File No. 33-61830
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 3
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 30, 1996
: : 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 14, 1996.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
218,305 UNITS
PROSPECTUS
Part One
Dated August 26, 1996
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 16, 1996, each Unit represented a
1/218,305 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 5.0% of the Public Offering Price
(5.263% of the net amount invested) excluding income and principal cash. At
July 16, 1996, the Public Offering Price per Unit was $5.0855 (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 16, 1996
Sponsor: Nike Securities L.P.
Evaluator: First Trust Advisors, L.P.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal amount or stated value of Convertible
Securities in the Trust $936,000
Number of Units 218,305
Fractional Undivided Interest in the Trust per Unit 1/218,305
Public Offering Price:
Aggregate Value of Convertible Securities in the
Portfolio $1,054,370
Aggregate Value of Convertible Securities per Unit $4.8298
Income and Principal cash in the Portfolio $322
Income and Principal cash per Unit $.0015
Sales Charge 5.263% (5.0% of Public Offering Price,
excluding income and principal cash) $.2542
Public Offering Price per Unit $5.0855
Redemption Price and Sponsor's Repurchase Price per
Unit ($.2542 less than the Public Offering Price
per Unit) $4.8313
</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 $.2507
Less: Estimated Annual Expense per Unit .0182
______
Estimated Net Annual Income per Unit $.2325
======
</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. Notwithstanding,
distributions of funds in the Capital Account, if any, will be made in
December of each year.
Income Distribution Record Date: Fifteenth day of each March, June, September
and December.
Income Distribution Date: The last day of each March, June, September and
December.
<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, 1996, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended and 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 Sponsor. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of April 30, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 70, Great Lakes Convertible Trust, Series 1 at April
30, 1996, and the results of its operations and changes in its net assets for
each of the two years in the period 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
July 19, 1996
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Convertible securities, at market value (cost,
$1,344,010) (Note 1) $1,341,510
Interest and dividends receivable 18,024
__________
1,359,534
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Cash overdraft 9,561
Accrued liabilities 2,077
__________
11,638
__________
Net assets, applicable to 235,902 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $1,344,010
Net unrealized depreciation (Note 2) (2,500)
Distributable funds 6,386
__________
$1,347,896
==========
Net asset value per unit $5.7138
==========
</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, 1996
<TABLE>
<CAPTION>
Coupon Standard Principal
Name of issuer and title interest Date of Conversion Redemption & Poor's amount or Market
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+ $200,000 208,500
Cooker Restaurant Corp. 6.75 10/01/2002 46.377 shares
until 10/01/2002 1996 @ 103 NR 188,000 172,960
Marsh Supermarkets, Inc. 7.00 2/15/2003 64.516 shares
until 02/15/2003 1996 @ 103.50 B 235,000 235,000
Outboard Marine Corporation 7.00 7/01/2002 44.944 shares
until 07/01/2002 1996 @ 103.90 B+ 150,000 150,000
Pennzoil Company 6.50 1/15/2003 11.887 shares
until 01/15/2003 1998 @ 103.25 BBB 113,000 154,810
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- 150,000 244,500
National City Corporation,
8.00% Cumulative Convertible
Preferred Stock (2,460 shares, 1.192 shares
$50 stated value per share) - - until 12/31/2049# 1996 @ 52 BBB+ 123,000 175,740
______________________
$1,159,000 1,341,510
======================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
NOTES TO PORTFOLIO
April 30, 1996
(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, 1996.
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, 1996.
