File No. 33-54311
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 5
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES
(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 : October 29, 1999
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
6,724 UNITS
PROSPECTUS
Part One
Dated October 26, 1999
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The First Trust Corporate Income Trust, Laddered Series 1 (the "Trust") is a
unit investment trust consisting of a portfolio of interest-bearing corporate
debt obligations of well-established companies (the "Bonds"). At September
16, 1999, each Unit represented a 1/6,724 undivided interest in the principal
and net income of the Trust (see "The Fund" 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 of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 3.0% of the Public Offering Price (3.093%
of the amount invested). At September 16, 1999, the Public Offering Price per
Unit was $910.84 plus net interest accrued to date of settlement (three
business days after such date) of $.18 and $16.80 for the monthly and semi-
annual distribution plans, respectively (see "Market for Units" in Part Two).
Please retain both parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 7.28% per annum on September 16, 1999, and 7.23% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.54% per annum on September 16, 1999, and 5.48%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account a
compounding factor and the expenses and sales charge associated with each Unit
of the Trust. Since the market values and estimated retirements of the Bonds
and the expenses of the Trust will change, there is no assurance that the
present Estimated Current Return and Estimated Long-Term Return indicated
above will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while the Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price. The above figures are based
on estimated per Unit cash flows. Estimated cash flows will vary with changes
in fees and expenses, with changes in current interest rates, and with the
principal prepayment, redemption, maturity, call, exchange or sale of the
underlying Bonds. See "What are Estimated Current Return and Estimated Long-
Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF SEPTEMBER 16, 1999
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $5,835,000
Number of Units 6,724
Fractional Undivided Interest in the Trust per Unit 1/6,724
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $5,940,736
Aggregate Value of Bonds per Unit $883.51
Sales Charge 3.093% (3.0% of Public Offering Price) $27.33
Public Offering Price per Unit $910.84*
Redemption Price and Sponsor's Repurchase Price per Unit
($27.33 less than the Public Offering Price per Unit) $883.51*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $500,000
</TABLE>
Date Trust Established July 14, 1994
Mandatory Termination Date November 30, 2004
Evaluator's Fee: $5,925 annually. Evaluations for purposes of sale,
purchase or redemption of Units are made as of the close of trading (4:00
p.m. Eastern time) on the New York Stock Exchange on each day on which it is
open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per Unit annually
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
SUMMARY OF ESSENTIAL INFORMATION AS OF SEPTEMBER 16, 1999
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $68.98 $68.98
Less: Estimated Annual Expense $3.17 $2.64
Estimated Net Annual Interest Income $65.81 $66.34
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $65.81 $66.34
Divided by 12 and 2, Respectively $5.48 $33.17
Estimated Daily Rate of Net Interest Accrual $.1828 $.1843
Estimated Current Return Based on Public
Offering Price 7.23% 7.28%
Estimated Long-Term Return Based on Public
Offering Price 5.48% 5.54%
</TABLE>
Trustee's Annual Fee: $1.41 and $.96 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Special
Situations Trust, Series 97, The First Trust
Corporate Income Trust, Laddered Series 1
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
97, The First Trust Corporate Income Trust, Laddered Series 1 as of June 30,
1999, and the related statements of operations and changes in net assets for
each of the three years in the period then ended. These financial statements
are the responsibility of the Trust's Sponsor. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1999, 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 97, The First Trust Corporate Income Trust, Laddered
Series 1 at June 30, 1999, and the results of its operations and changes in
its net assets for each of the three years in the period then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 7, 1999
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Bonds, at market value (cost $5,906,946)
(Note 1) $6,098,350
Accrued interest 153,456
Prepaid expense 10,750
Receivable from investment transaction 51,410
__________
6,313,966
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 137,959
Accrued liabilities 18
Unit redemptions payable 44,369
__________
182,346
__________
Net assets, applicable to 6,879 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $5,906,946
Net unrealized appreciation (Note 2) 191,404
Distributable funds 33,270
__________
$6,131,620
==========
Net asset value per unit $891.35
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
PORTFOLIO - See notes to portfolio.
June 30, 1999
<TABLE>
<CAPTION>
Coupon Standard
interest Date of & Poor's Principal Market
Name of issuer and title of bond(a)(c) rate maturity rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C>
Tele-Communications, Inc. 7.375% 2/15/2000 BBB- $435,000 437,079
McDonnell Douglas Corporation 8.25 7/01/2000 AA+ 840,000 857,044
Public Service Electric & Gas Company 7.875 11/01/2001 A- 190,000 196,496
Baxter International Inc. 8.125 11/15/2001 A 915,000 948,682
Texas Utilities Electric Company 8.125 2/01/2002 BBB+ 460,000 478,584
Lehman Brothers Holdings Inc. 8.875 3/01/2002 A 500,000 501,465
Bankers Trust Company 7.125 7/31/2002 A- 555,000 534,882
Tele-Communications, Inc. 8.25 1/15/2003 BBB- 150,000 156,185
Hydro-Quebec 7.375 2/01/2003 A+ 780,000 802,355
Bear Stearns Company 8.75 3/15/2004 A 575,000 598,276
Ford Motor Credit Company 7.50 6/15/2004 A 565,000 587,302
________________________
$5,965,000 6,098,350
========================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
NOTES TO PORTFOLIO
June 30, 1999
(a) The Bonds are not subject to optional call or redemption provisions.
For certain issues, in the event of change of control resulting in a
credit rating downgrade, the noteholders will have the option of
requiring such issuer to redeem the notes at 100% of the principal
amount thereof, plus any accrued and unpaid interest. All of the Bonds
in the Trust will mature within five years.
(b) The ratings shown are those effective at June 30, 1999.
(c) The Trust consists of 11 corporate bonds issued by domestic companies.
Each of three Bond issues represents 10% or more of the aggregate
principal amount of Bonds in the Trust or a total of approximately 42%.
The largest such issue represents approximately 15%.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Interest income $514,389 586,620 678,546
Expenses:
Trustee's fees and related expenses (14,695) (17,409) (16,296)
Evaluator's fees (5,925) (5,925) (5,925)
Supervisory fee (1,977) (2,263) (2,644)
________________________________
Investment income - net 491,762 561,023 653,681
Net gain (loss) on investments:
Net realized gain (loss) 56,145 54,223 60,593
Change in net unrealized appreciation
or depreciation (274,585) 125,925 (8,656)
________________________________
(218,440) 180,148 51,937
________________________________
Net increase in net assets
resulting from operations $273,322 741,171 705,618
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Net increase in net assets
resulting from operations:
Investment income - net $491,762 561,023 653,681
Net realized gain (loss) on investments 56,145 54,223 60,593
Change in net unrealized appreciation
or depreciation on investments (274,585) 125,925 (8,656)
__________________________________
273,322 741,171 705,618
Distributions to unit holders:
Investment income - net (487,799) (567,257) (655,909)
Principal from investment transactions - - -
__________________________________
(487,799) (567,257) (655,909)
Unit redemptions (1,029, 1,143 and
1,605 units in 1999, 1998 and
1997, respectively):
Principal portion (939,695) (1,043,716) (1,440,607)
Net interest accrued (3,874) (3,988) (4,500)
__________________________________
(943,569) (1,047,704) (1,445,107)
__________________________________
Total increase (decrease)
in net assets (1,158,046) (873,790) (1,395,398)
Net assets:
At the beginning of the year 7,289,666 8,163,456 9,558,854
__________________________________
At the end of the year (including
distributable funds applicable to
Trust units of $33,270, $24,941
and $44,951 at June 30, 1999, 1998
and 1997, respectively) $6,131,620 7,289,666 8,163,456
==================================
Trust units outstanding at the end of
the year 6,879 7,908 9,051
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of the
Sponsor. The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds, (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 bonds
on the Initial Date of Deposit, July 14, 1994, and on the dates of each
supplemental Date of Deposit. The premium or discount (including original
issue discount) existing at the respective Dates of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to The Chase Manhattan Bank which is
based on $1.41 and $.96 per $1,000 principal amount of Bonds for those
portions of the Trust under the monthly and semi-annual distribution plans,
respectively. Additionally, a fee of $5,925 annually 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 appreciation at June 30, 1999 follows:
<TABLE>
<S> <C>
Unrealized appreciation $201,699
Unrealized depreciation (10,295)
________
$191,404
========
</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 bonds on the date of an investor's purchase, plus a
sales charge of 3.9% of the public offering price which is equivalent to
approximately 4.058% of the net amount invested.
Distributions of net interest income -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Type of Year ended June 30,
distribution
plan 1999 1998 1997
<S> <C> <C> <C>
Monthly $65.74 67.16 66.98
Semi-annual 66.27 67.75 67.68
</TABLE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Interest income $69.75 69.23 69.69
Expenses (3.06) (3.02) (2.55)
_______________________________
Investment income - net 66.69 66.21 67.14
Distributions to unit holders:
Investment income - net (66.09) (67.22) (67.08)
Principal from investment transactions - - -
Net gain (loss) on investments (31.06) 20.88 4.84
_______________________________
Total increase (decrease) in
net assets (30.46) 19.87 4.90
Net assets:
Beginning of the year 921.81 901.94 897.04
_______________________________
End of the year $891.35 921.81 901.94
===============================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 97
THE FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES 1
PART ONE
Must be Accompanied by Part Two
____________________
P R O S P E C T U S
____________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
THE FIRST TRUST (REGISTERED TRADEMARK) INSURED CORPORATE TRUST SERIES
FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES
GLOBAL CORPORATE INCOME TRUST, INTERMEDIATE SERIES
The First Trust Special Situations Trust
PROSPECTUS
Part Two NOTE: THIS PART TWO PROSPECTUS MAY
Dated August 31, 1999 ONLY BE USED WITH PART ONE
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust Series (the "Insured Series"), First Trust Corporate
Income Trust, Laddered Series (the "Laddered Series") and Global
Corporate Income Trust, Intermediate Series (the "Global Series") (a
Trust in a Series is a "Trust," collectively the "Trusts") are unit
investment trusts consisting of portfolios of interest-bearing corporate
debt obligations of domestic or foreign companies (the "Corporate
Bonds"), in certain Trusts, U.S. Treasury bonds (the "Treasury
Obligations"), in certain Trusts, taxable municipal debt obligations
(the "Municipal Bonds"), and in certain Trusts, zero coupon bonds of
foreign government issuers (the "zero coupon bonds") (collectively, the
"Bonds").
The Objectives of the Trusts are a high level of current income and
conservation of capital through investment in a portfolio of corporate
debt obligations of domestic or foreign companies and in certain Trusts,
taxable municipal debt obligations issued after July 18, 1984 if
interest thereon is U.S. source income. A portion of a Trust's portfolio
may consist of U.S. Treasury bonds or zero coupon bonds of foreign
government issuers. The Trusts in the Laddered Series consist of
laddered portfolios such that Bonds representing a certain percentage of
the principal amount of the Trust will mature and be distributed
annually to Unit holders. See Part One for each Trust for the weighted
average maturity of the Bonds for each Trust in the Laddered Series. The
payment of interest and the conservation of capital are, of course,
dependent upon the continuing ability of the issuers, obligors and/or
insurers to meet their respective obligations.
Attention Foreign Investors: Your interest income from the Trusts may be
exempt from Federal withholding taxes if you are not a United States
citizen or resident and certain conditions are met. See "What is the
Federal Tax Status of Unit Holders?"
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO THE
INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES.
THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST ON ALL CORPORATE BONDS
AND MUNICIPAL BONDS IN THE PORTFOLIOS OF THE TRUSTS IN THE INSURED
SERIES ARE INSURED EITHER UNDER (I) AN INSURANCE POLICY (THE "INSURANCE
POLICY") OBTAINED FROM FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL
SECURITY"), CAPITAL MARKETS ASSURANCE CORPORATION ("CAPMAC") OR AMBAC
INDEMNITY CORPORATION ("AMBAC") BY THE TRUST OR (II) INSURANCE POLICIES
DIRECTLY OBTAINED BY THE BOND ISSUER, THE UNDERWRITERS, THE SPONSOR OR
OTHERS PRIOR TO THE DATE OF DEPOSIT FROM FINANCIAL SECURITY OR OTHER
INSURERS (THE "PREINSURED BONDS"). THE INSURANCE POLICIES OBTAINED BY A
TRUST AND ISSUED BY EITHER FINANCIAL SECURITY, CAPMAC OR AMBAC INSURE
BONDS COVERED THEREBY ONLY WHILE BONDS ARE RETAINED IN SUCH TRUST, WHILE
INSURANCE ON PREINSURED BONDS IS EFFECTIVE SO LONG AS SUCH BONDS ARE
OUTSTANDING. PURSUANT TO IRREVOCABLE COMMITMENTS OF FINANCIAL SECURITY,
CAPMAC OR AMBAC, IN THE EVENT OF A SALE OF A BOND INSURED UNDER THE
INSURANCE POLICIES OBTAINED BY A TRUST, THE TRUSTEE HAS THE RIGHT TO
BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
OBTAIN PERMANENT INSURANCE FOR SUCH BOND UPON THE PAYMENT OF A SINGLE
PREDETERMINED INSURANCE PREMIUM FROM THE PROCEEDS OF THE SALE OF SUCH
BOND. THE INSURANCE, IN ANY CASE, RELATES ONLY TO THE CORPORATE BONDS
AND MUNICIPAL BONDS IN A TRUST AND NOT TO THE TREASURY OBLIGATIONS OR
THE UNITS OFFERED HEREBY. AS A RESULT OF SUCH INSURANCE, THE UNITS OF
THE TRUSTS HAVE RECEIVED A RATING OF "AAA" BY STANDARD & POOR'S RATINGS
SERVICES, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC. ("STANDARD &
POOR'S"). SEE "WHY AND HOW ARE THE TRUSTS IN THE INSURED SERIES
INSURED?" NO REPRESENTATION IS MADE AS TO ANY INSURER'S ABILITY TO MEET
ITS COMMITMENTS.
Distributions to Unit holders may be reinvested as described herein. See
"Rights of Unit Holders-How Can Distributions to Unit Holders be
Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain a
market for the Units at prices based upon the aggregate bid price of the
Bonds in the portfolios of the Trusts. In the absence of such a market,
a Unit holder will nonetheless be able to dispose of the Units through
redemption at prices based upon the bid prices of the underlying Bonds.
See "Rights of Unit Holders-How May Units be Redeemed?" Neither the bid
nor offering prices of the underlying Corporate or Municipal Bonds or of
the Units of Trusts in the Insured Series, absent situations in which
Bonds are in default in payment of principal or interest or in
significant risk of such default, include value attributable to the
portfolio insurance obtained by the Trusts. See "Why and How are the
Trusts Insured?"
The Secondary Market Public Offering Price of the Units will be equal to
the aggregate bid price of the Bonds in the portfolio divided by the
number of Units outstanding, plus a maximum sales charge set forth in
Part One for each Trust. For sales charges in the secondary market, see
"Public Offering."
Page 2
THE FIRST TRUST INSURED CORPORATE TRUST SERIES
FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES
GLOBAL CORPORATE INCOME TRUST, INTERMEDIATE SERIES
The First Trust Special Situations Trust
What is The First Trust Special Situations Trust?
The First Trust Special Situations Trust, The First Trust Insured
Corporate Trust Series; First Trust Corporate Income Trust, Laddered
Series and Global Corporate Income Trust, Intermediate Series are series
of investment companies created by the Sponsor under the name of The
First Trust Special Situations Trust, all of which are generally similar
but each of which is separate and is designated by a different series
number (the "Trust"). Each Trust in a Series consists of an underlying
separate unit investment trust created under the laws of the State of
New York pursuant to a Trust Agreement (the "Indenture"), dated the
initial date of deposit, with Nike Securities L.P., as Sponsor, The
Chase Manhattan Bank as Trustee, Securities Evaluation Service, Inc., as
Evaluator and First Trust Advisors L.P., as Portfolio Supervisor.
The objectives of each Trust are a high level of current income and
conservation of capital through investment in a portfolio of corporate
debt obligations of domestic or foreign companies and in certain Trusts,
taxable municipal debt obligations, issued after July 18, 1984 if
interest thereon is U.S. source income. A portion of each Trust's
portfolio may consist of U.S. Treasury bonds or zero coupon bonds of
foreign government issuers. The Trusts in the Laddered Series consist of
laddered portfolios such that Bonds representing a certain percentage of
the principal amount of the Trust will mature and be distributed
annually to Unit holders. See Part One for the weighted average maturity
of the Bonds for each Trust in the Laddered Series.
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO THE
INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES. The
scheduled payment of all principal and interest on the Corporate and
Municipal Bonds in each Trust in the Insured Series is insured either
under (i) an insurance policy (the "Insurance Policy") obtained by such
Trust from Financial Security Assurance Inc. ("Financial Security"),
Capital Markets Assurance Corporation ("CapMAC") or Ambac Assurance
Corporation ("Ambac") or (ii) insurance policies obtained directly by
the Bond issuer, the underwriters, the Sponsor or others prior to the
Date of Deposit from Financial Security or other insurers (the
"Preinsured Bonds"). The Insurance Policies obtained by a Trust and
issued by Financial Security, CapMAC or Ambac insure Corporate or
Municipal Bonds covered thereby only while the Bonds thus insured are
held in a Trust while insurance on Preinsured Bonds is effective so long
as such Bonds are outstanding. By the terms of the Insurance Policies,
Financial Security, CapMAC or Ambac unconditionally and irrevocably
guarantees to a Trust in the Insured Series the full and complete
payment of scheduled payments on the Bonds listed in their respective
Insurance Policy in an amount equal to the principal of such Bonds,
which is payable on the stated maturity date thereof or on the date such
Bonds are called for mandatory sinking fund redemption, and interest on
such Bonds as the scheduled payments shall become due but are not paid
by the issuer of such Bonds. In the event of any acceleration of the due
date of principal by reason of call for redemption (other than a
mandatory sinking fund redemption), default or otherwise, the payments
guaranteed by Financial Security, CapMAC or Ambac will be made in the
amounts and at the times as would have been due had there not been an
acceleration by reason of call for redemption (other than a mandatory
sinking fund redemption), default or otherwise unless Financial
Security, CapMAC or Ambac elects, in their sole discretion, to pay
accelerated principal on the redemption date, plus interest accrued or
accreted, as appropriate, to the date of acceleration or redemption.
Payment of such accelerated amount or redemption price shall fully
discharge the obligations of Financial Security, CapMAC or Ambac under
their Insurance Policy in respect of such Bonds. See "Why and How are
the Trusts Insured?" THERE IS, OF COURSE, NO GUARANTEE THAT A TRUST'S
OBJECTIVES WILL BE ACHIEVED. AN INVESTMENT IN A TRUST SHOULD BE MADE
WITH AN UNDERSTANDING OF THE RISKS WHICH AN INVESTMENT IN FIXED RATE
LONG-TERM DEBT OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE VALUE
OF THE UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of a Trust in the Insured
Series nor any evaluation of such Units for purposes of repurchases or
Page 3
redemptions reflects any element of value for the insurance obtained by
such Trust unless Bonds are in default in payment of principal or
interest or in significant risk of such default. See "Public Offering-
How is the Public Offering Price Determined?" On the other hand, the
value of insurance obtained by the Bond issuer, the Sponsor or others is
reflected and included in the market value of such Bonds.
Insurance obtained by a Trust in the Insured Series or by the Bond
issuer, the underwriters, the Sponsor or others is not a substitute for
the basic credit of an issuer, but supplements the existing credit and
provides additional security therefor. Monthly premiums are paid by each
Trust in the Insured Series for the Insurance Policies obtained by such
Trust from Financial Security, CapMAC or Ambac, respectively. No
premiums for insurance are paid by the Trusts in the Insured Series for
Preinsured Bonds. Upon the sale of a Bond insured under an Insurance
Policy issued by Financial Security, CapMAC or Ambac, respectively, and
obtained by the Trusts in the Insured Series, the Trustee has the right
to obtain an insurance policy guaranteeing the scheduled payment of
principal and interest to the maturity of such Bond ("Permanent
Insurance") from Financial Security, CapMAC or Ambac, respectively, with
respect to such Bond upon the payment of a single predetermined
insurance premium. Such premium will be paid from the proceeds of the
sale of such Bond. Accordingly, any Bond in a Trust in the Insured
Series covered by the Insurance Policies is eligible to be sold on an
insured basis. Standard & Poor's and Moody's Investors Service, Inc.
("Moody's") have rated the claims-paying ability of Financial Security,
CapMAC and Ambac "AAA" and "Aaa," respectively. See "Why and How are the
Trusts in the Insured Series Insured?"
In selecting Corporate or Municipal Bonds, the following facts, among
others, were considered at the Date of Deposit: (i) the Standard &
Poor's rating of the Bonds was in no case less than "BBB," or the
Moody's rating of the Bonds was in no case less than "Baa," including
plus or minus signs or provisional or conditional ratings, respectively,
or, if not rated, the Bonds had, in the opinion of the Sponsor, credit
characteristics sufficiently similar to the credit characteristics of
interest-bearing corporate or municipal debt obligations, respectively,
that were so rated as to be acceptable for acquisition by the Trusts
(see "Description of Bond Ratings"); (ii) the prices of the Bonds
relative to other bonds of comparable quality and maturity; (iii) in the
case of a Trust in the Insured Series, the availability and cost of
insurance of the principal and interest on the Bonds; (iv) the
diversification of Bonds as to location of issuer and in the case of a
Trust in the Laddered Series, diversification as to maturity; (v)
whether the Bonds were issued after July 18, 1984 if interest thereon is
U.S. source income; (vi) the amount of foreign withholding taxes
applicable to the Bonds; and (vii) in the case of the Trusts in the
Laddered Series, whether the Bonds are non-callable. See Part One for
each Trust in the Laddered Series for additional information or
extraordinary call provisions. Subsequent to the Date of Deposit, a Bond
may cease to be rated or its rating may be reduced below the minimum
required as of the Date of Deposit. Neither event requires elimination
of such Bond from the portfolio, but may be considered in the Sponsor's
determination as to whether or not to direct the Trustee to dispose of
the Bond. Certain Trusts consist primarily of Bonds which, in many
cases, do not have the benefit of covenants which would prevent the
issuer from engaging in capital restructurings or borrowing transactions
in connection with corporate acquisitions, leveraged buyouts or
restructurings which could have the effect of reducing the ability of
the issuer to meet its debt obligations and might result in the ratings
of the Bonds and the value of the underlying Trust portfolio being
reduced. See "Rights of Unit Holders-How May Bonds be Removed from the
Trusts?"
