Louisiana intangibles tax on their Units of the Trust.
PORTFOLIO
What are the Zero Coupon Bonds?
By virtue of the insurance obtained by the Bond issuer prior to the
Initial Date of Deposit, the Zero Coupon Bonds included in the Trust are
original issue discount bonds rated at the Initial Date of Deposit "AAA"
by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's") and "Aaa" by Moody's Investors Service, Inc.
("Moody's"). See "Description of Bond Ratings" for further information.
Specifically, the Zero Coupon Bonds are general obligation bonds
designated as City of New Orleans, Louisiana, General Obligation
Refunding Bonds, Series 1991. As general obligation bonds issued by the
City of New Orleans, Louisiana, the Zero Coupon Bonds are payable from
ad valorem taxes levied by the City Council on all property subject to
taxation within the City of New Orleans and are secured by a pledge of
the full faith and credit of the City of New Orleans. The City Council
is required under the Constitution and laws of Louisiana to impose and
collect annually, in excess of all other taxes, a tax on all property
subject to taxation within the City of New Orleans sufficient to pay the
principal and interest and redemption premiums, if any, on all general
obligation bonds in each year.
Special Considerations and Risk Factors. The Zero Coupon Bonds do not
provide for the payment of any current interest and provide for payment
of principal and interest at maturity at face value unless sooner sold.
The Zero Coupon Bonds are not subject to redemption prior to maturity.
The Zero Coupon Bonds may be subject to more price volatility than
conventional bonds. The Zero Coupon Bonds share the basic features of
(1) not paying interest on a semi-annual basis and (2) providing for the
implicit reinvestment of each bond's semi-annual accretion at such
bond's stated yield to maturity. This implicit reinvestment of accretion
at the same rate eliminates the risk of being unable to reinvest the
income on each bond at a rate as high as the implicit yield, but at the
same time also eliminates the holder's ability to reinvest at higher
rates in the future.
An investment in the Trust should be made with an understanding of the
risks which an investment in Zero Coupon Bonds issued by the City of New
Orleans, Louisiana (the "City") may entail.
The largest city in Louisiana, New Orleans was founded in 1718 and
incorporated in 1805. The City's system of government is provided for in
its Home Rule Charter which became effective in 1954 (the "Charter").
The Louisiana Constitution of 1974 prohibits the State Legislature from
enacting any law affecting the structure, organization or distribution
of the power and function of any local political subdivision which
operates under a home rule charter. The Charter may be amended only by
the vote of a majority of the qualified voters in the City voting at an
election called by the City Council on its own initiative or upon
receipt by it of a petition of not less than ten thousand registered
voters.
A number of important local government functions in New Orleans are
performed by entities which, in varying degrees, operate independently
of City government. These entities include the Sewerage and Water Board
of New Orleans, which is responsible for water, sewer and drainage
service for the City, the Orleans Parish School Board, which is
responsible for elementary and secondary education in the City, the New
Orleans Aviation Board, which operates the New Orleans International
Airport, and the Orleans Levee Board, which has primary responsibility
Page 10
for levees, seawalls and breakwaters surrounding the City. These and
other similar entities have their own budgets and revenue sources, and
are not included in the City's budget.
The City has a Mayor-Council plan of government. The Mayor, the chief
executive officer, is elected for a four-year term. The Mayor appoints
the Chief Administrative Officer, who is his principal assistant and the
budget officer for the City. The Chief Administrative Officer appoints
all department heads, subject to the Mayor's approval, except the City
Attorney, who is appointed by the Mayor, and the Director of the Civil
Service Department, who is appointed by the Civil Service Commission.
There are numerous executive department and affiliated boards and
commissions.
The City Council is the legislative body of City government, comprised
of five Council members elected from districts and two elected at large,
all for four-year terms. The voters authorized an amendment to the
Charter to limit the number of terms members of the City Council may
serve, which became effective in 1994. The City Council has authority to
levy taxes, subject to State law, and to adopt the City's annual capital
and operating budgets. Ordinances of the City Council may be vetoed by
the Mayor. Vetoes may be overridden by a two-thirds vote of the City
Council.
The Charter requires the annual preparation and adoption of a balanced
operating budget. Not later than August 1 of each year, the Chief
Administrative Officer is required to prepare budget request forms for
the City Council and for each office, department or board that is
receiving or seeks to receive an appropriation from the City Council
payable from any operating fund of the City. The City Council and the
head of each office, department or board is then required to enter upon
such budget request forms its request for appropriations for the ensuing
fiscal year, and the completed forms are to be delivered to the Chief
Administrative Officer not later than September 15.
The Chief Administrative Officer, after consulting with the City Council
and the heads of office, departments and boards, is required by the
Charter to prepare a preliminary budget for the consideration of the
Mayor. The preliminary budget must include all budget requests, and the
recommendations of the Chief Administrative Officer with respect to each
request, an estimate of the receipts from each source of revenue and a
statement of the total estimated income and total recommended
expenditures for each operating fund.
