File No. 33-61830
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
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 70
GREAT LAKES CONVERTIBLE 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 : August 31, 1994
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
June 15, 1994.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
398,976 UNITS
PROSPECTUS
Part One
Dated August 19, 1994
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The Great Lakes Convertible Trust, Series 1 (the "Trust") is a unit investment
trust consisting of a portfolio of convertible subordinated debentures and
convertible preferred stocks. At July 18, 1994, each Unit represented a
1/398,976 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 Unit is equal to the aggregate value of the
Convertible 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, 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
July 18, 1994, the Public Offering Price per Unit was $5.9579 (see "Public
Offering" in Part Two). The minimum purchase is $1,000.
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 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF JULY 18, 1994
Sponsor: Nike Securities L.P.
Evaluator: First Trust Advisors, L.P.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal amount or stated value of Convertible
Securities in the Trust $2,175,000
Number of Units 398,976
Fractional Undivided Interest in the Trust per Unit 1/398,976
Public Offering Price:
Aggregate Value of Convertible Securities in the
Portfolio $2,245,063
Aggregate Value of Convertible Securities per Unit $5.6271
Income and Principal cash in the Portfolio $1,340
Income and Principal cash per Unit $.0033
Sales Charge 5.820% (5.5% of Public Offering Price,
excluding income and principal cash) $.3275
Public Offering Price per Unit $5.9579
Redemption Price and Sponsor's Repurchase Price per
Unit ($.3275 less than the Public Offering Price
per Unit) $5.6304
</TABLE>
Date Trust Established May 20, 1993
Mandatory Termination Date June 1, 1999
<TABLE>
<S> <C>
Calculation of Estimated Net Annual Income per Unit:
Estimated Gross Annual Income per Unit $.3723
Less: Estimated Annual Expense per unit .0182
______
Estimated Net Annual Income per Unit $.3541
======
</TABLE>
Evaluator's Annual Fee: $.0030 per Unit 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 $.0025 per
of the Sponsor Unit outstanding annually
Trustee's Annual Fee: $.0084 per Unit outstanding.
Capital Distribution Record Date and Distribution Date: Distributions from
the Capital Account will be made monthly on the last day of the month to Unit
holders of record on the fifteenth day of each month if the amount available
for distribution equals at least $1.00 per Unit. Nothwithstanding,
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 March, June, September
and December.
Income Distribution Date: The last day of each March, June, September and
December.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Special Situations Trust, Series 70,
Great Lakes Convertible Trust, Series 1
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust,
Series 70, Great Lakes Convertible Trust, Series 1 as of April 30, 1994, and
the related statements of operations and changes in net assets for the period
from the Date of Deposit, May 20, 1993, to April 30, 1994. These financial
statements are the responsibility of the Trust's Trustee. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 April 30, 1994, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides 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 70, Great Lakes Convertible Trust, Series 1 at
April 30, 1994, and the results of its operations and changes in its net
assets for the year then ended and for the period from the Date of Deposit,
May 20, 1993, to April 30, 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 1, 1994
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Convertible securities, at value (cost,
$2,759,800) (Note 1) $2,583,250
Interest and dividends receivable 43,748
Cash 18,180
__________
2,645,178
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Accrued liabilities 317
__________
Net assets, applicable to 452,876 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,759,800
Net unrealized depreciation (Note 2) (176,550)
Distributable funds 61,611
__________
$2,644,861
==========
Net asset value per unit $5.8401
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
PORTFOLIO - See notes to portfolio.
April 30, 1994
<TABLE>
<CAPTION>
Coupon Standard Principal
Name of issuer and title interest Date of Conversion Redemption & Poor's amount or
of convertible securities rate maturity provisions(c) provisions(a) rating(b) stated value Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible Subordinated
Debentures:
Consolidated Natural Gas Co. 7.25 % 12/15/2015 18.519 shares 1996 @ 103.63
until 12/15/2015 2001 @ 100 S.F. A+ $200,000 203,000
Cooker Restaurant Corp. 6.75 10/01/2002 46,377 shares
until 10/01/2002 1994 @ 104 NR 220,000 198,000
Kroger Company 6.375 12/01/1999 53.533 shares
until 12/01/1999 1994 @ 105.46 B+ 200,000 250,000
Marsh Supermarkets, Inc. 7.00 2/15/2003 64.516 shares
until 02/15/2003 1996 @ 103.50 B 350,000 327,250
Mead Corporation 6.75 9/15/2012 18.922 shares 1994 @ 102.4
until 09/15/2012 1998 @ 100 S.F. BBB 200,000 195,000
The Olsten Corporation 4.875 5/15/2003 28.736 shares
until 05/15/2003 1996 @ 103.41 BBB 200,000 210,500
Outboard Marine Corporation 7.00 7/01/2002 44.944 shares
until 07/01/2002 1995 @ 104.90 B+ 300,000 319,500
Pennzoil Company 6.50 1/15/2003 11.887 shares
until 01/15/2003 1998 @ 103.25 BBB 200,000 226,000
USX-U.S. Steel Group, Inc. 5.75 7/01/2001 15.936 shares 1994 @ 100.87
until 07/01/2001 1994 @ 100 S.F. BB- 350,000 294,000
Cumulative Convertible Preferred
Stocks:
MidAm, Incorporated, $1.8125
Cumulative Convertible
Preferred Stock, Series A
(6,000 shares, $25 stated 1.222 shares
value per share) - - until 12/31/2049# 1997 @ 25 A- 150,000 162,000
National City Corporation,
8.00% Cumulative Convertible
Preferred Stock (3,000 shares, 1.192 shares
$50 stated value per share) - - until 12/31/2049# 1996 @ 52 BBB+ 150,000 198,000
______________________
$2,520,000 2,583,250
======================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
NOTES TO PORTFOLIO
April 30, 1994
(a) Shown under this heading are the year in which each issue of convertible
securities is initially redeemable and the redemption price in that year
or, if currently redeemable, the redemption price at April 30, 1994.
Unless otherwise indicated each issue continues to be redeemable at
declining prices thereafter (but not below par value). "S.F." indicates
a sinking fund is established with respect to an issue of convertible
securities. All of the convertible securities in the Trust are subject
to call within five years.
(b) The ratings shown are those effective at April 30, 1994.
(c) There is shown under this heading the number of shares of common stock
per $1,000 par value into which the Convertible Subordinated Debentures
are convertible. The designation "#" represents the number of shares of
common stock into which each share of the Convertible Preferred Stocks
is convertible.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
May 20, 1993, to April 30, 1994
<TABLE>
<S> <C>
Interest $184,492
Dividend 20,156
________
204,648
Expenses:
Trustee's fees and related expenses (3,747)
Evaluator's fees -
Supervisory fees (1,072)
________
Total expenses (4,819)
________
Investment income - net 199,829
Net gain (loss) on investments:
Net realized gain (loss) 12,588
Change in unrealized appreciation or
depreciation (176,550)
________
(163,962)
________
Net increase in net assets resulting
from operations $35,867
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
May 20, 1993, to April 30, 1994
<TABLE>
<S> <C>
Net increase in net assets resulting
from operations:
Investment income - net $199,829
Net realized gain (loss) on investments 12,588
Change in unrealized appreciation or
depreciation on investments (176,550)
__________
35,867
Distributions to unit holders:
Investment income - net (138,221)
Principal from investment transactions (1,532,460)
__________
(1,670,681)
__________
Total increase (decrease) in net assets (1,634,814)
Net assets:
At the beginning of the period 4,279,675
__________
At the end of the period (including
distributable funds applicable to
Trust units of $61,611) $2,644,861
==========
Trust units outstanding at the end of
the period 452,876
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Convertible securities are stated at values as determined by First Trust
Advisors, L.P. (the Evaluator), an affiliate of the Sponsor. The values are
based on (1) current bid prices for the convertible securities obtained from
dealers or brokers who customarily deal in securities comparable to those held
by the Trust, (2) current bid prices for comparable securities, (3) appraisal
or (4) any combination of the above.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the
securities on the Date of Deposit, May 20, 1993. The premium or discount on
the convertible subordinated debentures (including original issue discount)
existing at the Date of Deposit is not being amortized. Realized gain (loss)
from security transactions is reported on an identified cost basis. Sales of
securities are recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York, which is based on $.0084 per unit. Additionally, subsequent to the
primary offering period (which ended on May 24, 1994), a fee of $.0030 per
Unit is payable to the Evaluator and the Trust pays all related expenses of
the Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized depreciation at April 30, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(201,550)
Unrealized appreciation 25,000
_________
$(176,550)
=========
</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 convertible securities on the date of an investor's
purchase, plus a sales charge of 5.5% of the public offering price which is
equivalent to approximately 5.820% of the net amount invested.
<PAGE>
Distributions to unit holders -
Distributions of net investment income to unit holders are made on the last
day of March, June, September and December to unit holders of record on the
fifteenth day of March, June, September and December. Principal distributions
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 unit. Notwithstanding, principal distributions, if any, are
made in December of each year.