Certain of the Corporate or Municipal Bonds in the Trusts may have been
acquired at a market discount from par value at maturity. The coupon
interest rates on the discount bonds at the time they were purchased and
deposited in the Trusts were lower than the current market interest
rates for newly issued bonds of comparable rating and type. The market
discount of previously issued bonds will increase when interest rates
for newly issued comparable bonds increase, and decrease when interest
rates fall, other things being equal. A discount bond held to maturity
will have a larger portion of its total return in the form of taxable
income and capital gain and less in the form of interest income than a
comparable bond newly issued at current market rates. Neither the
Sponsor nor the Trustee shall be liable in any way for any default,
failure or defect in any of the Bonds.
Certain of the Corporate or Municipal Bonds in the Trusts may be
original issue discount bonds. Under current law, the original issue
discount, which is the difference between the stated redemption price at
Page 4
maturity and the issue price of the Bonds, is deemed to accrue on a
daily basis and the accrued portion is treated as interest income for
Federal income tax purposes. On sale or redemption, any gain realized
that is in excess of the earned portion of original issue discount will
be taxable as capital gain unless the gain is attributable to market
discount in which case the accretion of market discount is taxable as
ordinary income. The current value of an original discount bond reflects
the present value of its stated redemption price at maturity. The market
value tends to increase in greater increments as the Bonds approach
maturity. Certain Trusts consist primarily of Bonds which, in many
cases, do not have the benefit of covenants which would prevent the
issuer from engaging in capital restructurings or borrowing transactions
in connection with corporate acquisitions, leveraged buyouts or
restructurings which could have the effect of reducing the ability of
the issuer to meet its debt obligations and might result in the ratings
of the Bonds and the value of the underlying Trust portfolio being
reduced. The effect of owning deep discount zero coupon bonds which do
not make current interest payments is that a fixed yield is earned not
only on the original investment, but also, in effect, on all earnings
during the life of the discount obligation. This implicit reinvestment
of earnings at the same rate eliminates the risk of being unable to
reinvest the income on such obligations at a rate as high as the
implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the
future. For this reason, the zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing
interest rates than are securities of comparable quality which make
regular interest payments.
The Treasury Obligations in certain Trusts consist of U.S. Treasury
bonds which have been stripped of their unmatured interest coupons. The
Treasury Obligations evidence the right to receive a fixed payment at a
future date from the U.S. Government, and are backed by the full faith
and credit of the U.S. Government. Treasury Obligations are purchased at
a deep discount because the buyer obtains only the right to a fixed
payment at a fixed date in the future and does not receive any periodic
interest payments. The effect of owning deep discount bonds which do not
make current interest payments (such as the Treasury Obligations) is
that a fixed yield is earned not only on the original investment, but
also, in effect, on all earnings during the life of the discount
obligation. This implicit reinvestment of earnings at the same rate
eliminates the risk of being unable to reinvest the income on such
obligations at a rate as high as the implicit yield on the discount
obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, the Treasury
Obligations are subject to substantially greater price fluctuations
during periods of changing interest rates than are securities of
comparable quality which make regular interest payments.
Certain of the Corporate or Municipal Bonds in the Trusts may have been
acquired at a market premium from par value at maturity. The coupon
interest rates on the premium bonds at the time they were purchased and
deposited in a Trust were higher than the current market interest rates
for newly issued bonds of comparable rating and type. The current
returns of bonds trading at a market premium are initially higher than
the current returns of comparable bonds of a similar type issued at
currently prevailing interest rates because premium bonds tend to
decrease in market value as they approach maturity when the face amount
becomes payable. Because part of the purchase price is thus returned not
at maturity but through current income payments, early redemption of a
premium bond at par or early prepayments of principal will result in a
reduction in yield. Redemption pursuant to call provisions generally
will, and redemption pursuant to sinking fund provisions may, occur at
times when the redeemed Bonds have an offering side valuation which
represents a premium over par or for original issue discount Bonds a
premium over the accreted value. To the extent that the Bonds were
deposited in a Trust at a price higher than the price at which they are
redeemed, this will represent a loss of capital when compared to the
original Public Offering Price of the Units. Because premium bonds
generally pay a higher rate of interest than bonds priced at or below
par, the effect of the redemption of premium bonds would be to reduce
Estimated Net Annual Unit Income by a greater percentage than the par
amount of such bonds bears to the total par amount of Bonds in a Trust.
Although the actual impact of any such redemptions that may occur will
depend upon the specific Bonds that are redeemed, it can be anticipated
that the Estimated Net Annual Unit Income will be significantly reduced
after the dates on which such Bonds are eligible for redemption. See
"Rights of Unit Holders-How May Bonds be Removed from the Trusts?" and
"Other Information: How May the Indenture be Amended or Terminated?" See
"Portfolio" appearing in Part One for each Trust for the earliest
scheduled call date and the initial redemption price for each Bond.
Page 5
All of the Corporate Bonds in the Trusts in the Insured Series are
obligations of public utility issuers. In view of this an investment in
a Trust should be made with an understanding of the characteristics of
such issuers and the risks which such an investment may entail. General
problems of the public utility industry include the difficulty in
obtaining an adequate return on invested capital despite frequent
increases in rates which have been granted by the public service
commissions having jurisdiction, the difficulty in financing large
construction programs during an inflationary period, the restrictions on
operations and increased cost and delays attributable to environmental
and other regulatory considerations, the difficulty to the capital
markets in absorbing utility debt, the difficulty in obtaining fuel for
electric generation at reasonable prices and the effects of energy
conservation. There is no assurance that such public service commissions
will in the future grant rate increases or that any such increases will
be adequate to cover operating and other expenses and debt service
requirements. All of the public utilities which are issuers of the
Corporate Bonds in the portfolios have been experiencing many of these
problems in varying degrees. In addition, Federal, state and municipal
governmental authorities may from time to time review existing, and
impose additional, regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the
ability of the issuers of certain of the Corporate Bonds in the Trust
portfolios to make payments of principal and/or interest on such Bonds.
Utilities are generally subject to extensive regulation by state utility
commissions which, for example, establish the rates which may be charged
and the appropriate rate of return on an approved asset base, which must
be approved by the state commissions. Certain utilities have had
difficulty from time to time in persuading regulators, who are subject
to political pressures, to grant rate increases necessary to maintain an
adequate return on investment and voters in many states have the ability
to impose limits on rate adjustments (for example, by initiative or
referendum). Any unexpected limitations could negatively affect the
profitability of utilities whose budgets are planned far in advance.
Also, changes in certain accounting standards currently under
consideration by the Financial Accounting Standards Board could cause
significant write-downs of assets and reductions in earnings for many
investor-owned utilities. In addition, gas pipeline and distribution
companies have had difficulties in adjusting to short and surplus energy
supplies, enforcing or being required to comply with long-term contracts
and avoiding litigation from their customers, on the one hand, or
suppliers, on the other. Finally, utilities may be subject to
deregulation and competitive pressures from alternative providers. In
this environment, utilities may face costs which prevent them from
earning a positive rate of return, which will negatively impact the
issues of corporate bonds.
Certain of the issuers of the Corporate Bonds in the Trusts may own or
operate nuclear generating facilities. Governmental authorities may from
time to time review existing, and impose additional, requirements
governing the licensing, construction and operation of nuclear power
plants. Nuclear generating projects in the electric utility industry
have experienced substantial cost increases, construction delays and
licensing difficulties. These have been caused by various factors,
including inflation, high financing costs, required design changes and
rework, allegedly faulty construction, objections by groups and
governmental officials, limits on the ability to finance, reduced
forecasts of energy requirements and economic conditions. This
experience indicates that the risk of significant cost increases, delays
and licensing difficulties remains present until completion and
achievement of commercial operation of any nuclear project. Also,
nuclear generating units in service have experienced unplanned outages
or extensions of scheduled outages due to equipment problems or new
regulatory requirements sometimes followed by a significant delay in
obtaining regulatory approval to return to service. A major accident at
a nuclear plant anywhere, such as the accident at a plant in Chernobyl,
could cause the imposition of limits or prohibitions on the operation,
construction or licensing of nuclear units in the United States.
Page 6
In view of the uncertainties discussed above, there can be no assurance
that any company's share of the full cost of nuclear units under
construction ultimately will be recovered in rates or of the extent to
which a company could earn an adequate return on its investment in such
units. The likelihood of a significantly adverse event occurring in any
of the areas of concern described above varies, as does the potential
severity of any adverse impact. It should be recognized, however, that
one or more of such adverse events could occur and individually or
collectively could have a material adverse impact on a company's
financial condition, or the results of its operations or its ability to
make interest and principal payments on its outstanding debt.
Other general problems of the gas, water, telephone and electric utility
industries (including state and local joint action power agencies)
include difficulty in obtaining timely and adequate rate increases,
difficulty in financing large construction programs to provide new or
replacement facilities during an inflationary period, rising costs of
rail transportation to transport fossil fuels, the uncertainty of
transmission service costs for both interstate and intrastate
transactions, changes in tax laws which adversely affect a utility's
ability to operate profitably, increased competition in service costs,
recent reductions in estimates of future demand for electricity and gas
in certain areas of the country, restrictions on operations and
increased cost and delays attributable to environmental considerations,
uncertain availability and increased cost of capital, unavailability of
fuel for electric generation at reasonable prices, including the steady
rise in fuel costs and the costs associated with conversion to alternate
fuel sources such as coal, availability and cost of natural gas for
resale, technical and cost factors and other problems associated with
construction, licensing, regulation and operation of nuclear facilities
for electric generation, including among other considerations the
problems associated with the use of radioactive materials and the
disposal of radioactive wastes, and the effects of energy conservation.
Each of the problems referred to could adversely affect the ability of
the issuers of any Corporate Bonds in the Trusts to make payments of
principal and/or interest on such Bonds.
In addition, the ability of state and local joint action power agencies
to make payments on bonds they have issued is dependent in large part on
payments made to them pursuant to power supply or similar agreements.
Certain of the obligations in certain of the Trusts in the Insured
Series are taxable obligations of municipal issuers. In view of this an
investment in such Trusts should be made with an understanding of the
characteristics of such issuers and the risks which such an investment
may entail. Obligations of municipal issuers can be either general
obligations of a government entity that are backed by the taxing power
of such entity or revenue bonds payable from the income of a specific
project or authority and are not supported by the issuer's power to levy
taxes.
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and
interest. However, the taxing power of any governmental entity may be
limited by provisions of state constitutions or laws and an entity's
credit will depend on many factors, including an erosion of the tax base
due to population declines, natural disasters, declines in the state's
industrial base or inability to attract new industries, economic limits
on the ability to tax without eroding the tax base and the extent to
which the entity relies on Federal or state aid, access to capital
markets or other factors beyond the entity's control.
In addition, certain of the Municipal Obligations in certain Trusts in
the Insured Series may be obligations of issuers who rely in whole or in
part on ad valorem real property taxes as a source of revenue. Recently,
certain proposals, in the form of state legislative proposals or voter
initiatives, to limit ad valorem real property taxes have been
introduced in various states.
Revenue bonds, on the other hand, are payable only from revenues derived
from a particular facility or class of facilities, or, in some cases,
from the proceeds of a special excise tax or other special revenue
source. The ability of an issuer of revenue bonds to make payments of
principal and/or interest on such bonds is primarily dependent upon the
success or failure of the facility or class of facilities involved or
whether the revenues received from an excise tax or other special
revenue source are sufficient to meet obligations.