The Mayor is required to review the preliminary budget and may hold
either formal or informal hearings thereon, at which the heads of each
office, department or board may be given an opportunity to be heard with
respect to their requests. The Chief Administrative Officer then
prepares the operating budget under the direction of the Mayor. Such
budget is required to set forth each item of the expenditures
recommended by the Mayor, his estimates of available surplus and income
from existing revenues for each operating fund and where the estimated
revenues from existing sources are insufficient to meet the recommended
expenditures, the Mayor's recommendations of new sources of revenues to
balance the budget. The operating budget, together with the proposed
revenue and expenditure budget ordinances to give effect to the budget
as presented, are required to be submitted to the City Council not later
than November 1. The proposed ordinance for the operating budget must
provide lump sum appropriations for each budget unit for (among other
things) improvements of an estimated life of less than ten years and
equipment. After public notice and hearing, the budget is adopted by
ordinance on or before each December 1 for the fiscal year beginning on
the next succeeding January 1. Amendments to the annual operating budget
ordinance may be considered and approved by the City Council under the
same procedures prescribed for its original adoption, but no amendment
may increase the aggregate of authorized expenditures to an amount
greater than the estimate of revenues for the fiscal year.
Budgeted operating expenditures are funded principally through the
General Fund and through various other funds. The Charter prohibits the
Department of Finance from approving any expenditure under any portion
of an annual operating budget ordinance until sufficient estimated
revenues have been provided to finance the proposed expenditures. The
Charter also provides that revenues shall be estimated only upon the
basis of the cash receipts anticipated for the fiscal year. The City
Council is required, within the limits of its power and subject to other
provisions of the Charter, to adopt such taxes and other revenue
measures necessary (together with available surplus) to produce a
balanced budget. In addition, no budgeted expenditures may be made
unless authorized by the Mayor and the Chief Administrative Officer
through the allotment system. The Chief Administrative Officer monitors
revenues and expenditures during the year. Transfers within budget are
Page 11
adopted to increase or curtail budgeted expenditures in light of
anticipated actual operating results and for the purpose of assuring a
balanced budget.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact the Zero Coupon Bonds and does not
purport to be a complete or exhaustive description of all adverse
conditions to which the Zero Coupon Bonds in the Trust may be subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
of the City of New Orleans, Louisiana, could affect or could have an
adverse impact on the financial condition of the State of Louisiana and
various agencies and political subdivisions located in the State,
including the City of New Orleans. The Sponsor is unable to predict
whether or to what extent such factors or other factors may affect the
State of Louisiana or the City of New Orleans, the market value or
marketability of the Zero Coupon Bonds or the ability of the City of New
Orleans, Louisiana to pay principal of and interest on the Zero Coupon
Bonds at maturity.
How are the Zero Coupon Bonds Insured?
The Zero Coupon Bonds in the portfolio of the Trust are insured as to
the scheduled payment of principal and interest by a policy obtained
directly by the Bond issuer prior to the Initial Date of Deposit from
AMBAC Indemnity Corporation ("AMBAC Indemnity" or "AMBAC"), a Wisconsin-
domiciled stock insurance company. The premium for such insurance has
been paid in advance by the Bond issuer and such policy is
noncancellable and will continue in force as long as the Zero Coupon
Bonds so insured are outstanding and AMBAC Indemnity remains in business.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $2,550,327,507 (unaudited) and statutory capital of
approximately $1,446,559,894 (unaudited) as of December 31, 1996.
Statutory capital consists of AMBAC Indemnity's policyholders' surplus
and statutory contingency reserve. AMBAC Indemnity is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's and
Standard & Poor's have both assigned a triple-A claims-paying ability
rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York, New
York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
adverse changes in such information, subsequent to the date hereof.
Chapman and Cutler, Counsel for the Sponsor, has given an opinion to the
effect that the payment of insurance proceeds representing maturing
interest on defaulted Zero Coupon Bonds paid by AMBAC Indemnity would be
excludable from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the
defaulted obligations. See "What is the Federal Tax Status of Unit
Holders?"
What are Equity Securities?
The Trust also consists of different issues of Equity Securities, issued
by companies which at the Initial Date of Deposit were considered to
provide income or have potential for capital appreciation and are listed
on a national securities exchange or The Nasdaq Stock Market or are
traded in the over-the-counter market. The companies which are included
in the portfolio are, in the view of the Sponsor, actively-traded, well-
established corporations. See "Portfolio" appearing in Part One for a
list of Securities as may continue to be held from time to time in the
Trust together with cash held in the Income and Capital Accounts.
Because certain of the Equity Securities from time to time may be sold
under certain circumstances described herein, and because the proceeds
from such events will be distributed to Unit holders and will not be
reinvested, no assurance can be given that the Trust will retain for any
length of time its present size and composition. Although the Portfolio
is not managed, the Sponsor may instruct the Trustee to sell Equity
Securities under certain limited circumstances. Pursuant to the
Indenture and with limited exceptions, the Trustee may sell any
Page 12
securities or other property acquired in exchange for Equity Securities
such as those acquired in connection with a merger or other transaction.