Accrued interest to the Date of Deposit on the convertible subordinated
debentures, totaling $91,698, plus net interest accruing to the first
settlement date, May 27, 1993, totaling $4,473, were distributed to the
Sponsor as the unit holder of record. The initial subsequent distribution,
$.0772 per unit, was paid on September 30, 1993 to all unit holders of record
on September 15, 1993.
Selected data per unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from
the Initial
Date of Deposit,
May 20, 1993, to
Apr. 30, 1994
<S> <C>
Interest and dividend income $.4519
Expenses (.0107)
________
Investment income - net .4412
Distributions to unit holders:
Investment income - net (.3052)*
Principal from investment transactions (3.3838)
Net gain (loss) on investments (.3621)
________
Total increase (decrease) in net assets (3.6099)
Net assets:
Beginning of the period 9.4500
________
End of the period $5.8401
========
</TABLE>
[FN]
*Includes $.0099 distributed to the Sponsor as discussed above.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
PART ONE
Must be Accompanied by Part Two
____________________
P R O S P E C T U S
____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: United States Trust Company of New York
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
Great Lakes Convertible Trust Series
The First Trust Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated August 22, 1994
The First Trust Special Situations Trust, Great Lakes Convertible
Trust (the "Trust") is a unit investment trust consisting of a
portfolio of convertible subordinated debentures ("Convertible
Bonds") and cumulative convertible preferred stocks ("Convertible
Preferred Stocks") (collectively, such Convertible Bonds and Convertible
Preferred Stocks are referred to herein as the "Convertible Securities")
issued by selected companies headquartered in the Great Lakes
region, except up to 15% of the portfolio on the Date of Deposit
may consist of Convertible Securities outside this region. Convertible
Securities are securities that are convertible into shares of
common stock of the issuing corporation under specified conditions.
The objectives of the Trust are current income and potential growth
of capital through investment in a portfolio of Convertible Bonds
and Convertible Preferred Stocks. The payment of income and the
potential growth of capital are, of course, dependent upon the
continuing ability of the issuers to meet their respective obligations.
Convertible securities are securities that are convertible into
shares of common stock of the issuing corporation under specified
conditions. Each Convertible Bond currently pays interest at a
fixed rate and offers a return of principal after a specified
time period. Each Convertible Preferred Stock currently pays a
dividend. In addition, such Convertible Preferred Stocks have
a priority to dividend payments over common stocks. Convertible
securities generally offer income yields that are higher than
the dividend yield, if any, of the underlying common stock of
the issuer, but lower than the yield of non-convertible debt securities
issued by such issuer. Convertible securities rank senior to common
stocks in an issuer's capital structure, but are junior to non-convertible
debt securities. As convertible securities are considered junior
to any non-convertible debt securities issued by the corporation,
convertible securities are typically rated by established credit
ratings agencies at one level below the rating on such corporation's
non-convertible debt. Although the Trust is designed principally
for income-oriented investors, Unit holders should be aware that
43% of the Trust's assets on the Date of Deposit were invested
in Convertible Securities rated BB or B by Standard & Poor's Corporation
or Ba or B by Moody's Investors Service, Inc. Corporate bonds
with such ratings are commonly referred to as "junk bonds" and
are considered speculative by the major ratings agencies. See
"Portfolio-What are the Risks of Investing in Convertible Securities?"
for information relating to special risks of the Convertible Securities.
The Trust has a Mandatory Termination Date as set forth in Part
One of this Prospectus. There is, of course, no guarantee that
the objectives of the Trust will be achieved.
Pursuant to the Indenture, the Trustee is not permitted to exercise
the conversion option on any of the Convertible Securities in
the Trust and continue to hold securities received upon such exercise
in the Trust. If any of the Convertible Securities are called
for redemption, the Sponsor in consultation with the Portfolio
Supervisor will instruct the Trustee to either (i) tender the
Convertible Security for redemption; (ii) sell the Convertible
Security prior to redemption; or (iii) exercise the conversion
option on the Convertible Security and exchange the Convertible
Security at the specified price for a specified number of shares
of common stock of the issuer; and then sell the shares of common
stock received upon the exercise of such option.
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
Each Unit of the Trust represents an undivided fractional interest
in all the Convertible Securities deposited in the Trust. Distributions
to Unit holders may be reinvested as described herein. See "How
Can Distributions to Unit Holders be Reinvested?"
Dividend and Capital Distributions. Distributions of income received
by the Trust will be paid quarterly on the Distribution Dates
to Unit holders of record on the Record Dates as set forth in
Part One of this Prospectus. Distributions of funds in the Capital
Account, if any, will be made at least annually in December of
each year. Any distribution of income and/or capital will be net
of the expenses of the Trust. 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. The Underwriter intends to and 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
underlying value of the Convertible Securities in the Trust (generally
determined by the closing bid prices of the Convertible 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 underlying value of the Convertible
Securities in the Trust (generally determined by the closing bid
prices of the Convertible 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 Mandatory Termination Date, the
Convertible Securities will begin to be sold as soon as practicable
in connection with the termination of the Trust. The Sponsor will
determine the manner, timing and execution of the sale of the
Convertible 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. See "Rights of Unit
Holders-How are Income and Capital Distributed?"
Page 2
Great Lakes Convertible Trust Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, Great Lakes Convertible
Trust is one of a series of investment companies created by the
Sponsor under the name of The First Trust Special Situations Trust,
each of which is separate and is designated by a different series
number (the "Trust"). This Series consists of an underlying separate
unit investment trust designated as Great Lakes Convertible Trust.
The Trust was created under the laws of the State of New York
pursuant to a Trust Agreement (the "Indenture"), dated the Date
of Deposit, with Nike Securities L.P., as Sponsor, United States
Trust Company of New York, as Trustee, First Trust Advisors L.P.,
as Evaluator and First Trust Advisors L.P., as Portfolio Supervisor.
The Trust consists of a portfolio of Convertible Securities issued
by selected companies headquartered in the Great Lakes region,
except up to 15% of the portfolio at the Date of Deposit may consist
of Convertible Securities outside this region. The objectives
of the Trust are current income and potential growth of capital
through investment in a portfolio of convertible subordinated
debentures and cumulative convertible preferred stocks. CONVERTIBLE
SECURITIES ARE SECURITIES THAT ARE CONVERTIBLE INTO SHARES OF
COMMON STOCK OF THE ISSUING CORPORATION UNDER SPECIFIED CONDITIONS.
EACH CONVERTIBLE BOND CURRENTLY PAYS INTEREST AT A FIXED RATE
AND OFFERS A RETURN OF PRINCIPAL AFTER A SPECIFIED TIME PERIOD.
EACH CONVERTIBLE PREFERRED STOCK CURRENTLY PAYS A DIVIDEND. IN
ADDITION, SUCH CONVERTIBLE PREFERRED STOCKS HAVE A PRIORITY TO
DIVIDEND PAYMENTS OVER COMMON STOCK. CONVERTIBLE SECURITIES GENERALLY
OFFER INCOME YIELDS THAT ARE HIGHER THAN THE DIVIDEND YIELD, IF
ANY, OF THE UNDERLYING COMMON STOCK OF THE ISSUER, BUT LOWER THAN
THE YIELD OF NON-CONVERTIBLE DEBT SECURITIES ISSUED BY SUCH ISSUER.
SEE "PORTFOLIO-WHAT ARE CONVERTIBLE SECURITIES?" THERE IS, OF
COURSE, NO GUARANTEE THAT THE OBJECTIVES OF THE TRUST WILL BE
ACHIEVED. AN INVESTMENT IN THE TRUST SHOULD BE MADE WITH AN UNDERSTANDING
OF THE MARKET RISKS AND INVESTMENT CHARACTERISTICS OF BOTH BONDS
AND COMMON STOCKS.
To the best knowledge of the Sponsor, there is no litigation pending
as of the date of this Part Two Prospectus in respect of any Convertible
Securities which might reasonably be expected to have a material
adverse effect upon the Trust. At any time after the date of this
Part Two Prospectus, litigation may be initiated on a variety
of grounds with respect to Convertible Securities in the Trust.
Such litigation may affect the validity of such Convertible Securities.
In addition, other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken
with respect to the Convertible Securities.
Each Unit initially offered represents that fractional undivided
interest in the Trust as is set forth in Part One of this Prospectus.
To the extent that any Units of the Trust are redeemed by the
Trustee, the fractional undivided interest in the Trust represented
by each unredeemed Unit will increase, although the actual interest
in the Trust represented by such fraction will remain substantially
unchanged. Units will remain outstanding until redeemed upon tender
to the Trustee by any Unit holder, which may include the Sponsor,
or until the termination of the Trust Agreement. The Trustee will
have no power to vary the Investment 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.
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 of the Trust outstanding on January 1 of
each year except for Trusts which were established subsequent
to the last January 1, in which case the fee will be based on
the number of Units of the Trust outstanding as of the Date of
Deposit. The fee may exceed the actual costs of providing such
supervisory
Page 3
services for this Trust, but at no time will the total amount
received for portfolio supervisory services rendered to unit investment
trusts of which Nike Securities L.P. is the Sponsor in any calendar
year exceed the aggregate cost to First Trust Advisors L.P. of
supplying such services in such year.