Typically, interest income received from municipal issues is exempt from
Federal income taxation under Section 103 of the Internal Revenue Code
of 1986, as amended (the "Code") and therefore is not includible in the
gross income of the owners thereof. However, interest income received
for taxable municipal obligations is not exempt from Federal income
taxation under Section 103 of the Code. Thus, owners of taxable
municipal obligations generally must include interest on such
obligations in gross income for Federal income tax purposes and treat
such interest as ordinary income.
Certain of the Municipal Obligations in certain Trusts in the Insured
Series may be obligations which are payable from and secured by revenues
derived from the ownership and operation of facilities such as airports,
bridges, turnpikes, port authorities, convention centers and arenas. The
ability of issuers to make debt service payments on airport obligations
is dependent on the capability of the airlines to meet their obligations
Page 7
under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic. Due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, many airlines may have difficulty meeting
their obligations under these use agreements. The Sponsor cannot predict
what effect these industry conditions may have on airport revenues which
are dependent for payment on the financial condition of the airlines and
their usage of the particular airport facility. Similarly, payment on
Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges
and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost of
maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Certain of the Municipal Obligations in certain Trusts in the Insured
Series may be health care revenue bonds. In view of this an investment
in such Trusts should be made with an understanding of the
characteristics of such issuers and the risks which such an investment
may entail. Ratings of bonds issued for health care facilities are often
based on feasibility studies that contain projections of occupancy
levels, revenues and expenses. A facility's gross receipts and net
income available for debt service may be affected by future events and
conditions including, among other things, demand for services and the
ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with
other health care facilities, efforts by insurers and governmental
agencies to limit rates, legislation establishing state rate-setting
agencies, expenses, the cost and possible unavailability of malpractice
insurance, the funding of Medicare, medicaid and other similar third
party payor programs, government regulation and the termination or
restriction of governmental financial assistance, including that
associated with Medicare, Medicaid and other similar third party payor
programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing
a single nationwide schedule of rates. Prior to such legislation
Medicare reimbursements were based on the actual costs incurred by the
health facility. The current legislation may adversely affect
reimbursements to hospitals and other facilities for services provided
under the Medicare program. Such adverse changes also may adversely
affect the ratings of Bonds held in the portfolio of the Trusts. Because
of the insurance obtained by the Trusts in the Insured Series, the "AAA"
rating of the Units in the Trusts in the Insured Series would not be
affected.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms 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 Trusts will retain for any length of time their
present size and composition. Neither the Sponsor nor the Trustee shall
be liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in certain Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions or
otherwise. See "Portfolio" appearing in Part One for each Trust. A bond
subject to optional call is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is
a method by which a bond issue is redeemed, at or before maturity, by
the proceeds of a new bond issue. A bond subject to sinking fund
redemption is one which is subject to partial call from time to time at
par or from a fund accumulated for the scheduled retirement of a portion
of an issue prior to maturity. The exercise of redemption or call
provisions will (except to the extent the proceeds of the called Bonds
are used to pay for Unit redemptions) result in the distribution of
principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the Estimated Long-Term
Return and the Estimated Current Return on Units of the Trusts.
Redemption pursuant to call provisions is more likely to occur, and
redemption pursuant to sinking fund provisions may occur, when the Bonds
have an offering side valuation which represents a premium over par or,
for original issue discount bonds, a premium over the accreted value.
Unit holders may recognize capital gain or loss upon any redemption or
call.
Like other investment companies, financial and business organizations
and individuals around the world, the Fund could be adversely affected
if the computer systems used by the Sponsor, Evaluator, Portfolio
Supervisor or Trustee or other service providers to the Fund do not
properly process and calculate date-related information and data
involving dates of January 1, 2000 and thereafter. This is commonly
Page 8
known as the "Year 2000 Problem." The Sponsor, Evaluator, Portfolio
Supervisor and Trustee are taking steps that they believe are reasonably
designed to address the Year 2000 Problem with respect to computer
systems that they use and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other service providers.
At this time, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact to the Fund. The Sponsor is
unable to predict what impact, if any, the Year 2000 Problem will have
on issuers of the Bonds contained in the Fund.
To the best knowledge of the Sponsor, there is no litigation pending as
of the date hereof in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Trusts. At any time
after the date hereof, litigation may be initiated on a variety of
grounds with respect to Bonds in the Trusts. Such litigation may affect
the validity of such Bonds. 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 Bonds.
Each Unit initially offered represents the fractional undivided interest
in a Trust as set forth in Part One for each Trust. To the extent that
any Units of a Trust are redeemed by the Trustee, the fractional
undivided interest in such 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.
What are Certain Risks of an Investment in Foreign Issuers?
Foreign Issuers. Certain Bonds in the Trusts in the Laddered Series and
the Global Series are invested in securities of foreign issuers. It is
appropriate for investors in the Trusts to consider certain investment
risks that distinguish investments in Bonds of foreign issuers from
those of domestic issuers. Those investment risks include future
political and economic developments, the possible imposition of
withholding taxes on interest income payable on the Bonds held in a
Portfolio, the possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls or the adoption of other
foreign governmental restrictions (including expropriation, burdensome
or confiscatory taxation and moratoriums) which might adversely affect
the payment or receipt of payment of amounts due on the Bonds. Investors
should realize that, although the Trusts invest in U.S. dollar
denominated investments, the foreign issuers which operate
internationally are subject to currency risks. The value of Bonds can be
adversely affected by political or social instability and unfavorable
diplomatic or other negative developments. In addition, because many
foreign issuers are not subject to the reporting requirements of the
Securities Exchange Act of 1934, there may be less publicly available
information about the foreign issuer than a U.S. domestic issuer.
Foreign issuers also are not necessarily subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. domestic issuers. However, the
Sponsor anticipates that adequate information will be available to allow
the Portfolio Supervisor to provide portfolio surveillance.
Liquidity. The Bonds in the Trusts may not have been registered under
the Securities Act of 1933 and may not be exempt from the registration
requirements of the Act. Most of the Bonds will not be listed on a
securities exchange. Whether or not the Bonds are listed, the principal
trading market for the Bonds will generally be in the over-the-counter
market. As a result, the existence of a liquid trading market for the
Bonds may depend on whether dealers will make a market in the Bonds.
There can be no assurance that a market will be made for any of the
Bonds, that any market for the Bonds will be maintained or of the
liquidity of the Bonds in any markets made. The price at which the Bonds
may be sold to meet redemptions and the value of the Trusts will be
adversely affected if trading markets for the Bonds are limited or
absent. The Trusts may also contain non-exempt Bonds in registered form
which have been purchased on a private placement basis. Sales of these
Bonds may not be practicable outside the United States, but can
generally be made to U.S. institutions in the private placement market
which may not be as liquid as the general U.S. securities market. Since
the private placement market is less liquid, the prices received may be
less than would have been received had the markets been broader.
Exchange Controls. On the basis of the best information available to the
Sponsor at the present time none of the Bonds is subject to exchange
control restrictions under existing law which would materially interfere
Page 9
with payment to the Trusts of amounts due on the Bonds. However, there
can be no assurance that exchange control regulations might not be
adopted in the future which might adversely affect payments to the
Trust. In addition, the adoption of exchange control regulations and
other legal restrictions could have an adverse impact on the
marketability of the Bonds in the Trusts and on the ability of the
Trusts to satisfy their obligation to redeem Units tendered to the
Trustee for redemption.
Jurisdiction Over, and U.S. Judgments Concerning, Foreign Obligors. Non-
U.S. issuers of the Bonds will generally not have submitted to the
jurisdiction of U.S. courts for purposes of lawsuits relating to those
Bonds. If a Trust contains Bonds of such an issuer, a Trust as a holder
of those obligations may not be able to assert its rights in U.S. courts
under the documents pursuant to which the Bonds are issued. Even if a
Trust obtains a U.S. judgment against a foreign obligor, there can be no
assurance that the judgment will be enforced by a court in the country
in which the foreign obligor is located. In addition, a judgment for
money damages by a court in the United States if obtained, will
ordinarily be rendered only in U.S. dollars. It is not clear, however,
whether, in granting a judgment, the rate of conversion of the
applicable foreign currency into U.S. dollars would be determined with
reference to the due date or the date the judgment is rendered. Courts
in other countries may have rules that are similar to, or different
from, the rules of U.S. courts.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return and the
Estimated Long-Term Return, under the monthly and, if applicable, semi-
annual distribution plans, are as set forth in Part One attached hereto
for each Trust. Estimated Current Return is computed by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering
Price. Any change in either the Estimated Net Annual Interest Income per
Unit or the Public Offering Price will result in a change in the
Estimated Current Return. For each Trust, the Public Offering Price will
vary in accordance with fluctuations in the prices of the underlying
Bonds and the Net Annual Interest Income per Unit will change as Bonds
are redeemed, paid, sold or exchanged in certain refundings or as the
expenses of each Trust change. Therefore, there is no assurance that the
Estimated Current Return indicated in Part One for each Trust will be
realized in the future. Estimated Long-Term Return is calculated using a
formula which (1) takes into consideration and determines and factors in
the relative weightings of the market values, yields (which takes into
account the amortization of premiums and the accretion of discounts) and
estimated retirements of all of the Bonds in each Trust; and (2) takes
into account the expenses and sales charge associated with each Unit of
each Trust. Since the market values and estimated retirements of the
Bonds and the expenses of each Trust will change, there is no assurance
that the Estimated Long-Term Return indicated in Part One for each Trust
will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of
Estimated Long-Term Return reflects the estimated date and amount of
principal returned while Estimated Current Return calculations include
only Net Annual Interest Income and Public Offering Price. Neither rate
reflects the true return to Unit holders, which is lower, because
neither includes the effect of the delay in the first payment to Unit
holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan, if applicable, are the fifteenth day of June and
December with the Distribution Dates as set forth in Part One for each
Trust. It is anticipated that an amount equal to approximately one-half
of the amount of net annual interest income per Unit will be distributed
on or shortly after each Distribution Date to Unit holders of record on
the preceding Record Date. See Part One for each Trust.
Record Dates for monthly distributions are the fifteenth day of each
month. The Distribution Dates for distributions of interest under the
monthly distribution plan is as set forth in Part One for each Trust.
All Unit holders will receive such distributions, if any, from the
Principal Account as are made as of the Record Dates for monthly
distributions. See Part One for each Trust.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a bond from
the last day on which interest thereon was paid. Interest on Bonds in a
Trust generally is paid semi-annually, although a Trust accrues such
interest daily. Because of this, a Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason,
Page 10
the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement.
Except through an advancement of its own funds, the Trustee has no cash
for distribution to Unit holders until it receives interest payments on
the Bonds in a Trust. The Trustee will recover its advancements without
interest or other costs to such Trust from interest received on the
Bonds in a Trust. When these advancements have been recovered, regular
distributions of interest to Unit holders will commence. See "Rights of
Unit Holders-How are Interest and Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of
interest actually received by a 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 or her Units, he or she will be entitled to receive
his or her proportionate share of the accrued interest from the
purchaser of his or her Units. Since the Trustee has the use of the
interest held in the Interest Account for distributions to Unit holders
and since such Account is non-interest-bearing to Unit holders, the
Trustee benefits thereby.
Why and How are the Trusts in the Insured Series Insured?