If offered such new or exchanged securities or property, the Trustee
shall reject the offer. However, in the event such securities or
property are nonetheless acquired by a Trust, they may be accepted for
deposit in such Trust and either sold by the Trustee or held in the
Trust pursuant to the direction of the Sponsor (who may rely on the
advice of the Portfolio Supervisor). See "How May Securities be Removed
from the Trust?" Equity Securities, however, will not be sold by the
Trust to take advantage of market fluctuations or changes in anticipated
rates of appreciation or depreciation.
An investment in Units should be made with an understanding of the risks
which an investment in common stocks entails, including the risk that
the financial condition of the issuers of the Equity Securities or the
general condition of the common stock market may worsen and the value of
the Equity Securities and therefore the value of the Units may decline.
Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value as market
confidence in and perceptions of the issuers change. These perceptions
are based on unpredictable factors including expectations regarding
government, economic, monetary and fiscal policies, inflation and
interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. Shareholders of common
stocks have rights to receive payments from the issuers of those common
stocks that are generally subordinate to those of creditors of, or
holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks of the type held by the Trust have a right
to receive dividends only when and if, and in the amounts, declared by
the issuer's board of directors and have a right to participate in
amounts available for distribution by the issuer only after all other
claims on the issuer have been paid or provided for. Common stocks do
not represent an obligation of the issuer and, therefore, do not offer
any assurance of income or provide the same degree of protection of
capital as do debt securities. The issuance of additional debt
securities or preferred stock will create prior claims for payment of
principal, interest and dividends which could adversely affect the
ability and inclination of the issuer to declare or pay dividends on its
common stock or the rights of holders of common stock with respect to
assets of the issuer upon liquidation or bankruptcy. The value of common
stocks is subject to market fluctuations for as long as the common
stocks remain outstanding, and thus the value of the Equity Securities
in the Portfolio may be expected to fluctuate over the life of the Trust
to values higher or lower than those prevailing on the Initial Date of
Deposit.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of
the entity, have generally inferior rights to receive payments from the
issuer in comparison with the rights of creditors of, or holders of debt
obligations or preferred stocks issued by, the issuer. Cumulative
preferred stock dividends must be paid before common stock dividends and
any cumulative preferred stock dividend omitted is added to future
dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on
liquidation which are senior to those of common stockholders.
Whether or not the Equity Securities are listed on a national securities
exchange, the principal trading market for the Equity Securities may be
in the over-the-counter market. As a result, the existence of a liquid
trading market for the Equity Securities may depend on whether dealers
will make a market in the Equity Securities. There can be no assurance
that a market will be made for any of the Equity Securities, that any
market for the Equity Securities will be maintained or of the liquidity
of the Equity Securities in any markets made. In addition, the Trust may
be restricted under the Investment Company Act of 1940 from selling
Equity Securities to the Sponsor. The price at which the Equity
Securities may be sold to meet redemptions, and the value of the Trust,
will be adversely affected if trading markets for the Equity Securities
are limited or absent.
Unit holders will be unable to dispose of any of the Equity Securities
in the Portfolio, as such, and will not be able to vote the Equity
Securities. As the holder of the Equity Securities, the Trustee will
have the right to vote all of the voting stocks in the Trust and will
vote such stocks in accordance with the instructions of the Sponsor.
What are Some Additional Considerations for Investors?
Investors should be aware of certain other considerations before making
a decision to invest in the Trust.
Page 13
The value of the Equity Securities, like the value of the Zero Coupon
Bonds, will fluctuate over the life of the Trust and may be more or less
than the price at which they were deposited in the Trust. The Equity
Securities may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities. However, the Sponsor believes that, even if the Equity
Securities deposited in the Trust are worthless, an event which the
Sponsor considers highly unlikely, the Zero Coupon Bonds will provide
sufficient principal to at least equal $10.00 per Unit at the
termination of the Trust (which is equal to the per Unit value at the
maturity of the Zero Coupon Bonds). This feature of the Trust provides
Unit holders with principal protection, although they might forego any
earnings on the amount invested. To the extent that Units are purchased
at a price less than $10.00 per Unit, this feature may also provide a
potential for capital appreciation.
Unless a Unit holder purchases Units of the Trust on the date of this
Part Two Prospectus (or another date when the value of the Units is
$10.00 or less), total distributions, including distributions made upon
termination of the Trust, may be less than the amount paid for a Unit.
The Trust consists of the Securities listed under "Portfolio" appearing
in Part One. The Trustee will have no power to vary the investments of
the Trust, i.e., the Trustee will have no managerial power to take
advantage of market variations to improve a Unit holder's investment,
but may dispose of Securities only under limited circumstances. See "How
May Securities be Removed from the Trust?"
To the best of the Sponsor's knowledge, there is no litigation pending
as of the date of this Part Two Prospectus in respect of any Security
which might reasonably be expected to have a material adverse effect on
the Trust. At any time after the Initial Date of Deposit, litigation may
be instituted on a variety of grounds with respect to the Securities.