(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
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Year ended May 20, 1993, to
Apr. 30, 1996 Apr. 30, 1995 Apr. 30, 1994
<S> <C> <C> <C>
Interest $71,839 112,519 184,492
Dividend 22,335 22,875 20,156
_____________________________________
94,174 135,394 204,648
Expenses:
Trustee's fees and related
expenses (4,808) (4,615) (3,747)
Evaluator's fees (849) (1,053) -
Supervisory fees (810) (1,048) (1,072)
_____________________________________
Total expenses (6,467) (6,716) (4,819)
_____________________________________
Investment income - net 87,707 128,678 199,829
Net gain (loss) on investments:
Net realized gain (loss) 80,646 (5,684) 12,588
Change in net unrealized
appreciation or depreciation 138,452 35,598 (176,550)
_____________________________________
219,098 29,914 (163,962)
_____________________________________
Net increase in net assets
resulting from operations $306,805 158,592 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
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Year ended May 20, 1993, to
Apr. 30, 1996 Apr. 30, 1995 Apr. 30, 1994
<S> <C> <C> <C>
Net increase in net assets
resulting from operations:
Investment income - net $87,707 128,678 199,829
Net realized gain (loss) on
investments 80,646 (5,684) 12,588
Change in net unrealized
appreciation or depreciation
on investments 138,452 35,598 (176,550)
_______________________________________
306,805 158,592 35,867
Distributions to unit holders:
Investment income - net (90,145) (129,432) (138,221)
Principal from investment
transactions (100,053) (225,273) (1,532,460)
_______________________________________
(190,198) (354,705) (1,670,681)
Unit redemptions (102,413 and
114,561 in 1996 and 1995,
respectively):
Principal portion (554,475) (648,898) -
Income portion (11,166) (2,920) -
_______________________________________
(565,641) (651,818) -
_______________________________________
Total increase (decrease) in net
assets (449,034) (847,931) (1,634,814)
Net assets:
At the beginning of the period 1,796,930 2,644,861 4,279,675
_______________________________________
At the end of the period
(including distributable funds
applicable to Trust units of
$6,386, $56,527 and $61,611
at April 30, 1996, 1995 and
1994, respectively) $1,347,896 1,796,930 2,644,861
=======================================
Trust units outstanding at the
end of the period 235,902 338,315 452,876
</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 which is based on $.0084 per unit.
Prior to September 1, 1995, the Trustee was United States Trust Company of New
York; effective September 1, 1995, The Chase Manhattan Bank succeeded United
States Trust Company of New York as Trustee. 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, 1996 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(98,360)
Unrealized appreciation 95,860
________
$(2,500)
========
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the 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.
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.
<PAGE>
Selected data per unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
Year ended Year ended May 20, 1993, to
Apr. 30, 1996 Apr. 30, 1995 Apr. 30, 1994
<S> <C> <C> <C>
Interest and dividend income $.3582 .3696 .4519
Expenses (.0246) (.0183) (.0107)
_____________________________________
Investment income - net .3336 .3513 .4412
Distributions to unit holders:
Investment income - net (.3169) (.3467) (.3052)*
Principal from investment
transactions (.3381) (.6352) (3.3838)
Net gain (loss) on investments .7238 .1019 (.3621)
_____________________________________
Total increase (decrease) in
net assets .4024 (.5287) (3.6099)
Net assets:
Beginning of the period 5.3114 5.8401 9.4500
_____________________________________
End of the period $5.7138 5.3114 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: The Chase Manhattan Bank
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 (registered trademark) Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated August 29, 1996
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 Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") or Ba or B by Moody's
Investors Service, Inc. ("Moody's"). 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, The Chase Manhattan Bank as Trustee, First Trust Advisors L.P.
as Evaluator and 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
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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 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
Page 4
from interest or dividends received on the 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 will be treated as the owner of a pro
rata portion of each of the Trust assets under subpart E, subchapter J
of chapter 1 of the Code and the income of the Trust will be treated as
income of the Unit holders thereof under the Code. Each Unit holder will
be considered to have received his pro rata share of income derived from
each Trust asset when such income is 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 (whether by sale, liquidation, taxable
exchange, payment at maturity or otherwise), 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 to the
extent that such interest accrued on such Convertible Bonds during the
period from the Unit holder's settlement date to the date such
Convertible Bonds are delivered to the Trust 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,
liquidation, taxable exchange, payment on maturity, redemption or
otherwise), gain or loss is recognized by the Unit holder (subject to
various non-recognition provisions of the Code). 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 (before the adjustments
Page 5
described below) is determined by apportioning the tax basis for the
Units among each of the Trust assets ratably according to value as of
the valuation date nearest 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 (or which has market discount) must
be increased by the amount of accrued original issue discount (and
market discount, if the Unit holder elects to include market discount in
income as it accrues) and the basis of each Unit and of each 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
basis reduction requirements of the Code relating to amortization of
bond premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his Units are sold or redeemed for an
amount 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 for such year even
though the income is not distributed to the Unit holders during such
year unless a Convertible Bond's original issue discount is 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.