THE FOLLOWING INFORMATION REGARDING INSURANCE APPLIES ONLY TO THE
INSURED SERIES, NOT THE GLOBAL SERIES OR THE LADDERED SERIES. All
Corporate and Municipal Bonds in the portfolios of the Trusts in the
Insured Series are insured as to the scheduled payment of interest and
principal by an insurance policy (individually, each an "Insurance
Policy" and collectively, the "Insurance Policies") obtained by such
Trusts from Financial Security Assurance Inc. ("Financial Security"),
Capital Markets Assurance Corporation ("CapMAC") or Ambac Assurance
Corporation ("Ambac") or by insurance policies obtained by the Bond
issuer, the underwriters, the Sponsor or others prior to the Initial
Date of Deposit directly from Financial Security or other insurers (the
"Preinsured Bonds"). The Insurance Policies are noncancellable and will
continue in force for the Trusts in the Insured Series so long as such
Trusts are in existence and the Bonds described in the Insurance
Policies continue to be held by such Trusts. Nonpayment of premiums on
an Insurance Policy will not result in the cancellation of insurance,
but will permit Financial Security, CapMAC or Ambac, respectively, to
take action against the respective Trust to recover premium payments due
it. Premium rates for each issue of Bonds protected by an Insurance
Policy are fixed for the life of each Trust in the Insured Series. The
premium for any Preinsured Bonds has been paid in advance by the Bond
issuer, the underwriters, the Sponsor or others and any such policy or
policies are noncancellable and will continue in force so long as the
Bonds so insured are outstanding and the insurer and/or insurers thereof
remain in business. Financial Security, CapMAC or Ambac have no
obligation to insure any Preinsured Bonds. Therefore, if the provider of
an original issuance insurance policy insuring Preinsured Bonds is
unable to meet its obligations under such policy, or if the rating
assigned to the claims-paying ability of such insurer deteriorates,
Financial Security, CapMAC or Ambac have no obligation to insure any
issue adversely affected by either of the above described events.
Monthly premiums are paid by the Trusts in the Insured Series for the
Insurance Policies, which are payable from the interest income and
principal received by such Trusts. In the case of Preinsured Bonds, no
premiums for insurance are paid by the Trusts.
By the terms of the Insurance Policies, Financial Security, CapMAC or
Ambac unconditionally and irrevocably guarantees to the Trusts in the
Insured Series the full and complete payment of scheduled payments on
the Bonds listed in their respective Insurance Policies in an amount
equal to the principal of such Bonds which is payable on the stated
maturity date thereof or on the date such Bonds are called for mandatory
sinking fund redemption and interest on such Bonds as the scheduled
payments shall become due but are not paid by the issuers of such Bonds.
In the event of any acceleration of the due date of principal by reason
of call for redemption (other than a mandatory sinking fund redemption),
default or otherwise, the payments guaranteed by Financial Security,
CapMAC or Ambac will be made in the amounts and at the times as would
have been due had there not been an acceleration by reason of call for
redemption (other than a mandatory sinking fund redemption), default or
otherwise unless Financial Security, CapMAC or Ambac elects, in their
sole discretion, to pay accelerated principal on the redemption price,
plus interest accrued or accreted, as appropriate, to the date of
acceleration or redemption. Payment of such accelerated amount or
Page 11
redemption price shall fully discharge the obligations of Financial
Security, CapMAC or Ambac, respectively under their respective Insurance
Policy in respect of such Bonds. Financial Security, CapMAC or Ambac
will be responsible for scheduled payments less any amounts received by
the Trusts in the Insured Series from any trustee for the bond issuers
or from any other source. In the event the due date of the principal of
any Bond covered by an Insurance Policy is accelerated, the payments
required by the acceleration are received by the Trusts in the Insured
Series, and the Bond is canceled, the respective Insurance Policy will
terminate with respect to that Bond. An Insurance Policy does not
guarantee payment on an accelerated basis, the payment of any redemption
premium or the value of the Units. An Insurance Policy also does not
insure against nonpayment of principal of or interest on the Bonds
covered by the respective Insurance Policy resulting from the
insolvency, negligence or any other act or omission of the trustee or
other paying agent for the Bonds.
Each Insurance Policy is non-cancellable and will continue in force so
long as the respective Trust in the Insured Series is in existence and
the Bonds listed in the respective Insurance Policy continue to be held
in and owned by such Trust. Each Insurance Policy shall terminate as to
any Bond which has been redeemed from a Trust in the Insured Series or
sold by the Trustee on the date of the redemption or on the settlement
date of the sale, and Financial Security, CapMAC or Ambac, respectively,
shall not have any liability under their Insurance Policy as to that
Bond thereafter. If the date of the redemption or the settlement date of
the sale occurs between a record date and a date of payment of any Bond,
the Insurance Policy will terminate as to that Bond on the business day
next succeeding the date of payment. The termination of an Insurance
Policy as to any Bond shall not affect Financial Security's, CapMAC's or
Ambac's obligations, respectively, regarding any other Bond in a Trust
covered by such Insurance Policy or any other fund which has obtained an
insurance policy from Financial Security, CapMAC or Ambac, respectively.
Each Insurance Policy will terminate as to all Bonds on the date on
which the last of the Bonds matures, is redeemed or is sold by a Trust.
As Bonds covered by an Insurance Policy are redeemed by their respective
issuers or are sold by the Trustee, the amount of the premium payable
for an Insurance Policy will be correspondingly reduced. Nonpayment of
premiums on an Insurance Policy will not result in the cancellation of
insurance but will permit Financial Security, CapMAC or Ambac,
respectively, to take action against the Trustee to recover premium
payments due them. The Trustee in turn will be entitled to recover the
payments from the affected Trust.
Upon the sale of a Bond covered by an Insurance Policy from a Trust in
the Insured Series, the Trustee has the right to obtain insurance to
maturity ("Permanent Insurance") on the Bond upon the payment of a
single predetermined insurance premium. Accordingly, any Corporate or
Municipal Bond in a Trust in the Insured Series is eligible to be sold
on an insured basis. It is expected that the Trustee will exercise the
right to obtain Permanent Insurance upon instructions from the Sponsor
only if such Trust would receive net proceeds from the sale of the Bond
(less sale and rating agency fees) in excess of the sale proceeds that
would be received if the Bond were sold on an uninsured basis. The
predetermined Permanent Insurance premium with respect to each Bond
covered by the Insurance Policy is based upon the insurability of each
Bond as of the Initial Date of Deposit and will not be increased for any
change in the creditworthiness of such Bond.
Although all Corporate and Municipal Bonds in the Trusts in the Insured
Series are individually insured, neither the Treasury Obligations, the
Trusts, the Units nor the Portfolios is insured directly or indirectly
by Financial Security, CapMAC or Ambac.
Financial Security Assurance. Financial Security Assurance Inc.
("Financial Security") is a monoline insurance company incorporated in
1984 under the laws of the State of New York. Financial Security is
licensed to engage in the financial guaranty insurance business in all
50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general,
financial guaranty insurance consists of the issuance of a guaranty of
scheduled payments of an issuer's securities, thereby enhancing the
credit rating of those securities, in consideration for payment of a
premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or
other assets having an ascertainable cash flow or market value.
Page 12
Collateralized securities include public utility first mortgage bonds
and sale/leaseback obligation bonds. Municipal securities consist
largely of general obligation bonds, special revenue bonds and other
special obligations of state and local governments. Financial Security
insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
company. Major shareholders of Holdings include Fund American
Enterprises Holdings, Inc., MediaOne Capital Corporation, XL Capital
Ltd. and The Tokio Marine and Fire Insurance Co. Ltd. No shareholder of
Financial Security is obligated to pay any debt of Financial Security or
its subsidiaries or any claim under any insurance policy issued by
Financial Security or its subsidiaries or to make any additional
contribution to the capital of Financial Security or its subsidiaries.
As of March 31, 1999, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of
Financial Security and its consolidated subsidiaries were, in accordance
with statutory accounting principles, approximately $1,077,088,000
(unaudited) and $607,467,000 (unaudited), and the total shareholders'
equity and the unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with
generally accepted accounting principles, approximately $1,138,741,000
(unaudited), and $512,383,000 (unaudited). Copies of Financial
Security's financial statements may be obtained by writing to Financial
Security at 350 Park Avenue, New York, New York, 10022, Attention
Communications Department. Financial Security's telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security
or any of its operating insurance company subsidiaries are reinsured
among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject
to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its
financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized as a risk management device and to comply
with certain statutory and rating agency requirements; it does not alter
or limit the obligations of Financial Security under any financial
guaranty insurance policy.
The claims-paying ability of Financial Security is rated "Aaa" by
Moody's Investors Service, Inc., and "AAA" by Standard & Poor's Rating
Services, Nippon Investors Service Inc. and Standard & Poor's
(Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies.
CapMAC. Effective February 17, 1998, MBIA, Inc. acquired all of the
outstanding stock of CapMAC through a merger. Pursuant to a reinsurance
agreement, CapMAC has ceded all of its net insured risks (including any
amounts due but unpaid from third party reinsurers), as well as unearned
premiums and contingency reserves, to MBIA, Inc. MBIA, Inc. is not
obligated to pay the debts of or claims against CapMAC. As of September
30, 1997, CapMAC had statutory capital and surplus of approximately $260
million and had not incurred any debt obligations. Article 69 of the New
York State Insurance Law requires that CapMAC establishes and maintains
the contingency reserve.
As of December 31, 1998, MBIA had admitted assets of $6.5 billion
(audited), total liabilities of $4.2 billion (audited), and total
capital and surplus of $2.3 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of March 31, 1999, MBIA had admitted assets
of $6.7 billion (unaudited), total liabilities of $4.4 billion
(unaudited), and total capital and surplus of $2.3 billion (unaudited),
determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King
Street, Armonk, New York 10504. The telephone number of MBIA is (914)
273-4545.
Ambac Assurance Corporation ("Ambac Assurance"). Effective July 14,
1997, AMBAC Indemnity Corporation changed its name to Ambac Assurance
Corporation. The Insurance Policy of Ambac Assurance obtained by an
Insured Trust is noncancellable and will continue in force for so long
as the Bonds described in the Insurance Policy are held by an Insured
Trust. A monthly premium is paid by an Insured Trust for the Insurance
Policy obtained by it. The Trustee will pay, when due, successively, the
Page 13
full amount of each installment of the insurance premium. Pursuant to a
binding agreement with Ambac Assurance, in the event of a sale of a Bond
covered by the Ambac Assurance Insurance Policy, the Trustee has the
right to obtain permanent insurance for such Bond upon payment of a
single predetermined premium from the proceeds of the sale of such Bond.
Under the terms of the Insurance Policy, Ambac Assurance agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by Ambac Assurance which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
term "due for payment" means, when referring to the principal of a Bond
so insured, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest.
Ambac Assurance will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by Ambac Assurance that a
nonpayment of principal or of interest on a Bond has occurred, but not
earlier than the date on which the Bonds are due for payment. Ambac
Assurance will disburse to the Trustee the face amount of principal and
interest which is then due for payment but is unpaid by reason of
nonpayment by the issuer in exchange for delivery of Bonds, not less in
face amount than the amount of the payment in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where
Bonds are issuable only in a form whereby principal is payable to
registered holders or their assigns, Ambac Assurance shall pay principal
only upon presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment in
satisfactory form, so as to permit ownership of such Bonds to be
registered in the name of Ambac Assurance or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, Ambac Assurance shall pay interest
only upon presentation of proof that the claimant is the person entitled
to the payment of interest on the Bonds and delivery of an instrument of
assignment, in satisfactory form, transferring to Ambac Assurance all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
Ambac Assurance is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $3,462,875,000 (unaudited) and statutory capital of
approximately $1,970,343,000 (unaudited) as of March 31, 1999. Statutory
capital consists of Ambac Assurance's policyholders' surplus and
statutory contingency reserve. Ambac Assurance is a wholly owned
subsidiary of Ambac Inc., a 100% publicly-held company. Moody's
Investors Service, Inc. and Standard & Poor's have both assigned a
triple-A claims-paying ability rating to Ambac Assurance.