The Sponsor is unable to predict whether any such litigation will be
instituted, or if instituted, whether such litigation might have a
material adverse effect on the Trust.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. The Public Offering
Price is based on the aggregate bid side evaluation of the Zero Coupon
Bonds and the aggregate underlying value of the Equity Securities in the
Trust, plus or minus cash, if any, in the Income and Capital Accounts of
the Trust, plus a maximum sales charge of 5.5% of the Public Offering
Price (equivalent to 5.820% of the net amount invested) divided by the
number of outstanding Units of the Trust. The minimum purchase of the
Trust is 100 Units. The applicable sales charge is reduced by a discount
as indicated below for volume purchases:
Percent of Percent of
Offering Net Amount
Number of Units Price Invested
_______________ __________ __________
10,000 but less than 50,000 0.60% 0.6036%
50,000 but less than 100,000 1.30% 1.3171%
100,000 or more 2.10% 2.1450%
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" appearing in Part One in accordance with fluctuations in
the prices of the underlying Securities. The aggregate value of the
Units of the Trust shall be determined (a) on the basis of the bid
prices of the Zero Coupon Bonds and the aggregate underlying value of
the Equity Securities therein plus or minus cash, if any, in the Income
and Capital Accounts of the Trust, (b) if bid prices are not available
for the Zero Coupon Bonds, on the basis of bid prices for comparable
securities, (c) by determining the value of the Zero Coupon Bonds on the
bid side of the market by appraisal, or (d) by any combination of the
above. The aggregate underlying value of the Equity Securities will be
determined in the following manner: if the Equity Securities are listed
on a national securities exchange or The Nasdaq Stock Market, this
evaluation is generally based on the closing sale prices on that
exchange or that system (unless it is determined that these prices are
inappropriate as a basis for valuation) or, if there is no closing sale
price on that exchange or system, at the closing bid prices. If the
Equity Securities are not so listed or, if so listed and the principal
market therefore is other than on the exchange, the evaluation shall
Page 14
generally be based on the current bid price on the over-the-counter
market (unless it is determined that these prices are inappropriate as a
basis for evaluation). If current bid prices are unavailable, the
evaluation is generally determined (a) on the basis of current bid
prices for comparable securities, (b) by appraising the value of the
Equity Securities on the bid side of the market or (c) by any
combination of the above.
Although payment is normally made three 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 three business days following such order
or shortly thereafter. See "Rights of Unit Holders-How May Units be
Redeemed?" for information regarding the ability to redeem Units ordered
for purchase.
How are Units Distributed?
Units repurchased in the secondary market (see "Will There be a
Secondary Market?") may be offered by this Part Two Prospectus at the
secondary market public offering price determined in the manner
described above.
The Sponsor reserves the right to change the amount of the concession or
agency commission from time to time. Certain commercial banks may be
making Units of the Trust available to their customers on an agency
basis. A portion of the sales charge paid by these customers is retained
by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall
Act does permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are not
permitted under such Act. In Texas and in certain other states, any
banks making Units available must be registered as broker/dealers under
state law.
The Sponsor may from time to time in its advertising and sales materials
compare the then current estimated returns on the Trust and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on taxable investments such as corporate or U.S.
Government bonds, bank CDs and money market accounts or money market
funds, each of which has investment characteristics that may differ from
those of the Trust. U.S. Government bonds, for example, are backed by
the full faith and credit of the U.S. Government and bank CDs and money
market accounts are insured by an agency of the federal government.
Money market accounts and money market funds provide stability of
principal, but pay interest at rates that vary with the condition of the
short-term debt market. The investment characteristics of the Trust are
described more fully elsewhere in this Prospectus.
From time to time the Sponsor may implement programs under which
broker/dealers, banks or other selling agents of the Fund may receive
nominal awards from the Sponsor for each of their registered
representatives who have sold a minimum number of UIT Units during a
specified time period. In addition, at various times the Sponsor may
implement other programs under which the sales force of a broker/dealer,
bank or other selling agent may be eligible to win other nominal awards
for certain sales efforts, or under which the Sponsor will reallow to
any such broker/dealer, banks or other selling agents that sponsors
sales contests or recognition programs conforming to criteria
established by the Sponsor, or participates in sales programs sponsored
by the Sponsor, an amount not exceeding the total applicable sales
charges on the sales generated by such person at the public offering
price during such programs. Also, the Sponsor in its discretion may from
time to time pursuant to objective criteria established by the Sponsor
pay fees to qualifying broker/dealers, banks or other selling agents for
certain services or activities which are primarily intended to result in
sales of Units of the Trusts. Such payments are made by the Sponsor out
of its own assets, and not out of the assets of the Trusts. These
programs will not change the price Unit holders pay for their Units or
the amount that the Trusts will receive from the Units sold.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor also realizes profits
or sustains losses in the amount of any difference between the price at
which Units are purchased and the price at which Units are resold (which
price includes a sales charge of 5.5%) or redeemed. The secondary market
public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
Page 15
RIGHTS OF UNIT HOLDERS
How is Evidence of Ownership Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units may be evidenced by registered certificates executed
by the Trustee and the Sponsor. Delivery of certificates representing
Units ordered for purchase is normally made three business days
following such order or shortly thereafter. Certificates are
transferable by presentation and surrender to the Trustee properly
endorsed or accompanied by a written instrument or instruments of
transfer. Certificates to be redeemed must be properly endorsed or
accompanied by a written instrument or instruments of transfer. A Unit
holder must sign exactly as his name appears on the face of the
certificate with the signature guaranteed by a participant in the
Securities Transfer Agents Medallion Program ("STAMP") or such other
signature guaranty program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee. In certain instances the
Trustee may require additional documents such as, but not limited to,
trust instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority. Record ownership
may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification.