For valuation of the Convertible Securities in the Trust, the
Evaluator will receive a fee as indicated in Part One of this
Prospectus. 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 $.0084 per annum per Unit in the Trust outstanding
based on the largest number of Units of the Trust outstanding
at any time during the calendar 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 Evaluator's
fees are payable on or before each Distribution Date 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 future distributions, payment of expenses and redemptions
and since such Accounts are non-interest-bearing to Unit holders,
the Trustee benefits thereby. Part of the Trustee's compensation
for its services to the Trust is expected to result from the use
of these funds. Both fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases
under the category "All Services Less Rent of Shelter" in the
Consumer Price Index published by the United States Department
of Labor.
The following additional charges are or may be incurred by the
Trust: all expenses (including legal and annual auditing expenses)
of the Trustee incurred by or in connection with its responsibilities
under the Indenture, except in the event of negligence, bad faith
or willful misconduct on its part; the expenses and costs of any
action undertaken by the Trustee to protect 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
Convertible 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); and expenditures incurred in contacting
Unit holders upon termination of the Trust. The above expenses
and the Trustee's annual fee, when paid or owing to the Trustee,
are secured by a lien on the Trust. In addition, the Trustee is
empowered to sell Convertible Securities of 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.
Unless the Sponsor determines that such an audit is not required,
the Indenture requires the accounts of the Trust shall be audited
on an annual basis at the expense of the Trust by independent
auditors selected by the Sponsor. So long as the Sponsor is making
a secondary market for Units, the Sponsor shall bear the cost
of such annual audits to the extent such cost exceeds $.0050 per
Unit. Unit holders of a Trust covered by an audit may obtain a
copy of the audited financial statements from the Trustee upon
request.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a security
from the last day on which interest thereon was paid. Interest
on the Convertible Bonds in the Trust generally is paid semi-annually
to the Trust. However, interest on the Convertible Bonds in the
Trust is accounted for daily on an accrual basis. Because of this,
the Trust always has an amount of interest earned but not yet
collected by the Trustee because of non-collected coupons. For
this reason, the Public Offering Price of Units will have added
to it the proportionate share of accrued and undistributed interest
to the date of settlement. Accrued interest will not include dividends
on Convertible Preferred Stocks, which will be distributed on
Income Distribution Dates as it is collected by the Trust.
Except through an advancement of its own funds, the Trustee has
no cash for distribution to Unit holders until it receives interest
and dividend payments on the Convertible Securities in the Trust.
The Trustee will recover its advancements without interest or
other costs to the Trust from interest or dividends received on
the
Page 4
Convertible Securities in the Trust. When these advancements have
been recovered, regular distributions of income to Unit holders
will commence. See "Rights of Unit Holders-How are Income and
Principal Distributed?"
Because of the varying interest payment dates of the Convertible
Bonds, accrued interest at any point in time will be greater than
the amount of interest actually received by the Trust and distributed
to Unit holders. Therefore, there will always remain an item of
accrued interest that is added to the value of the Units. If a
Unit holder sells or redeems all or a portion of his Units, he
will be entitled to receive his proportionate share of the accrued
interest from the purchaser of his Units. Since the Trustee has
the use of amounts held in the Income Account for distributions
to Unit holders and since such Account is non-interest-bearing
to Unit holders, the Trustee benefits thereby.
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. 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.
Neither the Sponsor nor Chapman and Cutler has reviewed the Convertible
Securities to be deposited in the Trust. Rather, they have assumed
that (i) (A) Convertible Preferred Stock qualifies as equity for
Federal income tax purposes and that, accordingly, amounts received
by the Trust with respect to the Convertible Preferred Stocks
will qualify as dividends as defined in Section 316 of the Code
and (B) such dividends would generally be eligible for the dividends
received deduction if the Convertible Preferred Stocks were directly
held by a corporate Unit holder for at least 46 days and (ii)
the Convertible Bonds qualify as debt for Federal income tax purposes.
Based on the above, in the opinion of Chapman & 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.
2. Each Unit holder of the Trust is considered to be the owner
of a pro rata portion of each of the Trust assets under subpart
E, subchapter J of chapter 1 of the Code. Each Unit holder will
be considered to have received his pro rata share of income derived
from each Trust asset when such income is received by the Trust.
Each Unit holder will also be required to include in taxable income
for Federal income tax purposes, original issue discount with
respect to his interest in any Convertible Bonds held by the Trust
at the same time and in the same manner as though the Unit holder
were the direct owner of such interest.
3. Each Unit holder will have a taxable event when the Trust
disposes of a Convertible Security, or when the Unit holder redeems
or sells his Units. A Unit holder's tax basis in his Units will
equal his tax basis in his pro rata portion of all of the assets
of the Trust. Unit holders must reduce the tax basis of their
Units for their share of accrued interest received, if any, on
Convertible Bonds delivered after the date the Unit holders pay
for their Units and, consequently, such Unit holders may have
an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee
disposes of Convertible Securities (whether by sale, exchange,
payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder. The amount of any such gain or
loss is measured by comparing the Unit holder's pro rata share
of the total proceeds from such disposition with his basis for
his fractional interest in the asset disposed of. In the case
of a Unit holder who purchases his Units, such basis is determined
by apportioning the tax basis for the Units among each of the
Trust assets ratably according to value as of the date of acquisition
of the Units.
4. The basis of each Unit and of each Convertible Bond which
was issued with original issue discount must be increased by the
amount of accrued original issue discount and the basis of each
Unit and of each
Page 5
Convertible Bond which was purchased by the Trust at a premium
must be reduced by the annual amortization of bond premium which
the Unit holder has properly elected to amortize under Section
171 of the Code. The tax cost reduction requirements of the Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost. Original issue discount is effectively treated as interest
for Federal income tax purposes and the amount of original issue
discount in this case is generally the difference between the
bond's purchase price and its stated redemption price at maturity.
A Unit holder will be required to include in gross income for
each taxable year the sum of his daily portions of any original
issue discount attributable to the Convertible Bonds held by the
Trust as such original issue discount accrues and will in general
be subject to Federal income tax with respect to the total amount
of such original issue discount that accrues for such year even
though the income is not distributed to the Unit holders during
such year to the extent it is not less than a "de minimis" amount
as determined under the Code. To the extent the amount of such
discount is less than the respective "de minimis" amount, such
discount shall be treated as zero. In general, original issue
discount accrues daily under a constant interest rate method which
takes into account the semi-annual compounding of accrued interest.
Unit holders should consult their tax advisers regarding the Federal
income tax consequences and accretion of original issue discount.
5. For Federal income tax purposes, a Unit holder's pro rata
portion of dividends as defined by Section 316 of the Code paid
by a corporation with respect to the Convertible Preferred Stock
held by the Trust is 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 Convertible
Preferred Stock which exceed such current and accumulated earnings
and profits will first reduce a Unit holder's tax basis in such
Convertible Preferred Stock, and to the extent that such dividends
exceed a Unit holder's tax basis in such Convertible Preferred
Stock 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.
6. Each Unit holder's pro rata share of each expense paid by
the Trust is deductible by the Unit holder to the same extent
as though the expense had been paid directly by him, 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. Temporary regulations have been issued which require
Unit holders to treat certain expenses of the Trust as miscellaneous
itemized deductions subject to this limitation.
The Convertible Bonds-Acquisition Premium. If a Unit holder's
tax basis of his pro rata portion in any Convertible Bonds held
by the Trust exceeds the amount payable by the issuer of the Convertible
Bonds with respect to such pro rata interest upon maturity of
the Convertible Bond, such excess would be considered "acquisition
premium" which may be amortized by the Unit holder at the Unit
holder's election as provided in Section 171 of the Code. Unit
holders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing acquisition
premium.
The Convertible Bonds-Original Issue Discount. Certain of the
Convertible Bonds in the Trust may have been acquired with "original
issue discount." In the case of any Convertible Bonds in the Trust
acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code, such discount is includable in
taxable income of the Unit holders on an accrual basis computed
daily, without regard to when payments of interest on such Convertible
Bonds are received. The Code provides a complex set of rules regarding
the accrual of original issue discount. These rules provide that
original issue discount generally accrues on the basis of a constant
compound interest rate over the term of the Convertible Bonds.
Unit holders should consult their tax advisers as to the amount
of original issue discount which accrues.
Special original issue discount rules apply if the purchase price
of the Convertible Bond by the Trust exceeds its original issue
price plus the amount of original issue discount which would have
previously accrued based upon its issue price (its "adjusted issue
price"). Similarly these special rules would apply to a Unit
Page 6
holder if the tax basis of his pro rata portion of a Convertible
Bond issued with original issue discount exceeds his pro rata
portion of its adjusted issue price. Unit holders should also
consult their tax advisers regarding these special rules.