On December 18, 1997, all of the outstanding shares of Construction Loan
Insurance Corporation (which previously owned all of the outstanding
shares of Connie Lee Insurance Company) were merged into Connie Lee
Holdings, Inc. ("Connie Lee"). Connie Lee is a wholly-owned subsidiary
of Ambac Assurance Company, a Wisconsin-domiciled insurance company.
Copies of Ambac Assurance's financial statements prepared in accordance
with statutory accounting standards are available from Ambac Assurance.
The address of Ambac Assurance's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York, New
York 10004 and (212) 668-0340.
The information relating to Ambac Assurance contained above has been
furnished by Ambac Assurance. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
adverse changes in such information, subsequent to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or Ambac
Assurance has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
Page 14
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or Ambac Assurance and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor Ambac Assurance nor its parent, Ambac Financial
Group, Inc., or any affiliate thereof has any significant relationship,
direct or indirect, with the Fund or the Sponsor, except that the
Sponsor has in the past and may from time to time in the future, in the
normal course of its business, participate as sole underwriter or as
manager or as a member of underwriting syndicates in the distribution of
new issues of municipal bonds in which the investors or the affiliates
of FGIC Corporation and/or Ambac Financial Group, Inc. have or will be
participants or for which a policy of insurance guaranteeing the
scheduled payment of interest and principal has been obtained from
Financial Guaranty and/or Ambac Assurance. Neither the Fund nor the
Units of a Trust nor the portfolio of such Trust is insured directly or
indirectly by FGIC Corporation and/or Ambac Financial Group, Inc.
The information relating to Financial Security, CapMAC and Ambac
contained in the above paragraphs have been furnished by Financial
Security, CapMAC and Ambac, respectively. No representation is made
herein as to the accuracy or adequacy of such information, or as to the
existence of any adverse changes in such information, subsequent to the
date hereof.
In determining whether to insure bonds, Financial Security, CapMAC and
Ambac have applied their own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by the Insurance Policy are not deposited in a Trust
in the Insured Series unless such bonds are Preinsured Bonds. The
Insurance Policy covers Bonds listed in the Insurance Policy deposited
in such Trust in the Insured Series and physically delivered to the
Trustee in the case of bearer bonds or registered in the name of the
Trustee or its nominee or delivered along with an assignment in the case
of registered bonds or registered in the name of the Trustee or its
nominee in the case of Bonds held in book-entry form.
Insurance obtained by a Trust in the Insured Series or by the Bond
issuer, the underwriters, the Sponsor or others does not guarantee the
market value of the Bonds or the value of the Units of such Trust. Each
Insurance Policy is effective only as to Bonds listed in the respective
Insurance Policy owned by and held in such Trust. In the event of a sale
of any Bond listed in an Insurance Policy by the Trustee, an Insurance
Policy terminates as to such Bond on the date of sale. Except as
indicated below, insurance obtained by a Trust in the Insured Series has
Page 15
no effect on the price or redemption value of Units. It is the present
intention of the Evaluator to attribute a value to such insurance
obtained by a Trust in the Insured Series (including the right to obtain
Permanent Insurance) for the purpose of computing the price or
redemption value of Units only if the Bonds covered by such insurance
are in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default. The value of the insurance
will be equal to the difference between (i) the market value of a Bond
which is in default in payment of principal or interest or in
significant risk of such default assuming the exercise of the right to
obtain Permanent Insurance (less the insurance premium attributable to
the purchase of Permanent Insurance) and (ii) the market value of such
Bonds not covered by Permanent Insurance. See "Public Offering-How is
the Public Offering Price Determined?" herein for a more complete
description of the Evaluator's method of valuing defaulted Bonds and
Bonds which have a significant risk of default. Insurance on a
Preinsured Bond is effective as long as such Bond is outstanding.
Therefore, any such insurance may be considered to represent an element
of market value in regard to the Bonds thus insured, but the exact
effect, if any, of this insurance on such market value cannot be
predicted.
The Insurance Policies and the negotiations in respect thereof represent
the only relationship between Financial Security, CapMAC, Ambac and the
Trusts in the Insured Series. Otherwise neither Financial Security,
CapMAC, Ambac nor any affiliate thereof has any significant
relationship, direct or indirect, with the Trusts or the Sponsor, except
that the Sponsor has in the past and may from time to time in the
future, in the normal course of its business, participate as sole
underwriter or as manager or as a member of underwriting syndicates in
the distribution of new issues of municipal bonds in which the investors
or the affiliates of Financial Security, CapMAC or Ambac have or will be
participants or for which a policy of insurance guaranteeing the
scheduled payment of interest and principal has been obtained from
Financial Security, CapMAC or Ambac. Neither the Trusts nor the Units of
the Trusts nor the portfolio of any Trust is insured directly or
indirectly by Financial Security, CapMAC or Ambac.
Because the Corporate and Municipal Bonds in each Trust in the Insured
Series are insured as to the scheduled payment of principal and interest
and on the basis of the financial condition of the insurance companies
referred to above, Standard & Poor's has assigned to units of the Trusts
in the Insured Series its "AAA" investment rating. This is the highest
rating assigned to securities by Standard & Poor's. See "Description of
Bond Ratings." The obtaining of this rating by the Trusts in the Insured
Series should not be construed as an approval of the offering of the
Units by Standard & Poor's or as a guarantee of the market value of such
Trusts or the Units of the Trusts. Standard & Poor's has indicated that
this rating is not a recommendation to buy, hold or sell Units nor does
it take into account the extent to which expenses of the Trusts in the
Insured Series or sales by such Trusts of Bonds for less than the
purchase price paid by such Trusts will reduce payment to Unit holders
of the interest and principal required to be paid on such Bonds. There
is no guarantee that the "AAA" investment rating with respect to the
Units of the respective Trusts in the Insured Series will be maintained.
An objective of portfolio insurance obtained by the Trusts in the
Insured Series is to obtain a higher yield on the Bonds in the
portfolios of such Trusts than would be available if all the Bonds in
such portfolio had the Standard & Poor's "AAA" and/or Moody's "Aaa"
rating(s) and at the same time to have the protection of insurance of
scheduled payment of interest and principal on the Bonds. There is, of
course, no certainty that this result will be achieved. Bonds in the
Trusts in the Insured Series may or may not have a higher yield than
uninsured bonds rated "AAA" by Standard & Poor's or "Aaa" by Moody's. In
selecting Bonds for the portfolios of the Trusts, the Sponsor has
applied the criteria herein before described.
Are Unit Holders Compensated for Foreign Withholding Tax Risks?
Certain of the Bonds are subject to non-U.S. ("foreign") withholding
taxes. Certain issuers of Bonds which are subject to foreign withholding
taxes have generally agreed, subject to certain exceptions, to make
additional payments ("Additional Payments") which together with other
payments are intended to compensate the holder of the Bond for the
imposition of certain withholding taxes. However, both the calculation
of the Additional Payment and whether the Additional Payment compensates
the holder of the Bond for any related penalties, interest or other
charges imposed in connection with any applicable foreign withholding
taxes are likely to differ from Bond to Bond. Moreover, the Additional
Payment is itself treated as taxable income to Unit holders for U.S.
Page 16
income tax purposes. The Additional Payment may not be based upon a
"gross-up" formula which would otherwise compensate an investor for the
tax liability triggered by the receipt of the Additional Payment. For
any of these reasons, an investor may not be adequately compensated for
the actual foreign withholding tax liabilities incurred. If the Trust
obtains a certificate from an issuer evidencing payment of foreign
withholding taxes with respect to a Bond, the Trust will so notify Unit
holders. A Unit holder is required to include in his or her gross income
the entire amount of interest paid on his or her pro rata portion of the
Bond including the amount of tax withheld therefrom and the amount of
any Additional Payment. However, if the foreign tax withheld constitutes
an income tax for which U.S. foreign tax credits may be taken, the Unit
holder may be able to obtain applicable foreign tax credits (subject to
statutory limitations) or deductions. (See "What is the Federal Tax
Status of Unit Holders?")
What is the Federal Tax Status of Unit Holders?
For purposes of the following discussions and opinions, it is assumed
that the Bonds are debt for Federal income tax purposes and that
interest on the Bonds (including the taxable municipal bonds, if any) is
included in gross income for Federal income tax purposes.
In the opinion of Chapman and Cutler, Counsel for the Sponsor, under
existing law:
(1) The Trusts are not associations taxable as corporations for Federal
income tax purposes.
(2) Each Unit holder of a Trust is considered to be the owner of a pro
rata portion of each of the Trust assets under subpart E, subchapter J
of chapter 1 of the Internal Revenue Code of 1986 (hereinafter the
"Code"). Each Unit holder will be considered to have received his or her
pro rata share of income derived from each Trust asset when such income
is received by such 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 or her interest in any Bonds held by
a Trust at the same time and in the same manner as though the Unit
holder were the direct owner of such interest.
(3) Each Unit holder will have a taxable event when a Bond of the Trust
is disposed of (whether by sale, exchange, liquidation, redemption, or
payment at maturity) or when the Unit holder redeems or sells his or her
Units. A Unit holder's tax basis in his or her Units will equal his or
her tax basis in his or her pro rata portion of all of the assets of the
Trust. Such basis is determined (before the adjustments described below)
by apportioning the tax basis for the Units among each of the Trusts
according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders must reduce the tax basis of
their Units for their share of accrued interest received, if any, on
Bonds delivered after the date the Unit holders pay for their Units to
the extent that such interest accrued on such Bonds during the period
from the Unit holder's settlement date to the date such 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 Bonds
(whether by sale, exchange, payment on maturity, redemption or
otherwise), gain or loss is recognized to 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 or her basis for
his or her fractional interest in the asset disposed of. The basis of
each Unit and of each Bond which was issued with original issue discount
(including the Treasury Obligations 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 Bond which
was purchased by the Trusts 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 or her Units are sold or redeemed for an amount equal to
or less than his or her original cost. The Treasury Obligations held by
the Trusts are treated as bonds that were originally issued at an
original issue discount provided, pursuant to a Treasury Regulation (the
"Regulation") issued on December 28, 1992, that the amount of original
Page 17
issue discount determined under Section 1286 of the Code is not less
than a "de minimis" amount as determined thereunder as discussed below.
Because the Treasury Obligations represent interests in "stripped" U.S.
Treasury bonds, a Unit holder's initial cost for his or her pro rata
portion of each Treasury Obligation held by the Trust (determined at the
time he or she acquires his or her Units, in the manner described above)
shall be treated as its "purchase price" by the Unit holder. 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 or her
daily portions of original issue discount attributable to the Treasury
Obligations held by the Trust as such original issue discount accrues
and will in general be subject to Federal income tax with respect to the
total amount of such original issue discount that accrues for such year
even though the income is not distributed to the Unit holders during
such year to the extent it is not less than a "de minimis" amount as
determined under the Regulation. 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. In the case of the Treasury
Obligations, this method will generally result in an increasing amount
of income to the Unit holders each year. Unit holders should consult
their tax advisers regarding the Federal income tax consequences and
accretion of original issue discount.
Each Unit holder's pro rata share of each expense paid by his or her
respective Trust is deductible by the Unit holder to the same extent as
though the expense had been paid directly by him or her. 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 Trusts as miscellaneous
itemized deductions subject to this limitation.