Unit holders may elect to hold their Units in uncertificated form. The
Trustee will maintain an account for each such Unit holder and will
credit each such account with the number of Units purchased by that Unit
holder. Within two business days of the issuance or transfer of Units
held in uncertificated form, the Trustee will send to the registered
owner of Units a written initial transaction statement containing a
description of the Trust; the number of Units issued or transferred; the
name, address and taxpayer identification number, if any, of the new
registered owner; a notation of any liens and restrictions of the issuer
and any adverse claims to which such Units are or may be subject or a
statement that there are no such liens, restrictions or adverse claims;
and the date the transfer was registered. Uncertificated Units are
transferable through the same procedures applicable to Units evidenced
by certificates (described above), except that no certificate need be
presented to the Trustee and no certificate will be issued upon the
transfer unless requested by the Unit holder. A Unit holder may at any
time request the Trustee to issue certificates for Units.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit
holder may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Income and Capital Distributed?
The Trustee will distribute any net income (other than accreted
interest) received with respect to any of the Securities in the Trust on
or about the Income Distribution Dates to Unit holders of record on the
preceding Income Record Date. See "Summary of Essential Information" in
Part One of this Prospectus. Proceeds received on the sale of any
Securities in the Trust, to the extent not used to meet redemptions of
Units or pay expenses, will, however, be distributed on the last day of
each month to Unit holders of record on the fifteenth day of such month
if the amount available for distribution equals at least $1.00 per 100
Units. The Trustee is not required to pay interest on funds held in the
Capital Account of a Trust (but may itself earn interest thereon and
therefore benefit from the use of such funds). Notwithstanding,
distributions of funds in the Capital Account, if any, will be made on
the last day of each December to Unit holders of record as of December
15. Income with respect to the original issue discount on the Treasury
Obligations in the Trust will not be distributed currently, although
Unit holders will be subject to Federal income tax as if a distribution
had occurred. See "What is the Federal Tax Status of Unit Holders?"
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of any distribution made by
the Trust if the Trustee has not been furnished the Unit holder's tax
identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and
Page 16
may be recovered by the Unit holder only when filing a tax return. Under
normal circumstances the Trustee obtains the Unit holder's tax
identification number from the selling broker. However, a Unit holder
should examine his or her statements from the Trustee to make sure that
the Trustee has been provided a certified tax identification number in
order to avoid this possible "back-up withholding." In the event the
Trustee has not been previously provided such number, one should be
provided as soon as possible.
Within a reasonable time after the Trust is terminated, each Unit holder
will, upon surrender of his Units for redemption, receive: (i) the pro
rata share of the amounts realized upon the disposition of Equity
Securities, unless he elects an In-Kind Distribution as described below,
(ii) a pro rata share of the amounts realized upon the disposition of
the Zero Coupon Bonds and (iii) a pro rata share of any other assets of
the Trust, less expenses of the Trust, subject to the limitation that
Zero Coupon Bonds may not be sold to pay for Trust expenses. Not less
than 60 days prior to the Zero Coupon Bonds Maturity Date the Trustee
will provide written notice thereof to all Unit holders and will include
with such notice a form to enable Unit holders to elect a distribution
of shares of Equity Securities (an "In-Kind Distribution"), if such Unit
holder owns at least 2,500 Units of the Trust, rather than to receive
payment in cash for such Unit holder's pro rata share of the amounts
realized upon the disposition by the Trustee of Equity Securities. An In-
Kind Distribution will be reduced by customary transfer and registration
charges. To be effective, the election form, together with surrendered
certificates and other documentation required by the Trustee, must be
returned to the Trustee at least five business days prior to the Zero
Coupon Bonds Maturity Date. Not less than 60 days prior to the
termination of the Trust, those Unit holders with at least 2,500 Units
will be offered the option of having the proceeds from the Equity
Securities distributed "In-Kind," or they will be paid in cash, as
indicated above. A Unit holder may, of course, at any time after the
Equity Securities are distributed, sell all or a portion of the shares.
The Trustee will credit to the Income Account of the Trust any dividends
received on the Equity Securities therein. All other receipts (e.g.,
return of principal, etc.) are credited to the Capital Account of the
Trust.