It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield
discount obligation" within the meaning of Section 163(e)(5) of
the Code. To the extent that such an obligation is issued at a
yield in excess of six percentage points over the applicable Federal
rate, a portion of the original issue discount on such obligation
will be characterized as a distribution on stock (e.g., dividends)
for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received
by such corporation.
The Convertible Bonds-Market Discount. If a Unit holder's tax
basis in his pro rata portion of Convertible Bonds is less than
the allocable portion of such Convertible Bond's stated redemption
price at maturity (or, if issued with original issue discount,
the allocable portion of its "revised issue price"), such difference
will constitute market discount unless the amount of market discount
is "de minimis" as specified in the Code. Market discount accrues
daily computed on a straight line basis, unless the Unit holder
elects to calculate accrued market discount under a constant yield
method. Unit holders should consult their tax advisers as to the
amount of market discount which accrues.
Accrued market discount is generally includable in taxable income
to the Unit holders as ordinary income for Federal tax purposes
upon the receipt of serial principal payments on the Convertible
Bonds, on the sale, maturity or disposition of such Convertible
Bonds by the Trust, and on the sale by a Unit holder of Units,
unless a Unit holder elects to include the accrued market discount
in taxable income as such discount accrues. If a Unit holder does
not elect to annually include accrued market discount in taxable
income as it accrues, deductions for any interest expense incurred
by the Unit holder which is incurred to purchase or carry his
Units will be reduced by such accrued market discount. In general,
the portion of any interest expense which was not currently deductible
would ultimately be deductible when the accrued market discount
is included in income. Unit holders should consult their tax advisers
regarding whether an election should be made to include market
discount in income as it accrues and as to the amount of interest
expense which may not be currently deductible.
The Convertible Bonds-Basis. The tax basis of a Unit holder with
respect to his interest in a Convertible Bond is increased by
the amount of original issue discount (and market discount, if
the Unit holder elects to include market discount, if any, on
the Convertible Bonds held by the Trust in income as it accrues)
thereon properly included in the Unit holder's gross income as
determined for Federal income tax purposes and reduced by the
amount of any amortized acquisition premium which the Unit holder
has properly elected to amortize under Section 171 of the Code.
A Unit holder's tax basis in his Units will equal his tax basis
in his pro rata portion of all of the assets of the Trust.
The Convertible Preferred Stock-Dividends Received Deduction.
A corporation that owns Units will generally be entitled to a
70% dividends received deduction with respect to such Unit holder's
pro rata portion of dividends received by 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 Convertible
Preferred Stock paying such dividends. However, a corporation
owning Units should be aware that Sections 246 and 246A of the
Code impose additional limitations on the eligibility of dividends
for the 70% dividends received deduction. These limitations include
a requirement that stock (and therefore Units) must generally
be held at least 46 days (as determined under Section 246(c) of
the Code). Proposed regulations have been issued which address
special rules that must be considered in determining whether the
46-day holding requirement is met. Moreover, the allowable percentage
of the deduction will be reduced from 70% if a corporate Unit
holder owns certain stock (or Units) the financing of which is
directly attributable to indebtedness incurred by such corporation.
It should be noted that various legislative proposals that would
affect the dividends received deduction have been introduced.
Unit holders should consult with their tax advisers with respect
to the limitations on and possible modifications to the dividends
received deduction.
Page 7
Recognition of Taxable Gain or Loss Upon Disposition of Convertible
Securities by the Trust or Disposition of Units. A Unit holder
will recognize taxable capital gain (or loss) when all or part
of his pro rata interest in a Convertible Security is disposed
of in a taxable transaction for an amount greater (or less) than
his tax basis therefore. Any gain recognized on a sale or exchange
(and not constituting a realization of accrued "market discount,"
in the case of the Convertible Bonds), and any loss will, under
current law, generally be capital gain or loss except in the case
of a dealer or financial institution. As previously discussed,
gain realized on the disposition of the interest of a Unit holder
in any Convertible Bond deemed to have been acquired with market
discount will be treated as ordinary income to the extent the
gain does not exceed the amount of accrued market discount not
previously taken into income. Any capital gain or loss arising
from the disposition of a Convertible Security by the Trust or
the disposition of Units by a Unit holder will be short-term capital
gain or loss unless the Unit holder has held his Units for more
than one year in which case such capital gain or loss will be
long-term. For taxpayers other than corporations, net capital
gains are presently subject to a maximum stated marginal tax rate
of 28%. However, it should be noted that legislative proposals
are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital
gains are taxed. The tax cost reduction requirements of the Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost.
"The Revenue Reconciliation Act of 1993," (the "Tax Act"). The
Tax Act raised tax rates on ordinary income while capital gains
remain subject to a 28% maximum stated rate. Because some or all
capital gains are taxed at a comparatively lower rate under the
Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial
transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Unit holders and
prospective investors should consult with their tax advisers regarding
the potential effect of this provision on their investment in
Units.
If the Unit holder disposes of a Unit, he is deemed thereby to
have disposed of his entire pro rata interest in all Trust assets
including his pro rata portion of all of the Convertible Bonds
represented by the Unit. This may result in a portion of the gain,
if any, on such sale being taxable as ordinary income under the
market discount rules (assuming no election was made by the Unit
holder to include market discount in income as it accrues) as
previously discussed.
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 will be subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Trust for New York tax matters, 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 under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to United States Federal
and New York State and City income taxes; Unit holders may be
subject to state and local taxation in other jurisdictions (including
a foreign investor's country of residence). Unit holders should
consult their tax advisers regarding potential state, local, or
foreign taxation with respect to the Units.
Foreign Investors. A Unit holder who is a foreign investor (i.e.,
an investor other than a U.S. citizen or resident or a U.S. corporation,
partnership, estate or trust) will be subject to United States
Federal income taxes, including withholding taxes, on distributions
from the Trust relating to such investor's share of dividend income
paid on the Convertible Preferred Stock. However, interest income
(including any original issue discount) on, or any gain from the
sale or other disposition of, his pro rata interest in any Convertible
Bond or the sale of his Units will not be subject to United States
Federal income taxes, including withholding taxes, provided that
all of the following conditions are met: (i) the interest income
or gain is not effectively connected with the conduct by the foreign
investor of a trade or business within the United States, (ii)
either interest
Page 8
is not from sources within the United States or if the interest
is United States source income (which is the case for each Convertible
Bond held by the Trust) and the Convertible Bond is issued after
July 18, 1984 (which is the case for each Convertible Bond held
by the Trust), then the foreign investor does not own, directly
or indirectly, 10% or more of the total combined voting power
of all classes of voting stock of the issuer of the Convertible
Bond and the foreign investor is not a controlled foreign corporation
related (within the meaning of Section 864(d)(4) of the Code)
to the issuer of the Convertible Bond or the interest income is
not from sources within the United States, (iii) with respect
to any gain, the foreign investor (if an individual) is not present
in the United States for 183 days or more during his or her taxable
year and (iv) the foreign investor provides all certification
which may be required of his status (foreign investors may contact
the sponsor to obtain a Form W-8 which must be filed with the
Trustee and refiled every three calendar years thereafter). Foreign
investors should consult their tax advisers with respect to United
States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which
eliminates the exemption from United States taxation, including
withholding taxes, for certain "contingent interest." The provision
applies to interest received after December 31, 1993. No opinion
is expressed herein regarding the potential applicability of this
provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units
as a result thereof. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect
of this provision on their investment in Units.
Why are Investments in the Trust Suitable for Retirement Plans?
Units of the Trust may be well-suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other tax-deferred
retirement plans. Generally, the Federal income tax relating to
capital gains and income received in each of the foregoing plans
is deferred until distributions are received. Distributions from
such plans are generally treated as ordinary income but may, in
some cases, be eligible for special averaging or tax-deferred
rollover treatment. Investors considering participation in any
such plan should review specific tax laws related thereto and
should consult their attorneys or tax advisers with respect to
the establishment and maintenance of any such plan. Such plans
are offered by brokerage firms and other financial institutions.
Fees and charges with respect to such plans may vary.
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 underlying bid value of the Convertible
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. Also added to the Public Offering Price is
a proportionate share of interest accrued but unpaid on the Convertible
Securities to the date of settlement. For purposes of this Prospectus
and for computation of accrued interest, accrued interest also
includes dividends on Convertible Preferred Stocks which are trading
ex-dividend. See "How Is Accrued Interest Treated?"
The minimum purchase of the Trust is $1,000. The applicable sales
charge is reduced by a discount as indicated below for volume
purchases:
<TABLE>
<CAPTION>
Dollar Amount of Percent Percent
Transaction at of Offering of Net Amount
Public Offering Price Price Invested
_____________________ ___________ _____________
<S> <C> <C>
$100,000 but less than $500,000 1.00% 1.01%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more 3.00% 3.09%
</TABLE>
Page 9
Any such reduced sales charge shall be the responsibility of the
selling Underwriter. This reduced sales charge structure will
apply on all purchases of Units in the Trust by the same person
on any one day from the Underwriter. For purposes of calculating
the applicable sales charge, purchases of Units in the Trust will
not be aggregated with any other purchases by the same person
of units in any series of tax-exempt or other unit investment
trusts sponsored by Nike Securities L.P. Additionally, Units purchased
in the name of the spouse of a purchaser or in the name of a child
of such purchaser under 21 years of age will be deemed for the
purposes of calculating the applicable sales charge to be additional
purchases by the purchaser. The reduced sales charges will also
be applicable to a trustee or other fiduciary purchasing securities
for a single trust or single fiduciary account.