If a Unit holder's tax basis of his or her pro rata portion in any Bonds
held by a Trust exceeds the amount payable by the issuer of the Bonds
with respect to such pro rata interest upon maturity of the Bonds, 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 acquisition
premium.
Certain of the Bonds in the Trusts may have been acquired with "original
issue discount." In the case of any Bonds in the Trusts acquired with
"original issue discount" that exceeds a "de minimis" amount as
specified in the Code or in the case of the Treasury Obligations as
specified in the Regulation, 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 Bonds are received. The Code
provides a complex set of rules regarding the accrual of original issue
discount. These rules provide that original issue discount generally
accrues on the basis of a constant compound interest rate over the term
of the 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
Bond by a Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon
its issue price (its "adjusted issue price"). Similarly these special
rules would apply to a Unit holder if the tax basis of his or her pro
rata portion of a Bond issued with original issue discount exceeds his
or her 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.
Page 18
If a Unit holder's tax basis in his or her pro rata portion of Bonds is
less than the allocable portion of such 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. The market discount rules
do not apply to Treasury Obligations because they are stripped debt
instruments subject to special original issue discount rules as
discussed above. 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 Bonds, on the sale, maturity
or disposition of such Bonds by a Trust, and on the sale by a Unit
holder of Units, unless a Unit holder elects to include the accrued
market discount in taxable income as such discount accrues. If a Unit
holder does not elect to annually include accrued market discount in
taxable income as it accrues, deductions for any interest expenses
incurred by the Unit holder which are incurred to purchase or carry his
or her 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 tax basis of a Unit holder with respect to his or her interest in a
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 Bonds held by a Trust in income as it accrues) thereon properly
included in the Unit holder's gross income as determined for Federal
income tax purposes and reduced by the amount of any amortized premium
which the Unit holder has properly elected to amortize under Section 171
of the Code. A Unit holder's tax basis in his or her Units will equal
his or her tax basis in his or her pro rata portion of all of the assets
of such Trust.
A Unit holder will recognize taxable capital gain (or loss) when all or
part of his or her pro rata interest in a Bond is disposed of in a
taxable transaction for an amount greater (or less) than his or her tax
basis therefor. As previously discussed, gain realized on the
disposition of the interest of a Unit holder in any Bond deemed to have
been acquired with market discount will be treated as ordinary income to
the extent the gain does not exceed the amount of accrued market
discount not previously taken into income. Any capital gain or loss
arising from the disposition of a Bond by a Trust or the disposition of
Units by a Unit holder will be short-term capital gain or loss unless
the Unit holder has held his or her Units for more than one year in
which case such capital gain or loss will be long-term. The Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Tax
Act") provides that for taxpayers other than corporations, net capital
gain (which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10%
in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is
one year or less. The date on which a Unit is acquired (i.e., the "trade
date") is excluded for purposes of determining the holding period of the
Unit. The legislation is generally effective retroactively for amounts
properly taken into account on or after January 1, 1998. Capital gains
realized from assets held for one year or less are taxed at the same
rates as ordinary income. The date on which a Unit is acquired (i.e.,
the "trade date") is excluded for purposes of determining the holding
period of the Unit. It should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect
relative differences at which ordinary income and capital gains are taxed.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units. The tax basis reduction
requirements of the Code relating to amortization of bond premium may
under some circumstances, result in the Unit holder realizing taxable
gain when his or her Units are sold or redeemed for an amount equal to
or less than his or her original cost.
Page 19
If the Unit holder disposes of a Unit, he or she is deemed thereby to
have disposed of his or her entire pro rata interest in all Trust assets
including his or her pro rata portion of all of the Bonds represented by
the Unit. This may result in a portion of the gain, if any, on such sale
being taxable as ordinary income under the market discount rules
(assuming no election was made by the Unit holder to include market
discount in income as it accrues) as previously discussed.
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 not be subject to United States Federal income taxes,
including withholding taxes, on interest income (including any original
issue discount) on, or any gain from the sale or other disposition of,
his or her pro rata interest in any Bond or the sale of his or her Units
provided that all of the following conditions are met: (i) the interest
income or gain is not effectively connected with the conduct by the
foreign investor of a trade or business within the United States (ii) if
the interest is United States source income (which is the case for most
securities issued by United States issuers), and the Bond is issued
after July 18, 1984 (which is the case for each 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 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 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 or her
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 payments to a Trust of interest on the Bonds of
foreign companies may be subject to foreign withholding taxes and Unit
holders should consult their tax advisers regarding the potential tax
consequences relating to the payment of any such withholding taxes by
such Trust. Any interest withheld as a result thereof may nevertheless
be treated as income to the Unit holders. Because, under the grantor
trust rules, an investor is deemed to have paid directly his or her
share of foreign taxes that have been paid or accrued, if any, an
investor may be entitled to a foreign tax credit or deduction for United
States tax purposes with respect to such taxes. In addition, such Bonds
may provide for Additional Payments to investors intended to compensate
them for any foreign tax liability. (See "Are Unit Holders Compensated
for Foreign Withholding Tax Risks?") Any such Additional Payments
received by the Trust would constitute taxable income to Unit holders.
Investors should consult their tax advisers with respect to foreign
withholding taxes and foreign tax credits.
It should be noted that certain provisions of the Code include a
provision which eliminates the exemption from United States taxation,
including withholding taxes, for certain "contingent interest." The
provision applies to interest received after December 31, 1993. No
opinion is expressed herein regarding the potential applicability of
this provision and whether United States taxation or withholding taxes
could be imposed with respect to income derived from the Units as a
result thereof. Unit holders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision
on their investment in Units.
Each Unit holder (other than a foreign investor who has properly
provided the certifications described above) will be requested to
provide the Unit holder's taxpayer identification number to the trustee
and to certify that the Unit holder has not been notified that payments
to the Unit holder are subject to back-up withholding. If the proper
taxpayer identification number and appropriate certification are not
provided when requested, distributions by a Trust to such Unit holder
including amounts received upon the redemption of the Units will be
subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trusts for New York tax matters, the Trusts are not associations taxable
as corporations and the income of the Trusts will be treated as the
income of the Unit holders under the existing income tax laws of the
State and City of New York.
The foregoing discussion relates only to United States Federal and New
York State and City income taxes; Unit holders may be subject to state
and local taxation in other jurisdictions (including a foreign
investor's country of residence). Unit holders should consult their tax
advisers regarding potential state, local, or foreign taxation with
respect to the Units.
Page 20
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses of
creating and establishing the Trusts, 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
Trusts. However, First Trust Advisors L.P., an affiliate of the Sponsor,
will receive an annual supervisory fee, which is not to exceed the
amount set forth under "Summary of Essential Information," appearing in
Part One for each Trust for providing portfolio supervisory services for
the Trusts. Such fee is based on the number of Units of a Trust
outstanding on January 1 of each year except for Trusts which were
established subsequent to the last January 1, in which case the fee will
be based on the number of Units of such Trust outstanding as of the
respective Dates of Deposit. The fee may exceed the actual costs of
providing such supervisory services for a 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 each valuation of the Bonds in the Trusts, the Evaluator will
receive a fee as indicated in Part One for each Trust. 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 a Trust
a fee as indicated in Part One for each Trust. 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 monthly on
or before each Distribution Date from the Interest Account of each Trust
to the extent funds are available and then from the Principal Account of
such Trust. Since the Trustee has the use of the funds being held in the
Principal and Interest Accounts for future distributions, payment of
expenses and redemptions and since such Accounts are non-interest-
bearing to Unit holders, the Trustee benefits thereby. Part of the
Trustee's compensation for its services to the Trusts 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 annualized cost of the portfolio insurance obtained by each Trust in
the Insured Series is indicated in Part One for each Trust. The
portfolio insurance continues so long as such Trust in the Insured
Series retains the Bonds thus insured. Premiums are payable monthly in
advance by the Trustee on behalf of such Trust. As Bonds in the
portfolio are redeemed by their respective issuers or are sold by the
Trustee, the amount of premium will be reduced in respect of those Bonds
no longer owned by and held in the Trusts in the Insured Series which
were insured by insurance obtained by such Trust. Preinsured Bonds in
the Trusts in the Insured Series and Treasury Obligations are not
insured by such Trusts. The premium payable for Permanent Insurance will
be paid solely from the proceeds of the sale of such Bond in the event
the Trustee exercises the right to obtain Permanent Insurance on a Bond.
The premiums for such Permanent Insurance with respect to each Bond will
decline over the life of the Bond.
The following additional charges are or may be incurred by a 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 a Trust and the rights and interests of the
Unit holders; fees of the Trustee for any extraordinary services
performed under the Indenture; indemnification of the Trustee for any
loss, liability or expense incurred by it without negligence, bad faith
or willful misconduct on its part, arising out of or in connection with
its acceptance or administration of a Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor of a
Trust; all taxes and other government charges imposed upon the Bonds or
any part of a 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 a Trust. The
above expenses and the Trustee's annual fee, when paid or owing to the
Trustee, are secured by a lien on the Trusts. In addition, the Trustee
is empowered to sell Bonds of a Trust in order to make funds available
to pay all these amounts if funds are not otherwise available in the
Interest and Principal Accounts of the Trust.
Page 21
Unless the Sponsor determines that such an audit is not required, the
Indenture requires the accounts of each 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 $.50 per Unit. Unit holders of a Trust
covered by an audit may obtain a copy of the audited financial
statements from the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid
price of the Bonds in the portfolio of each Trust plus interest accrued
to the date of settlement. All expenses incurred in maintaining a
market, other than the fees of the Evaluator, the other expenses of a
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 or her Units, he or she 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 a Trust in secondary market transactions. The purchase price
per unit of such bond funds will depend primarily on the value of the
securities in the portfolio of the fund.
Units are offered at the Public Offering Price. The Public Offering
Price is determined by adding to the Evaluator's determination of the
aggregate bid price of the Bonds in a Trust the appropriate sales charge
determined in accordance with the schedule set forth below, based upon
the number of years remaining to the maturity of each Bond in the
portfolio of a Trust, adjusting the total to reflect the amount of any
cash held in or advanced to the principal account of a Trust and
dividing the result by the number of Units of such Trust then
outstanding. The minimum sales charge on Units will be 3.0% of the
Public Offering Price (equivalent to 3.093% of the net amount invested).
For purposes of computation, Bonds will be deemed to mature on their
expressed maturity dates unless the Bonds have been called for
redemption or funds or securities have been placed in escrow to redeem
them on an earlier call date, in which case such call date will be
deemed to be the date upon which they mature.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each of the various
Bonds in the Trusts in the Insured Series based upon the maturities of
such bonds, in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
__________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_____________________ ___________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50% 1.523%
2 but less than 3 2.00% 2.041%
3 but less than 4 2.50% 2.564%
4 but less than 5 3.00% 3.093%
5 but less than 6 3.50% 3.627%
6 but less than 7 4.00% 4.167%
7 but less than 8 4.50% 4.712%
8 but less than 9 5.00% 5.263%
9 but less than 10 5.50% 5.820%
10 or more 5.80% 6.157%
</TABLE>
Page 22
The following schedule applies to all Bonds in the Laddered Series and
the Global Series:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
___________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_____________________ ___________ __________
<S> <C> <C>
Less than 1 1.00% 1.010%
1 but less than 2 1.50% 1.523%
2 but less than 3 2.00% 2.041%
3 but less than 4 2.50% 2.564%
4 but less than 5 3.00% 3.093%
5 but less than 6 3.50% 3.627%
6 but less than 7 4.00% 4.167%
7 but less than 8 4.50% 4.712%
8 or more 4.70% 4.932%
</TABLE>
An investor may aggregate purchases of Units of two consecutive Trusts
in the Insured Series for purposes of calculating the discount for
volume purchases listed below. 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 Nike Securities L.P. and its subsidiaries the sales charge is reduced
by 2% of the Public Offering Price for purchases of Units during the
secondary offering period.