The Trustee may establish reserves (the "Reserve Account") within the
Trust for state and local taxes, if any, and any governmental charges
payable out of the Trust.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of income, if any, and the amount
of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per 100 Units. Within a reasonable period
of time after the end of each calendar year, the Trustee shall furnish
to each person who at any time during the calendar year was a Unit
holder of the Trust the following information in reasonable detail: (1)
a summary of transactions in the Trust for such year; (2) any Securities
sold during the year and the Securities held at the end of such year by
the Trust; (3) the redemption price per 100 Units based upon a
computation thereof on the 31st day of December of such year (or the
last business day prior thereto); and (4) amounts of income and capital
distributed during such year.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Securities in the Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its corporate trust office in the City of New York of the
certificates representing the Units to be redeemed, or in the case of
uncertificated Units, delivery of a request for redemption, duly
endorsed or accompanied by proper instruments of transfer with signature
guaranteed as explained above (or by providing satisfactory indemnity,
as in connection with lost, stolen or destroyed certificates), and
payment of applicable governmental charges, if any. No redemption fee
will be charged. On the third business day following such tender, the
Unit holder will be entitled to receive in cash an amount for each Unit
equal to the Redemption Price per Unit next computed after receipt by
the Trustee of such tender of Units. The "date of tender" is deemed to
be the date on which Units are received by the Trustee (if such day is a
day on which the New York Stock Exchange is open for trading), except
that as regards Units received after 4:00 p.m. Eastern time (or as of
Page 17
any earlier closing time on a day on which the New York Stock Exchange
is scheduled in advance to close at such earlier time), the date of
tender is the next day on which the New York Stock Exchange is open for
trading and such Units will be deemed to have been tendered to the
Trustee on such day for redemption at the redemption price computed on
that day. Units so redeemed shall be cancelled.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of the principal amount of a
Unit redemption if the Trustee has not been furnished the redeeming Unit
holder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal
Revenue Service and may be recovered by the Unit holder only when filing
a tax return. Under normal circumstances the Trustee obtains the Unit
holder's tax identification number from the selling broker. However, any
time a Unit holder elects to tender Units for redemption, such Unit
holder should make sure that the Trustee has been provided a certified
tax identification number in order to avoid this possible "back-up
withholding." In the event the Trustee has not been previously provided
such number, one must be provided at the time redemption is requested.
Any amounts paid on redemption representing income shall be withdrawn
from the Income Account of the Trust to the extent that funds are
available for such purpose. All other amounts paid on redemption shall
be withdrawn from the Capital Account of the Trust.
The Trustee is empowered to sell Securities of the Trust in order to
make funds available for redemption. To the extent that Securities are
sold, the size and diversity of the Trust will be reduced. Such sales
may be required at a time when Securities would not otherwise be sold
and might result in lower prices than might otherwise be realized.
Equity Securities will be sold to meet redemptions of Units before Zero
Coupon Bonds, although Zero Coupon Bonds may be sold if the Trust is
assured of retaining a sufficient principal amount of Zero Coupon Bonds
to provide funds by the maturity of the Trust at least equal to $10.00
per Unit.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Zero Coupon Bonds and the aggregate underlying value of the Equity
Securities in the Trust plus or minus cash, if any, in the Income and
Capital Accounts of the Trust. The Redemption Price per Unit is the pro
rata share of each Unit determined by the Trustee by adding: (1) the
cash on hand in the Trust; (2) the aggregate value of the Securities
held in the Trust, as determined by the Evaluator on the basis of bid
prices of the Zero Coupon Bonds and the aggregate underlying value of
the Equity Securities in the Trust next computed; and (3) dividends
receivable on Equity Securities trading ex-dividend as of the date of
computation; and deducting therefrom: (1) amounts representing any
applicable taxes or governmental charges payable out of the Trust; (2)
an amount representing estimated accrued expenses of the Trust,
including but not limited to fees and expenses of the Trustee (including
legal and auditing fees), the Evaluator and supervisory fees, if any;
(3) cash held for distribution to Unit holders of record of the Trust as
of the business day prior to the evaluation being made; and (4) other
liabilities incurred by the Trust; and finally dividing the results of
such computation by the number of Units of the Trust outstanding as of
the date thereof.
The aggregate value of the Equity Securities will be determined in the
following manner: if the Equity Securities are listed on a national
securities exchange or The Nasdaq Stock Market, this evaluation is
generally based on the closing sale prices on that exchange or that
system (unless it is determined that these prices are inappropriate as a
basis for valuation) or, if there is no closing sale price on that
exchange or system, at the closing bid prices. If the Equity Securities
are not so listed or, if so listed and the principal market therefore is
other than on the exchange, the evaluation shall generally be based on
the current bid price on the over-the-counter market (unless these
prices are inappropriate as a basis for evaluation). If current bid
prices are unavailable, the evaluation is generally determined (a) on
the basis of current bid prices for comparable securities, (b) by
appraising the value of the Equity Securities on the bid side of the
market or (c) by any combination of the above.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on the New
York Stock Exchange is restricted or any emergency exists, as a result
of which disposal or evaluation of the Securities is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances, the
Page 18
Sponsor may apply to the Securities and Exchange Commission for an order
permitting a full or partial suspension of the right of Unit holders to
redeem their Units. The Trustee is not liable to any person in any way
for any loss or damage which may result from any such suspension or
postponement.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before 1:00 p.m. Eastern time on the same
business day and by making payment therefor to the Unit holder not later
than the day on which the Units would otherwise have been redeemed by
the Trustee. Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units. In the event the Sponsor does not
purchase Units, the Trustee may sell Units tendered for redemption in
the over-the-counter market, if any, as long as the amount to be
received by the Unit holder is equal to the amount he would have
received on redemption of the Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then effective
prospectus describing such Units. Any profit or loss resulting from the
resale or redemption of such Units will belong to the Sponsor.