An investor may aggregate purchases of Units of two consecutive
series of Great Lakes Convertible Trust for purposes of calculating
the discount for volume purchases listed above. Additionally,
with respect to the employees, officers and directors (including
their immediate families and trustees, custodians or a fiduciary
for the benefit of such person) of the Underwriter or the Sponsor
and their subsidiaries the sales charge is reduced by 4.1% of
the Public Offering Price.
From time to time the Sponsor may implement programs under which
the Underwriter and dealers of the Trust 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 the Underwriter
or a dealer may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to the
Underwriter or any such dealer that sponsors sales contests or
recognition programs conforming to criteria established by the
Sponsor, or participates in sales programs sponsored by Sponsor,
an amount not exceeding the total applicable sales charges on
the sales generated by such person at the public offering price
during such programs. Also, the Sponsor in its discretion may
from time to time pursuant to objective criteria established by
the Sponsor pay fees to qualifying Underwriters or dealers for
certain services or activities which are primarily intended to
result in sales of Units of the Trust. Such payments are made
by the Sponsor out of its own assets, and not out of the assets
of the Trust. These programs will not change the price Unit holders
pay for their Units or the amount that the Trust will receive
from the Units sold.
The aggregate price of the Convertible Securities in the Trust
is determined by whomever from time to time is acting as evaluator
(the "Evaluator"), on the basis of bid prices, (1) on the basis
of current market prices for the Convertible Securities obtained
from dealers or brokers who customarily deal in convertible securities
comparable to those held by the Trust; (2) if such prices are
not available for any of the Convertible Securities, on the basis
of current market prices for comparable securities; (3) by determining
the value of the Convertible Securities by appraisal; or (4) by
any combination of the above.
A determination of the aggregate price of the Convertible Securities
in the Trust is made by the Evaluator on a bid price basis, as
of the close of trading on the New York Stock Exchange on each
day on which it is open, effective for all sales, purchases or
redemptions made subsequent to the last preceding determination.
The Public Offering Price of the Units during the secondary market
is equal to the bid price per Unit of the Convertible Securities
in the Trust plus the applicable sales charge. In the past, the
offering price of the Convertible Securities in the Trust could
be expected to be greater than the bid price of such Convertible
Securities by approximately 1-2% of the aggregate principal amount
or stated value of such Convertible Securities.
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. See "Rights of
Unit Holders-How May Units Be Redeemed?" for information regarding
the ability to redeem Units ordered for purchase.
Page 10
How are Units Distributed?
It is the intention of the Sponsor to qualify Units of the Trust
for sale in a number of states. Sales initially will be made to
dealers and others at prices which represent a concession or agency
commission of 3.6% of the Public Offering Price per Unit. However,
resales of Units of the Trust by such dealers and others to the
public will be made at the Public Offering Price described in
the Prospectus. The Sponsor reserves the right to change the amount
of the concession or agency commission from time to time. Certain
commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge paid
by these customers is retained by or remitted to the banks in
the amounts indicated in the second preceding sentence. Under
the Glass-Steagall Act, banks are prohibited from underwriting
Trust Units; however, the Glass-Steagall Act does permit certain
agency transactions and the banking regulators have not indicated
that these particular agency transactions are not permitted under
such Act.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will realize
profits or sustain losses in the amount of any difference between
the price at which Units are purchased (based on the bid prices
of the Convertible Securities in the Trust) and the price at which
Units are resold (which price is also based on the bid prices
of the Convertible Securities in the Trust and 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.
Will There be a Secondary Market?
Although it is not obligated to do so, the Underwriter intends
to and the Sponsor may maintain a market for the Units and continuously
offer to purchase Units at prices, subject to change at any time,
based upon the aggregate bid prices of the Convertible Securities
in the portfolio of the Trust plus interest accrued to the date
of settlement. All expenses incurred in maintaining a secondary
market, other than the fees of the Evaluator, the other expenses
of the Trust and the costs of the Trustee in transferring and
recording the ownership of Units, will be borne by the Sponsor.
If the supply of Units exceeds demand, or for some other business
reason, the Sponsor may discontinue purchases of Units at such
prices. IF A UNIT HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD
INQUIRE OF THE SPONSOR AS TO CURRENT MARKET PRICES PRIOR TO MAKING
A TENDER FOR REDEMPTION TO THE TRUSTEE. Prospectuses relating
to certain other bond funds indicate an intention, subject to
change, on the part of the respective sponsors of such funds to
repurchase units of those funds on the basis of a price higher
than the bid prices of the securities in the funds. Consequently,
depending upon the prices actually paid, the repurchase price
of other sponsors for units of their funds may be computed on
a somewhat more favorable basis than the repurchase price offered
by the Sponsor for Units of the Trust in secondary market transactions.
As in this Trust, the purchase price per unit of such bond funds
will depend primarily on the value of the securities in the portfolio
of the fund.
PORTFOLIO
What are Convertible Securities?
The Trust consists of different issues of Convertible Securities,
all of which are listed on a national securities exchange or are
traded in the over-the-counter market. Convertible Securities
include convertible subordinated debentures ("Convertible Bonds")
and cumulative convertible preferred stocks ("Convertible Preferred
Stocks"). See "Portfolio" appearing in Part One for a listing
of the Convertible Securities in the Trust as may continue to
be held from time to time.
Convertible Securities are Convertible Bonds or Convertible Preferred
Stocks with a conversion privilege which, under specified circumstances
offers the holder the right to exchange such security for common
stock of the issuing corporation. Convertible Bonds obligate the
issuing company to pay a stated annual rate of interest (or a
stated dividend in the case of Convertible Preferred Stocks) and
to return the principal amount after a specified period of time.
The income offered by Convertible Securities is generally higher
than the dividends received from the underlying common stock,
but lower than similar quality non-convertible debt securities.
Page 11
Because certain of the Convertible 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 Convertible Securities
under certain limited circumstances. See "How May Convertible
Securities be Removed from the Trust?" CONVERTIBLE SECURITIES,
HOWEVER, WILL NOT BE SOLD BY THE TRUST TO TAKE ADVANTAGE OR MARKET
FLUCTUATIONS OR CHANGES IN ANTICIPATED RATES OF APPRECIATION OR
DEPRECIATION.
Unit holders will be unable to dispose of any of the Convertible
Securities in the Portfolio, as such, and will not be able to
vote the Convertible Securities. As the holder of the Convertible
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.
A comparison of estimated current returns and estimated long-term
returns with the returns on various investments is one element
to consider in making an investment decision. The Sponsor may
from time to time in its advertising and sales materials compare
the then current estimated returns on the Trust and returns over
specified periods on other similar Trusts sponsored by Nike Securities
L.P. with returns on investments such as corporate or U.S. Government
bonds, bank CDs and money market accounts or money market funds,
each of which has investment characteristics that may differ from
those of the 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.
What are the Risks of Investing in Convertible Securities?
The Trust invests in Convertible Securities. Convertible securities
include corporate bonds, debentures, notes and preferred stocks
which may be converted into the common stock of the issuer at
the holder's option. Convertible securities which are convertible
bonds obligate the issuing company to pay a stated annual rate
of interest (or a stated dividend in the case of convertible preferred
stock) and to return the principal amount after a specified period.
Convertible securities generally offer income yields that are
higher than the dividend yield, if any, of the underlying common
stock, but lower than the yield of non-convertible debt securities
issued by the corporation or corporations of similar investment
quality. This fixed-income feature of convertible securities is
expected to enable the Trust to achieve its current income objective.
Convertible securities are usually priced at a premium to their
conversion value-i.e., the value of the common stock received
if the holder were to exchange the convertible security.
The holder of the convertible security may choose at any time
to exchange the convertible security for a specified number of
shares of the common stock of the corporation, or occasionally
a subsidiary company, at a specified price, as defined by the
corporation when the security is issued. Accordingly, the value
of the convertible obligation may generally be expected to increase
(decrease) as the price of the associated common stock increases
(decreases). Also, the market value of convertible securities
tends to be influenced by the level of interest rates and tends
to decline as interest rates increase and, conversely, to increase
as interest rates decline. Convertible securities rank senior
to common stocks in an issuer's capital structure, but are junior
to non-convertible debt securities. As convertible securities
are considered junior to any non-convertible debt securities issued
by the corporation, CONVERTIBLE SECURITIES ARE TYPICALLY RATED
BY ESTABLISHED CREDIT RATINGS AGENCIES, AT ONE LEVEL BELOW THE
RATING ON SUCH CORPORATION'S NON-CONVERTIBLE DEBT.