Limitations on Deductibility of Trust Expenses by Unit holders. Each Unit
holder's pro rata share of each expense paid by the Trust is deductible
by the Unit holder to the same extent as though the expense had been
paid directly by him. It should be noted that as a result of the Tax
Reform Act of 1986, certain miscellaneous itemized deductions, such as
investment expenses, tax return preparation fees and employee business
expenses will be deductible by an individual only to the extent they
exceed 2% of such individual's adjusted gross income. Unit holders may
be required to treat some or all of the expenses paid by the Trust as
miscellaneous itemized deductions subject to this limitation.
The Convertible Bonds-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 (or, in certain cases, the call
date) of the Convertible Bond, such excess would be considered 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 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
Page 6
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 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 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 and are attributable
to domestic corporations) in the same manner as if such corporation
directly owned the Convertible Preferred Stock paying such dividends
(other than corporate shareholders, such as "S" corporations, which are
not eligible for the dividends received deduction because of their
special characteristics and other than for purposes of special taxes
such as the accumulated earnings tax and the personal holding
corporation tax). However, a corporation owning Units should be aware
that Sections 246 and 246A of the Code impose additional limitations on
the eligibility of dividends for the 70% dividends received deduction.
These limitations include a requirement that stock (and therefore Units)
must generally be held at least 46 days (as determined under Section
246(c) of the Code). Final regulations have recently been issued which
address special rules that must be considered in determining whether the
Page 7
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.
Recognition of Taxable Gain or Loss Upon Disposition of Convertible
Securities by the Trust or Disposition of Units. A Unit holder may
recognize taxable capital gain (or loss) when a Convertible Security is
disposed of by the Trust or if the Unit holder disposes of a Unit. For
taxpayers other than corporations, net capital gains are subject to a
maximum marginal stated 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 Revenue Reconciliation Act of 1993 (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28% maximum
stated rate for taxpayers other than corporations. 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.
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 generally 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 (other than those that are not treated
as United States source income, if any). 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) 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, (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.
General. Each Unit holder (other than certain foreign investors) will be
requested to provide the Unit holder's taxpayer identification number to
the trustee and to certify that the Unit holder has not been notified
that payments to the Unit holder are subject to back-up withholding. If
the proper taxpayer identification number and appropriate certification
are not provided when requested, distributions by the Trust to such Unit
holder (including amounts received upon the redemption of Units) will be
subject to back-up withholding.
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
Page 8
income of the Unit holders under the existing income tax laws of the
State and City of New York.
The foregoing discussion relates only to United States Federal and New
York State and City income taxes; Unit holders may be subject to state
and local taxation in other jurisdictions (including a foreign
investor's country of residence). Unit holders should consult their tax
advisers regarding potential state, local, or foreign taxation with
respect to the Units.
Why are Investments in the 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:
Dollar Amount of Percent Percent of
Transaction at of Offering Net Amount
Public Offering Price Price Invested
_________________________ ___________ ___________
$ 100,000 but less than $500,000 1.00% 1.01%
$ 500,000 but less than $1,000,000 2.00% 3.09%
$1,000,000 or more 3.00% 3.09%
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
Page 9
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 three business days following the
order for purchase (the date of settlement), payment may be made prior
thereto. A person will become owner of Units on the date of settlement
provided payment has been received. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be
used in the Sponsor's business and may be deemed to be a benefit to the
Sponsor, subject to the limitations of the Securities Exchange Act of
1934. Delivery of Certificates representing Units so ordered will be
made three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
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
other selling agents 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
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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.