How May Securities be Removed from the Trust?
The Portfolio of the Trust is not "managed" by the Sponsor or the
Trustee; their activities described herein are governed solely by the
provisions of the Indenture. The Indenture provides that the Sponsor may
(but need not) direct the Trustee to dispose of an Equity Security in
the event that an issuer defaults in the payment of a dividend that has
been declared, that any action or proceeding has been instituted
restraining the payment of dividends or there exists any legal question
or impediment affecting such Equity Security, that the issuer of the
Equity Security has breached a covenant which would affect the payments
of dividends, the credit standing of the issuer or otherwise impair the
sound investment character of the Equity Security, that the issuer has
defaulted on the payment on any other of its outstanding obligations,
that the price of the Equity Security has declined to such an extent or
other such credit factors exist so that in the opinion of the Sponsor,
the retention of such Equity Securities would be detrimental to the
Trust. Zero Coupon Bonds may be sold by the Trustee only pursuant to the
liquidation of the Trust or to meet redemption requests. Pursuant to the
Indenture and with limited exceptions, the Trustee may sell any
securities or other property acquired in exchange for Equity Securities
such as those acquired in connection with a merger or other transaction.
If offered such new or exchanged securities or property, the Trustee
shall reject the offer. However, in the event such securities or
property are nonetheless acquired by a Trust, they may be accepted for
deposit in the Trust and either sold by the Trustee or held in the Trust
pursuant to the direction of the Sponsor (who may rely on the advice of
the Portfolio Supervisor). Proceeds from the sale of Securities by the
Trustee (or any securities or other property received by the Trust in
exchange for Equity Securities) are credited to the Capital Account of
the Trust for annual distribution to Unit holders or to meet redemptions.
The Trustee may also sell Securities designated by the Sponsor, or if
not so directed, in its own discretion, for the purpose of redeeming
Units of the Trust tendered for redemption and the payment of expenses;
provided, however, that in the case of Securities sold to meet
redemption requests, Zero Coupon Bonds may only be sold if the Trust is
assured of retaining a sufficient principal amount of Zero Coupon Bonds
to provide funds at the maturity of the Trust at least equal to $10.00
per Unit. Zero Coupon Bonds may not be sold by the Trustee to meet Trust
expenses.
The Sponsor, in designating Equity Securities to be sold by the Trustee,
will generally make selections in order to maintain, to the extent
practicable, the proportionate relationship among the number of shares
of individual issues of Equity Securities. To the extent this is not
practicable, the composition and diversity of the Equity Securities may
be altered. In order to obtain the best price for the Trust, it may be
necessary for the Sponsor to specify minimum amounts (generally 100
shares) in which blocks of Equity Securities are to be sold.
Page 19
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $9 billion in First Trust
unit investment trusts have been deposited. The Sponsor's employees
include a team of professionals with many years of experience in the
unit investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone (630) 241-4141. As of December
31, 1996, the total partners' capital of Nike Securities L.P. was
$9,005,203 (audited). (This paragraph relates only to the Sponsor and
not to the Trust or to any series thereof or to any other Underwriters.
The information is included herein only for the purpose of informing
investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon request.)
Who is the Trustee?
The Trustee is The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Comptroller of the Currency, the
Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not
participated in the selection of the Securities. For information
relating to the responsibilities of the Trustee under the Indenture,
reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee and any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a
copy of a notice of resignation to all Unit holders. Upon receipt of
such notice, the Sponsor is obligated to appoint a successor trustee
promptly. If the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor as provided in the Indenture.
If upon resignation of a trustee no successor has accepted the
appointment within 30 days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such or when
a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Securities. In the event of the failure 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.
Page 20
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 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 becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trust as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor and the Trustee, in which event the
Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within 30 days after notice of resignation, the Evaluator
may apply to a court of competent jurisdiction for the appointment of a
successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee).
The Indenture provides that the Trust shall terminate upon the maturity,
redemption or other disposition of the last of the Zero Coupon Bonds
held in the Trust, but in no event beyond the Mandatory Termination Date
indicated in Part One under "Summary of Essential Information." The
Trust may be liquidated at any time by consent of 100% of the Unit
holders of the Trust. In the event of termination, written notice
thereof will be sent by the Trustee to all Unit holders of the Trust.
Within a reasonable period after termination, the Trustee will follow
the procedures set forth under "How are Income and Capital Distributed?"