Since a portion of the Trust's portfolio consists of non-investment
grade Convertible Securities, greater-than-average investment
risk may be involved. Unit holders should be able to tolerate
sharp, sometimes sudden, fluctuations in the value of their investment
in pursuit of higher investment returns in the long run. Although
convertible securities exhibit characteristics of both common
stocks and bonds, the Trust does not represent a complete investment
program. Most Unit holders should maintain diversified holdings
of
Page 12
securities with different risk characteristics-including common
stocks, bonds and money market instruments.
The Trust consists of Convertible Securities which have been assigned
a rating of B or better by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("Standard & Poor's"), or, if
non-rated, in the opinion of the Sponsor, are equivalent in quality
to a B rating or better.
Convertible securities are hybrid securities, combining the investment
characteristics of both bonds and common stock. Like a bond (or
preferred stock), a convertible security pays interest at a fixed
rate (dividend), but may be converted into common stock at a specified
price or conversion rate.
When the conversion price of the convertible security is significantly
above the price of the issuer's common stock, a convertible security
takes on the risk characteristics of a bond. At such times, the
price of a convertible security will vary inversely with changes
in the level of interest rates. In other words, when interest
rates rise, prices of convertible securities will generally fall;
conversely, when interest rates fall, prices of convertible securities
will generally rise. This interest rate risk is in part offset
by the income paid by the convertible securities.
In contrast, when the conversion price of a convertible security
and the common stock price are close to one another, a convertible
security will behave like a common stock. In such cases, the prices
of convertible securities may exhibit the short-term price volatility
characteristic of common stocks.
For these reasons Unit holders must be willing to accept the market
risks of both bonds and common stocks. However, because convertible
securities have characteristics of both common stocks and bonds,
they tend to be less sensitive to interest rate changes than
bonds of comparable maturity and quality, and less sensitive to
stock market changes than fully invested common stock portfolios.
Because of these factors and the hybrid nature of convertible
securities, Unit holders should recognize that convertible securities
are likely to perform quite differently than broadly-based measures
of the stock and bond markets.
The market for convertible securities includes a larger proportion
of small- to medium-size companies than the broad stock market
(as measured by such indices as the Standard & Poor's 500 Composite
Stock Price Index). Companies which issue convertible securities
are often lower in credit quality. Moreover, the credit rating
of a company's convertible issuance is generally lower than the
rating of the company's conventional debt issues since the convertible
security is normally a "junior" security. While the average credit
quality of the Trust is higher than the universe of convertible
securities as a whole, the Trust originally invested approximately
30% of its assets in B-rated Convertible Securities, and approximately
13% of its assets in Convertible Securities rated Ba (BB). Securities
with such ratings are considered speculative, and thus pose a
greater risk of default than investment grade securities. The
following are excerpts from the Moody's and Standard & Poor's
definitions for speculative debt obligations:
Moody's: Ba-rated bonds have "speculative elements," their future
"cannot be considered assured," and protection of principal and
interest is "moderate" and "not well safeguarded," B-rated bonds
"lack characteristics of a desirable investment" and the assurance
of interest or principal payments "may be small." Caa-rated bonds
are "of poor standing" and "may be in default" or may have "elements
of danger with respect to principal or interest."
Standard & Poor's: BB-rated bonds have "less near-term vulnerability
to default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to
pay interest or principal. B-rated bonds have a "greater vulnerability
to default" than BB-rated bonds and the ability to pay interest
or principal will likely be impaired by adverse business conditions.
CCC-rated bonds have a "currently identifiable vulnerability to
default" and, without favorable business conditions, will be unable
to repay interest and principal.
Securities rated Ba, BB or lower are considered to be "high-risk"
securities and the credit quality of such securities can change
suddenly and unexpectedly, and even recently-issued credit ratings
may not fully reflect the actual risks of a particular security.
For these reasons, the Portfolio Supervisor will not rely primarily
on ratings issued by established credit rating agencies, but will
utilize such ratings in conjunction with
Page 13
its own independent and ongoing review of the companies represented
in the Trust. See "How May Convertible Securities be Removed from
the Trust?"
The 1980s saw a dramatic increase in the use of high-risk securities
to finance highly leveraged corporate acquisitions and restructurings.
Past experience may not provide an accurate indication of the
future performance of high-risk securities, especially during
periods of economic recession. In fact, in recent years (1989-91),
the percentage of "high risk" securities that defaulted rose significantly
above prior levels.
"High risk" securities may be thinly traded, which can adversely
affect the prices at which such securities can be sold and can
result in high transaction costs. Judgment plays a greater role
in valuing "high risk" securities than securities for which more
extensive quotations and last sale information are available.
Adverse publicity and changing investor perceptions may affect
the ability of outside price services to value securities, and
the Trust's ability to dispose of the Convertible Securities.
During an economic downturn or a prolonged period of rising interest
rates, the ability of issuers of debt to serve their payment obligations,
meet projected goals, or obtain additional financing may be impaired.
An investment in Units of the Trust should be made with an understanding
of the risks which an investment in Convertible Securities entails,
including the risk that the financial condition of the issuers
of the Convertible Securities or the general condition of the
stock market or bond market may worsen and the value of the Convertible
Securities and therefore the value of the Units may decline. Convertible
Securities may be susceptible to general stock market movements
and to 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. Convertible Preferred Stocks
are also subject to Congressional reductions in the dividends-received
deduction which would adversely affect the after-tax return to
the corporate investors who can take advantage of the deduction.
Such reductions also might adversely affect the value of preferred
stocks in general. Holders of preferred stocks have rights to
receive payments from the issuers of those preferred stocks that
are generally subordinate to those of creditors of, or holders
of debt obligations or, in some cases, senior preferred stocks
of, such issuers. Convertible Preferred Stocks do not represent
an obligation of the issuer and, therefore, do not offer any assurance
of income (since dividends on a preferred stock must be declared
by the issuer's Board of Directors) or provide the same degree
of protection of capital as do debt securities. 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.
The issuance of additional debt securities or senior preferred
stock will create prior claims for payment of principal and interest
and senior dividends which could adversely affect the ability
and inclination of the issuer to declare or pay dividends on its
preferred stock or the rights of holders of preferred stock with
respect to assets of the issuer upon liquidation or bankruptcy.
The value of preferred stocks is subject to market fluctuations
for as long as the preferred stocks remain outstanding, and thus
the value of the Convertible Preferred Stocks in the Portfolio
may be expected to fluctuate over the life of the Trust to values
higher or lower than those prevailing on the Date of Deposit.
Holders of Convertible Preferred Stocks incur more risk than holders
of debt obligations because preferred 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 issued by the issuer.
An investment in Units of the Trust should be made with an understanding
of the risks which an investment in Convertible Bonds entails.
Convertible Bonds are typically subordinated debentures and,
therefore, the claims of senior creditors must be settled in full
before any payment will be made to holders of Convertible Bonds
in the event of insolvency or bankruptcy. Senior creditors typically
include all other long-term debt issuers and bank loans. Convertible
Bonds do, however, have a priority over common and preferred stock.
Investors in Convertible Bonds pay for the conversion privilege
by accepting a significantly lower yield-to-maturity than that
concurrently offered by non-convertible bonds of equivalent quality.
Page 14
Whether or not the Convertible Securities are listed on a national
securities exchange, the principal trading market for the Convertible
Securities may be in the over-the-counter market. As a result,
the existence of a liquid trading market for the Convertible Securities
may depend on whether dealers will make a market in the Convertible
Securities. There can be no assurance that a market will be made
for any of the Convertible Securities, that any market for the
Convertible Securities will be maintained or of the liquidity
of the Convertible Securities in any markets made. In addition,
the Trust may be restricted under the Investment Company Act of
1940 from selling Convertible Securities to the Sponsor. The price
at which the Convertible Securities may be sold to meet redemptions,
and the value of the Trust, will be adversely affected if trading
markets for the Convertible Securities are limited or absent.
Issues of convertible bonds and convertible preferred stocks generally
provide that the convertible security may be liquidated, either
by a partial scheduled redemption pursuant to a sinking fund or
by a refunding redemption pursuant to which, at the option of
the issuer, all or part of the issue can be retired from any available
funds, at prices which may or may not include a premium over the
involuntary liquidation preference, which generally is the same
as the par or stated value of the convertible security. In general,
optional redemption provisions are more likely to be exercised
when the convertible security is valued at a premium over par
or stated value than when they are valued at a discount from par
or stated value. Generally, the value of the convertible security
will be at a premium over par when market interest rates fall
below the coupon rate.
RIGHTS OF UNIT HOLDERS
How is Evidence of Ownership Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units may be evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranteed program in addition to, or
in subsitution 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.
Page 15
How are Income and Capital Distributed?
The Trustee will distribute any net income 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" appearing in Part
One of this Perspectus. Notification to the Trustee of the transfer
of Units is the responsibility of the purchaser, but in the normal
course of business such notice is provided by the selling broker-dealer.