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.
Page 11
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 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 Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("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.
Page 12
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 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
Page 13
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.
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 are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
Page 14
person who is registered as such owner on the books of the Trustee.
Ownership of Units may be evidenced by registered certificates executed
by the Trustee and the Sponsor. Delivery of certificates representing
Units ordered for purchase is normally made three business days
following such order or shortly thereafter. Certificates are
transferable by presentation and surrender to the Trustee properly
endorsed or accompanied by a written instrument or instruments of
transfer. Certificates to be redeemed must be properly endorsed or
accompanied by a written instrument or instruments of transfer. A Unit
holder must sign exactly as his name appears on the face of the
certificate with the signature guaranteed by a participant in the
Securities Transfer Agents Medallion Program ("STAMP") or such other
signature guaranteed 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.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit
holder may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Income and Capital Distributed?
The Trustee will distribute any net income 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
Prospectus. 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
Page 15
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.
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 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 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.
Page 16
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 third business day following such tender the Unit holder
will be entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the Trustee of
such tender of Units. The "date of tender" is deemed to be the date on
which Units are received by the Trustee, except that as regards Units
received after the close of trading at 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 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.
Page 17
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 Sponsor 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
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.
Page 18
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $9 billion in First Trust
unit investment trusts have been deposited. The Sponsor's employees
include a team of professionals with many years of experience in the
unit investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (630) 241-4141. As of
December 31, 1995, the total partners' capital of Nike Securities L.P.
was $9,033,760 (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 The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 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 subject to
supervision by the Superintendent of Banks of the State of New York, the
Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not
participated in the selection of the 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 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
Page 19
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
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.
Page 20
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AA-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.
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.
______________
* As published by the rating companies.
Page 21
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
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
Page 22
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**
Standard & Poor's. 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,
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.
________________
** As published by Standard & Poor's and Moody's, respectively.
Page 23
"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. 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.
"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.
"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.
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Page 27
CONTENTS:
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? 10
What are the Sponsor's Profits? 10
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 are Certificates Issued and Transferred? 14
How are Income and Capital Distributed? 15
How Can Distributions to Unit Holders
be Reinvested? 16
What Reports Will Unit Holders Receive? 16
How May Units be Redeemed? 17
How May Units be Purchased by the Sponsor? 18
How May Convertible Securities be
Removed from the Trust? 18
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 18
Who is the Trustee? 19
Limitations on Liabilities of Sponsor and Trustee 19
Who is the Evaluator? 20
Other Information:
How May the Indenture be Amended or Terminated? 20
Legal Opinions 20
Experts 20
Description of Bond Ratings 21
Description of Preferred Stock Ratings 23
___________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE FUND
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (REGISTERED TRADEMARK)
GREAT LAKES CONVERTIBLE
TRUST SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
August 29, 1996
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
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 30, 1996.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 70
GREAT LAKES CONVERTIBLE TRUST, SERIES 1
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) August 30, 1996
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated July 19, 1996 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated August 26, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
August 23, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> GREAT LAKES CONVERTIBLE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 1,344,010
<INVESTMENTS-AT-VALUE> 1,341,510
<RECEIVABLES> 18,024
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,359,534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,638
<TOTAL-LIABILITIES> 11,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,344,010
<SHARES-COMMON-STOCK> 235,902
<SHARES-COMMON-PRIOR> 228,315
<ACCUMULATED-NII-CURRENT> 6,836
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,500)
<NET-ASSETS> 1,347,896
<DIVIDEND-INCOME> 22,335
<INTEREST-INCOME> 71,839
<OTHER-INCOME> 0
<EXPENSES-NET> 6,467
<NET-INVESTMENT-INCOME> 87,707
<REALIZED-GAINS-CURRENT> 80,646
<APPREC-INCREASE-CURRENT> 138,452
<NET-CHANGE-FROM-OPS> 306,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 90,145
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 100,053
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 102,413
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (449,034)
<ACCUMULATED-NII-PRIOR> 56,527
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