Commencing on the Zero Coupon Bonds Maturity Date, Equity Securities
will begin to be sold in connection with the termination of the Trust.
The Sponsor will determine the manner, timing and execution of the sale
of the Equity Securities. Written notice of any termination of the Trust
specifying the time or times at which Unit holders may surrender their
certificates for cancellation shall be given by the Trustee to each Unit
holder at his address appearing on the registration books of the Trust
maintained by the Trustee. At least 60 days prior to the Zero Coupon
Bonds' Maturity Date the Trustee will provide written notice thereof to
all Unit holders and will include with such notice a form to enable Unit
holders to elect a distribution of shares of Equity Securities (reduced
by customary transfer and registration charges), if such Unit holder
owns at least 2,500 Units of the Trust, rather than to receive payment
in cash for such Unit holder's pro rata share of the amounts realized
upon the disposition by the Trustee of Equity Securities. All Unit
holders will receive their pro rata portion of the Zero Coupon Bonds in
cash upon the termination of the Trust. To be effective, the election
form, together with surrendered certificates and other documentation
Page 21
required by the Trustee, must be returned to the Trustee at least five
business days prior to the Zero Coupon Bonds' Maturity Date. Unit
holders not electing a distribution of shares of Equity Securities will
receive a cash distribution from the sale of the remaining Securities
within a reasonable time after the Trust is terminated. Regardless of
the distribution involved, the Trustee will deduct from the funds of the
Trust any accrued costs, expenses, advances or indemnities provided by
the Trust Agreement, including estimated compensation of the Trustee and
costs of liquidation and any amounts required as a reserve to provide
for payment of any applicable taxes or other governmental charges. Any
sale of Securities in the Trust upon termination may result in a lower
amount than might otherwise be realized if such sale were not required
at such time. The Trustee will then distribute to each Unit holder his
pro rata share of the balance of the Income and Capital Accounts.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Carter, Ledyard & Milburn, acts as counsel for the Trustee and as
special New York tax counsel for the Trust.
Experts
The financial statements of the Trust appearing in Part One of this
Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
appearing elsewhere therein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
Page 22
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
________________
* As published by the rating companies.
** Bonds insured by AMBAC Indemnity Corporation are automatically rated
"AAA" by Standard & Poor's.
Page 23
Moody's. A brief description of the applicable Moody's rating symbols
and their meanings follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.***
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
________________________
***Bonds insured by AMBAC Indemnity Corporation are automatically rated
"Aaa" by Moody's.
Page 24
CONTENTS:
Growth & Municipal Trust Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust? 3
What are the Expenses and Charges? 3
What is the Federal Tax Status of Unit Holders? 4
Portfolio:
What are the Zero Coupon Bonds? 10
How are the Zero Coupon Bonds Insured? 12
What are Equity Securities? 12
What are Some Additional Considerations for
Investors? 13
Public Offering:
How is the Public Offering Price Determined? 14
How are Units Distributed? 15
What are the Sponsor's Profits? 15
Rights of Unit Holders:
How is Evidence of Ownership Issued and
Transferred? 16
How are Income and Capital Distributed? 16
What Reports will Unit Holders Receive? 17
How May Units be Redeemed? 17
How May Units be Purchased by the Sponsor? 19
How May Securities be Removed from the Trust? 19
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 20
Who is the Trustee? 20
Limitations on Liabilities of Sponsor and Trustee 20
Who is the Evaluator? 21
Other Information:
How May the Indenture be Amended or
Terminated? 21
Legal Opinions 22
Experts 22
Description of Bond Ratings 23
__________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (REGISTERED TRADEMARK)
GROWTH & MUNICIPAL
TRUST SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
June 30, 1997
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 25
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
61 GROWTH & MUNICIPAL TRUST, SERIES 1, certifies that it meets
all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment of its
Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the Village of Lisle and
State of Illinois on June 30, 1997.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 61
GROWTH & MUNICIPAL TRUST, SERIES 1
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) June 30, 1997
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated May 30, 1997 in this
Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated June 24, 1997.
ERNST & YOUNG LLP
Chicago, Illinois
June 23, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> GROWTH & MUNICIPAL TRUST SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 2,942,263
<INVESTMENTS-AT-VALUE> 3,346,891
<RECEIVABLES> 1,088
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,347,979
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,969
<TOTAL-LIABILITIES> 15,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,942,263
<SHARES-COMMON-STOCK> 307,081
<SHARES-COMMON-PRIOR> 429,230
<ACCUMULATED-NII-CURRENT> (14,881)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 404,628
<NET-ASSETS> 3,332,010
<DIVIDEND-INCOME> 19,706
<INTEREST-INCOME> 107,023
<OTHER-INCOME> 0
<EXPENSES-NET> 8,911
<NET-INVESTMENT-INCOME> 117,818
<REALIZED-GAINS-CURRENT> 81,371
<APPREC-INCREASE-CURRENT> 86,339
<NET-CHANGE-FROM-OPS> 285,528
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,193
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 122,149
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (966,980)
<ACCUMULATED-NII-PRIOR> 3,952
<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>