The pro rata share of cash in the Capital Account of the Trust
will be computed as of the fifteenth day of each month. Proceeds
received on the sale of any Convertible 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. See "What is the Federal Tax Status of Unit
Holders?"
The Trustee will credit to the Income Account of the Trust all
income received by the Trust, including that part of the proceeds
of any disposition of Convertible Securities which represents
accrued interest or accrued dividends. Other receipts will be
credited to the Capital Account of the Trust. The distribution
to the Unit holders of the Trust as of each Record Date will be
made on the following Distribution Date or shortly thereafter
and shall consist of an amount substantially equal to such portion
of the holder's pro rata share of the estimated annual income
of the Trust calculated approximately on the basis of one-quarter
of the estimated annual income after deducting estimated expenses.
Because income payments are not received by the Trust at a constant
rate throughout the year, such income distribution may be more
or less than the amount credited to the Income Account of the
Trust as of the Record Date. For the purpose of minimizing fluctuations
in the distributions from the Income Account of the Trust, the
Trustee is authorized to advance such amounts as may be necessary
to provide interest distributions of approximately equal amounts.
The Trustee shall be reimbursed, without interest, for any such
advances from funds in the Income Account of the Trust on the
ensuing Record Date. Persons who purchase Units between a Record
Date and a Distribution Date will receive their first distribution
on the second Distribution Date after the purchase. The Trustee
is not required to pay interest on funds held in the Capital or
Income Accounts of the Trust (but may itself earn interest thereon
and therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct
from the Income Account of the Trust and, to the extent funds
are not sufficient therein, from the Capital Account of the Trust
amounts necessary to pay the expenses of the Trust. The Trustee
also may withdraw from said accounts such amounts, if any, as
it deems necessary to establish a reserve for any governmental
charges payable out of the Trust. Amounts so withdrawn shall not
be considered a part of the Trust's assets until such time as
the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from
the Income Account and the Capital Account of the Trust such amounts
as may be necessary to cover redemption of Units of the Trust
by the Trustee.
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.
Under regulations issued by the Internal Revenue Service, the
Trustee is required to withhold a specified percentage of any
distribution made by the Trust if the Trustee has not been furnished
the Unit holder's tax identification number in the manner required
by such regulations. Any amount so withheld is transmitted to
the Internal Revenue Service and may be recovered by the Unit
holder only when filing a tax return. Under normal circumstances
the Trustee obtains the Unit holder's tax identification number
from the selling broker. However, a Unit holder should examine
his or her statements from the Trustee to make sure that the Trustee
has been provided a certified tax identification number in order
to avoid this possible "back-up withholding." In the event the
Trustee has not been previously provided such number, one should
be provided as soon as possible.
Page 16
How Are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the
Trustee. Ownership of Units is evidenced by registered certificates
executed by the Trustee and the Sponsor. Delivery of certificates
representing Units ordered for purchase is normally made five
business days following such order or shortly thereafter. Certificates
are transferable by presentation and surrender to the Trustee
properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer.
A Unit holder must sign exactly as his name appears on the face
of the certificate with the signature guaranteed by a participant
in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guaranty program in addition to, or in
substitution for, STAMP as may be accepted by the Trustee. In
certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
Certificates for Units will bear an appropriate notation on their
face indicating which plan of distribution has been selected in
respect thereof. When a change is made, the existing certificate
must be surrendered to the Trustee and a new certificate issued
to reflect the then currently effective plan of distribution.
There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder
may be required to pay $2.00 to the Trustee per certificate reissued
or transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder
may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation
in a Universal Distribution Option which permits a Unit holder
to direct the Trustee to distribute principal and interest payments
to any other investment vehicle of which the Unit holder has an
existing account. For example, at a Unit holder's direction, the
Trustee would distribute automatically on the applicable distribution
date interest income, capital gains or principal on the participant's
Units to, among other investment vehicles, a Unit holder's checking,
bank savings, money market, insurance, reinvestment or any other
account. All such distributions, of course, are subject to the
minimum investment and sales charges, if any, of the particular
investment vehicle to which distributions are directed. The Trustee
will notify the participant of each distribution pursuant to the
Universal Distribution Option. The Trustee will distribute directly
to the Unit holder any distributions which are not accepted by
the specified investment vehicle. A participant may at any time,
by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive
directly future distributions on his Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of the Trust 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 Unit.
Within a reasonable time after the end of each calendar year,
the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of the Trust of record, a
statement as to (1) the Income Account: income received by the
Trust (including amounts representing income received upon any
disposition of Convertible Securities of the Trust), deductions
for payment of applicable taxes and for fees and expenses of the
Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share
of each Unit outstanding on the last business day of such calendar
year; (2) the Capital Account: the dates of disposition of any
Convertible Securities of the Trust and the net proceeds
Page 17
received therefrom, deduction for payment of applicable taxes
and for fees and expenses of the Trust, redemptions of Units,
and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) the Convertible Securities
held and the number of Units of the Trust outstanding on the last
business day of such calendar year; (4) the Redemption Price per
Unit based upon the last computation thereof made during such
calendar year; and (5) the amounts actually distributed during
such calendar year from the Income Account and from the Capital
Account of the Trust, separately stated, expressed both as total
dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Convertible Securities in their Trust furnished to it by
the Evaluator.
Each distribution statement will reflect pertinent information
in respect of each plan of distribution so that Unit holders may
be informed regarding the results of the other plan or plans of
distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office in the City of New
York of the certificates representing the Units to be redeemed,
duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed as explained above (or by providing
satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading (4:00 p.m. Eastern time) on the New York Stock
Exchange, the date of tender is the next day on which such Exchange
is open for trading and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the redemption
price computed on that day. Units so redeemed shall be cancelled.
Accrued interest to the settlement date paid on redemption shall
be withdrawn from the Income Account of the Trust or, if the balance
therein is insufficient, from the Capital Account of the Trust.
All other amounts paid on redemption shall be withdrawn from the
Capital Account of the Trust.
The Redemption Price per Unit (as well as the Public Offering
Price) will be determined on the basis of the bid price of the
Convertible Securities in the Trust, as of the close of trading
on the New York Stock Exchange on the date any such determination
is made. The Redemption Price per Unit is the pro rata share of
each Unit determined by the Trustee on the basis of (1) the cash
on hand in the Trust or moneys in the process of being collected,
(2) the value of the Convertible Securities in the Trust based
on the bid prices of the Convertible Securities, and (3) interest
accrued thereon, and dividends receivable on the Convertible Preferred
Stocks trading ex-dividend as of the date of computation less
(a) amounts representing taxes or other governmental charges payable
out of the Trust, (b) the accrued expenses of the Trust and (c)
cash held for distribution to Unit holders of record as of a date
prior to the evaluation then being made. The Evaluator may determine
the value of the Convertible Securities in the Trust (1) on the
basis of current bid prices of the Convertible Securities obtained
from dealers or brokers who customarily deal in convertible securities
comparable to those held by the Trust, (2) on the basis of bid
prices for convertible securities comparable to any convertible
securities for which bid prices are not available, (3) by determining
the value of the convertible securities by appraisal, or (4) by
any combination of the above.
The difference between the bid and offering prices of such Convertible
Securities may be expected to average 1-2% of the principal amount
or stated value. In the case of actively traded Convertible Securities,
the difference may be as little as 1/2 of 1% and, in the case
of inactively traded Convertible Securities, such difference
Page 18
usually will not exceed 3%. Therefore, the price at which Units
may be redeemed could be less than the price paid by the Unit
holder.
The Trustee is empowered to sell underlying Convertible Securities
in the Trust in order to make funds available for redemption.
To the extent that Convertible Securities are sold, the size and
diversity of the Trust will be reduced. Such sales may be required
at a time when Convertible Securities would not otherwise be sold
and might result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Convertible Securities
is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. Under
certain extreme circumstances, the Sponsor may apply to the Securities
and Exchange Commission for an order permitting a full or partial
suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before 12:00 p.m. Eastern
time on the next succeeding business day and by making payment
therefor to the Unit holder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units
held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
How May Convertible Securities be Removed from the Trust?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Convertible
Securities in the Trust on a list furnished by the Sponsor as
the Trustee in its sole discretion may deem necessary. As described
in the following paragraph and in certain other unusual circumstances
for which it is determined by the Depositor to be in the best
interests of the Unit holders or if there is no alternative, the
Trustee is empowered to sell Convertible Securities in the Trust
which are in default in payment of principal or interest or in
significant risk of such default. See "How May Units be Redeemed?"
The Sponsor is empowered, but not obligated, to direct the Trustee
to dispose of Convertible Securities in the Trust in the event
of advanced refunding. The Sponsor may from time to time act as
agent for the Trust with respect to selling Convertible Securities
out of the Trust. From time to time, the Trustee may retain and
pay compensation to the Sponsor subject to the restrictions under
the Investment Company Act of 1940, as amended.
If any default in the payment of principal, interest or dividends
on any Convertible Security occurs and no provision for payment
is made therefor, within thirty days, the Trustee is required
to notify the Sponsor thereof. If the Sponsor fails to instruct
the Trustee to sell or to hold such Convertible Security within
thirty days after notification by the Trustee to the Sponsor of
such default, the Trustee may, in its discretion, sell the defaulted
Convertible Security and not be liable for any depreciation or
loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made
by an issuer of any of the Convertible Securities to issue new
obligations in exchange and substitution for any Convertible Securities
pursuant to a refunding or refinancing plan, except that the Sponsor
may instruct the Trustee to accept such an offer or to take any
other action with respect thereto as the Sponsor may deem proper
if the issuer is in default with respect to such Convertible Securities
or in the written opinion of the Sponsor the issuer will probably
default in respect to such Convertible Securities in the foreseeable
future. Any obligations so received in exchange or substitution
will be held by the Trustee subject to the terms and conditions
in the Indenture to the same extent as Convertible Securities
originally deposited thereunder. Within five days after the deposit
of obligations in exchange or substitution for underlying Convertible
Securities, the Trustee is required to give notice thereof
Page 19
to each Unit holder of the affected Trust, identifying the Convertible
Securities eliminated and the Convertible Securities substituted
therefor. The acquisition by the Trust of any securities other
than the Convertible Securities initially deposited is prohibited.
Pursuant to the Indenture, the Trustee is not permitted to exercise
the conversion option on any of the Convertible Securities in
the Trust and continue to hold securities received upon such exercise
in the Trust. If any of the Convertible Securities are called
for redemption, the Sponsor in consultation with the Portfolio
Supervisor will instruct the Trustee to either (i) tender the
Convertible Security for redemption; (ii) sell the Convertible
Security prior to redemption; or (iii) exercise the conversion
option on the Convertible Security and exchange the Convertible
Security at the specified price for a specified number of shares
of common stock of the issuer; and then sell the shares of common
stock received upon the exercise of such option.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,743,032 (audited). (This paragraph relates only to
the Sponsor and not to the Trust or to any series thereof. The
information is included herein only for the purpose of informing
investors as to the financial responsibility of the Sponsor and
its ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon
request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York, with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Trusts may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the Convertible 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
thirty days after notification, the retiring trustee may apply
to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such
or when a court of competent jurisdiction appoints a successor
trustee.
Any corporation into which the Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee shall be a party,
shall be the successor
Page 20
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 Convertible
Securities. In the event of the failure of the Sponsor to act
under the Indenture, the Trustee may act thereunder and shall
not be liable for any action taken by it in good faith under the
Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Convertible Securities
or upon the interest or dividends thereon or upon it as Trustee
under the Indenture or upon or in respect of the Trust which the
Trustee may be required to pay under any present or future law
of the United States of America or of any other taxing authority
having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trust as provided herein, or (c) continue
to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is First Trust Advisors L.P., an Illinois limited
partnership formed in 1991 and an affiliate of the Sponsor. The
Evaluator's address is 1001 Warrenville Road, Lisle, Illinois
60532.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of the Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Convertible Securities initially deposited in the
Trust. In the event of any amendment, the Trustee is obligated
to notify promptly all Unit holders of the substance of such amendment.
The Indenture provides that the Trust shall terminate on the Mandatory
Termination Date indicated herein under "Summary of Essential
Information" appearing in Part One of the Prospectus.
The Trust may be liquidated at any time by consent of 100% of
the Unit holders of the Trust or by the Trustee when the value
of the Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount (stated value) of the Convertible
Securities initially deposited in 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 sell any Convertible Securities (at their market
value which may be more or less
Page 21
than the principal amount of Convertible Bonds or the stated value
of the Convertible Preferred Stocks) remaining in the Trust and,
after paying all expenses and charges incurred by the Trust, will
distribute to each Unit holder of the Trust (including the Sponsor
if it then holds any Units), upon surrender for cancellation of
his Certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust,
all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler,
111 West Monroe Street, Chicago, Illinois 60603, as counsel for
the Sponsor. Carter, Ledyard & Millburn, 2 Wall Street, New York,
New York 10005, acts as counsel for the Trustee and as special
counsel for the Trust for New York tax matters.
Experts
The financial statements of the Trust appearing in Part One of
this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Description of Bond Ratings*
* As published by the rating companies.
Standard & Poor's Corporation. A brief description of the applicable
Standard & Poor's Corporation rating symbols and their meanings
follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect
to a specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
l. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements
under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
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.
Bonds rated `BB,' `B,' `CCC.' `CC,' and `C' are regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal.
Page 22
`BB' indicates the least degree of speculation and `C,' the highest
degree of speculation. While such Bonds will likely haVe some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB - Bonds rated BB have less near-term vulnerability to default
than other speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payments.
B - Bonds rated B have greater vulnerability to default but
presently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
would likely impair capacity or willingness to pay interest and
repay principal.
CCC - Bonds rated CCC have a current identifiable vulnerability
to default, and is dependent on favorable business, financial,
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial,
or economic conditions, it is not likely to have the capacity
to pay interest and repay principal.
CC - The rating CC is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC debt rating.
D - Bonds are rated D when the issue is in payment default,
or the obligor has filed for bankruptcy. The D rating is used
when interest or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit
ratings. A listing, however, does not mean a rating change is
inevitable. Since S&P continuously monitors all of its ratings,
Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit
Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely
to impair the fundamentally strong position of such issues. Their
safety is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long term risks
Page 23
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.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
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.
DESCRIPTION OF PREFERRED STOCK RATINGS*
* As published by Standard & Poor's Corporation and Moody's Investors
Service, Inc., respectively.
Standard & Poor's Corporation. A Standard & Poor's preferred stock
rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking
fund obligations. A preferred stock rating differs from a bond
rating inasmuch as it is assigned to an equity issue, which issue
is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference,
Page 24
the preferred stock rating symbol will normally not be higher
than the bond rating symbol assigned to, or that would be assigned
to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer
to meet the timely payment of preferred stock dividends and any
applicable sinking fund requirements in accordance with the terms
of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
"AAA" This is the highest rating that may be assigned by Standard
& Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
"AA" A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated
AAA.
"A" An issued rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
"BBB" An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the A category.
"BB," "B," "CCC" Preferred stock issues rated BB, B and CCC are
regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay preferred stock obligations. BB
indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. Moody's Rating Policy Review Board
extended its rating services to include quality designations on
preferred stock on October 1, 1973. The decision to rate preferred
stock, which Moody's had done prior to 1935, was prompted by evidence
of investor interest. Moody's believes that its rating of preferred
stock is especially appropriate in view of the ever-increasing
amount of these securities outstanding, and the fact that continuing
inflation and its ramifications have resulted generally in the
dilution of some of the protection afforded them as well as other
fixed-income securities.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks
in the higher end of its generic rating 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.
Preferred stock rating symbols and their definitions are as follows:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of preferred
stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable
assurance that earnings and asset protection will remain relatively
well-maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classification, earnings and asset
protection are, nevertheless, expected to be maintained at adequate
levels.
*As published by Standard & Poor's Corporation and Moody's Investors
Service, Inc., respectively.
"baa" An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may
be questionable over any great length of time.
Page 25
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears
on dividend payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little likelihood
of eventual payments.
"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Page 26
This page is intentionally left blank.
Page 27
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
Great Lakes Convertible Trust Series
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust? 3
What are the Expenses and Charges? 3
How is Accrued Interest Treated? 4
What is the Federal Tax Status of Unit Holders? 5
Why are Investments in the Trust Suitable
for Retirement Plans? 9
Public Offering:
How is the Public Offering Price Determined? 9
How are Units Distributed? 11
What are the Sponsor's Profits? 11
Will There be a Secondary Market? 11
Portfolio:
What are Convertible Securities? 11
What are the Risks of Investing in
Convertible Securities? 12
Rights of Unit Holders:
How is Evidence of Ownership Issued
and Transferred? 15
How are Income and Capital Distributed? 16
How Are Certificates Issued and Transferred? 17
How Can Distributions to Unit Holders
be Reinvested? 17
What Reports Will Unit Holders Receive? 17
How May Units be Redeemed? 18
How May Units be Purchased by the Sponsor? 19
How May Convertible 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 21
Who is the Evaluator? 21
Other Information:
How May the Indenture be Amended or
Terminated? 21
Legal Opinions 22
Experts 22
Description of Bond Ratings 22
Description of Preferred Stock Ratings 24
__________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET
FORTH IN THE REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO,
WHICH THE TRUST HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
FIRST TRUST
(registered trademark)
GREAT LAKES
CONVERTIBLE
TRUST SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
August 22, 1994
First Trust
(registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
70 GREAT LAKES CONVERTIBLE 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 August 31, 1994.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) August 31, 1994
the General Partner )
of Nike Securities L.P. )
)
) Carlos E. Nardo
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Special Situations Trust, Series 18 (File No. 33-42683) and
the same is hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated August 1, 1994 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated August 19, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
August 18, 1994
</TABLE>