The applicable sales charge is reduced by a discount as indicated below
for volume purchases of the Insured Series:
Dollar Amount of Transaction at Discount
Public Offering Price per Unit
_______________________________ ________
$500,000 to $999,999 $ 7.50
$1,000,000 or more $15.00
Any such reduced sales charge shall be the responsibility of the selling
broker/dealer, bank or other selling agent. This reduced sales charge
structure will apply on all purchases of Units in a Trust by the same
person on any one day from any broker/dealer, bank or other selling
agent. Additionally, Units purchased in the name of the spouse of a
purchaser or in the name of a child of such purchaser under 21 years of
age will be deemed for the purposes of calculating the applicable sales
charge to be additional purchases by the purchaser. The reduced sales
charges will also be applicable to a trustee or other fiduciary
purchasing securities for a single trust or single fiduciary account.
A dealer will receive from the Sponsor a dealer concession of 65% of the
total sales charges for Units sold by such dealer and dealers will not
be eligible for additional concessions for Units sold.
From time to time the Sponsor may implement programs under which
brokers/dealers, banks or other selling agents of the Trusts may receive
nominal awards from the Sponsor for each of their registered
representatives who have sold a minimum number of UIT Units during a
specified time period. In addition, at various times the Sponsor may
implement other programs under which the sales force of a broker/dealer,
bank or other selling agent may be eligible to win other nominal awards
for certain sales efforts, or under which the Sponsor will reallow to
any such 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 dealers for certain
services or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor out of its
own assets, and not out of the assets of the Trusts. These programs will
not change the price Unit holders pay for their Units or the amount that
the Trusts will receive from the Units sold.
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 Trusts and returns over specified periods on
Page 23
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 Trusts.
U.S. Government bonds, for example, are backed by the full faith and
credit of the U.S. Government and bank CDs and money market accounts are
insured by an agency of the Federal government. Money market accounts
and money market funds provide stability of principal, but pay interest
at rates that vary with the condition of the short-term debt market. The
investment characteristics of the Trusts are described more fully
elsewhere in this Prospectus.
The Public Offering Price of Units on the date of this Part Two
Prospectus may vary from the amount stated under "Summary of Essential
Information" appearing in Part One for each Trust in accordance with
fluctuations in the prices of the underlying Securities. The aggregate
price of the Bonds in each Trust is determined by whomever from time to
time is acting as evaluator (the "Evaluator"), on the basis of bid
prices as is appropriate, (1) on the basis of current market prices for
the Bonds obtained from dealers or brokers who customarily deal in bonds
comparable to those held by the Trusts; (2) if such prices are not
available for any of the Bonds, on the basis of current market prices
for comparable bonds; (3) by determining the value of the Bonds by
appraisal; or (4) by any combination of the above. Unless Bonds are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default, the Evaluator will not
attribute any value to the insurance obtained by the Trusts in the
Insured Series. On the other hand, the value of insurance obtained by
the issuer of Bonds in a Trust in the Insured Series is reflected and
included in the market value of such Bonds.
The Evaluator will consider in its evaluation of Corporate or Municipal
Bonds in Trusts in the Insured Series which are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default (the "Defaulted Bonds") and which are covered by
insurance obtained by each Trust, the value of the insurance
guaranteeing interest and principal payments. The value of the insurance
will be equal to the difference between (i) the market value of
Defaulted Bonds assuming the exercise of the right to obtain Permanent
Insurance (less the insurance premium attributable to the purchase of
Permanent Insurance) and (ii) the market value of such Defaulted Bonds
not covered by Permanent Insurance. In addition, the Evaluator will
consider the ability of Financial Security, CapMAC and/or Ambac to meet
its commitments under the insurance policy of a Trust in the Insured
Series, including the commitments to issue Permanent Insurance. It is
the position of the Sponsor that this is a fair method of valuing the
Bonds and the insurance obtained by each Trust in the Insured Series and
reflects a proper valuation method in accordance with the provisions of
the Investment Company Act of 1940. For a description of the
circumstances under which a full or partial suspension of the right of
Unit holders to redeem their Units may occur, see "Rights of Unit
Holders-How May Units be Redeemed?"
The Evaluator may be attributing value to insurance for the purpose of
computing the price or redemption value of Units of the Trusts in the
Insured Series. The Evaluator is attributing value to insurance for the
purpose of computing the price or redemption value of Units for certain
series of The First Trust of Insured Municipal Bonds, an investment
company sponsored by Nike Securities L.P. See Part One for each Trust
for further information with respect to whether value is being
attributed to insurance in determining the value of Units for that Trust
in the Insured Series.
The Evaluator in the Insured Series will be requested to make a
determination of the aggregate price of the Bonds in each Trust, 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 secondary market Public Offering Price of the Units will be equal to
the bid price per Unit of the Bonds in a Trust, plus (less) any balance
(overdraft) in the principal cash account of such Trust, plus the
applicable sales charge.
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
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made three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the secondary market public offering price determined
in the manner described above.
The Sponsor reserves the right to change the amount of the concession or
agency commission from time to time.
Resales of Units of each Trust by dealers and others to the public will
be made at the Public Offering Price described in Part One of this
Prospectus. Certain commercial banks are making Units of the Trusts
available to their customers on an agency basis. A portion of the sales
charge paid by these customers is retained by or remitted to the banks
in the amounts indicated in the second preceding sentence. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units;
however, the Glass-Steagall Act does permit certain agency transactions
and the banking regulators have not indicated that these particular
agency transactions are not permitted under such Act. In Texas and in
certain other states, any banks making Units available must be
registered as broker/dealers under state law.
What are the Sponsor's Profits?
The Sponsor will receive a maximum gross sales commission equal to that
amount of the Public Offering Price of the Units of the Trusts as
specified in Part One, less any reduced sales charge for quantity
purchases as described under "Public Offering-How is the Public Offering
Price Determined?"
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in each Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in each Trust and includes a
maximum sales charge of 5.8% for the Insured Series or 4.7% for the
Laddered Series and the Global Series) or redeemed. The secondary market
public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made three business days following such
order or shortly thereafter. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer.
Certificates to be redeemed must be properly endorsed or accompanied by
a written instrument or instruments of transfer. A Unit holder must sign
exactly as his or her name appears on the face of the certificate with
the signature guaranteed by a participant in the Securities Transfer
Agents Medallion Program ("STAMP") or such other signature guaranty
program in addition to, or in substitution for, STAMP as may be accepted
by the Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates
for Units will bear an appropriate notation on their face indicating
which plan of distribution has been selected in respect thereof. When a
change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then currently
effective plan of distribution. There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
Page 25
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust will be distributed on or shortly after the
Distribution Date appearing in Part One for each Trust on a pro rata
basis to Unit holders of record as of the preceding Record Date who are
entitled to distributions at that time under the plan of distribution
chosen. All distributions for a Trust will be net of applicable expenses
for such Trust.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on or
shortly after the Distribution Date appearing in Part One for each
Trust. Proceeds from the disposition of any of the Bonds of such Trust
(less any premiums due with respect to Bonds in the Insured Series for
which the Trustee has exercised the right to obtain Permanent Insurance)
received after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of such Trust and not
distributed until the next Distribution Date. The Trustee is not
required to pay interest on funds held in the Principal or Interest
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds) nor to make a distribution from the
Principal Account of a Trust unless the amount available for
distribution shall equal at least $1.00 per Unit.
The Trustee will credit to the Interest Account of each Trust all
interest received by such Trust, including that part of the proceeds
(including insurance proceeds if any, paid to a Trust in the Insured
Series) of any disposition of Bonds which represents accrued interest.
Other receipts will be credited to the Principal Account of such Trust.
The distribution to the Unit holders of a 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 such Trust
after deducting estimated expenses as is consistent with the
distribution plan chosen. Because interest payments are not received by
a Trust at a constant rate throughout the year, such interest
distribution may be more or less than the amount credited to the
Interest Account of such Trust as of the Record Date. For the purpose of
minimizing fluctuations in the distributions from the Interest Account
of a 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 Interest Account of such 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, under the applicable plan of
distribution. The Trustee is not required to pay interest on funds held
in the Principal or Interest Account of a 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
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of such
Trust. Amounts so withdrawn shall not be considered a part of such
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 Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
Record Dates for monthly distributions will be the fifteenth day of each
month and Record Dates for semi-annual distributions, if applicable,
will be the fifteenth day of June and December. Distributions will be
made on the Distribution Dates appearing in Part One for each Trust.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating, if more than one distribution option is
Page 26
offered, may so indicate on the card and return same, together with
their certificate, to the Trustee. If the card and certificate are
returned to the Trustee, the change will become effective as of June 16
of that year. If the card and certificate are not returned to the
Trustee, the Unit holder will be deemed to have elected to continue with
the same plan for the following twelve months.
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 or
her participation in the Universal Distribution Option and receive
directly future distributions on his or her Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after
the end of each calendar year, the Trustee will furnish to each person
who at any time during the calendar year was a Unit holder of a Trust of
record, a statement as to (1) the Interest Account: interest received by
such Trust (including amounts representing interest received upon any
disposition of Bonds of such Trust), the amount of such interest
representing insurance proceeds (if applicable), deductions for payment
of applicable taxes and for fees and expenses of such 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 Principal Account: the
dates of disposition of any Bonds of such Trust and the net proceeds
received therefrom (excluding any portion representing interest and the
premium attributable to the exercise of the right, if applicable, to
obtain Permanent Insurance), 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 Bonds held and the number of Units of such 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 Interest Account and from the
Principal Account of such Trust, separately stated, expressed both as
total dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds 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 or her Units by tender
to the Trustee at its corporate trust office in the City of New York of
the certificates representing the Units to be redeemed, 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
Page 27
holder will be entitled to receive in cash an amount for each Unit equal
to the Redemption Price per Unit next computed after receipt by the
Trustee of such tender of Units. The "date of tender" is deemed to be
the date on which Units are received by the Trustee (if such day is a
day on which the New York Stock Exchange is open for trading), except
that as regards Units received after 4:00 p.m. Eastern time (or as of
any earlier closing time on a day on which the New York Stock Exchange
is scheduled in advance to close at such earlier time), the date of
tender is the next day on which 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 Interest Account of a Trust or, if the balance
therein is insufficient, from the Principal Account of a Trust. All
other amounts paid on redemption shall be withdrawn from the Principal
Account of a Trust.
The Redemption Price per Unit (and the Secondary Market Public Offering
Price per Unit) will be determined on the basis of the bid price of the
Bonds in a 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 a Trust or moneys in the
process of being collected, (2) the value of the Bonds in such Trust
based on the bid prices of the Bonds, except for those cases in which
the value of the insurance, if applicable, has been added, and (3)
interest accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of such Trust, (b) the accrued expenses
of such 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 Bonds in such Trust (1) on the
basis of current bid prices of the Bonds obtained from dealers or
brokers who customarily deal in bonds comparable to those held by such
Trust, (2) on the basis of bid prices for bonds comparable to any Bonds
for which bid prices are not available, (3) by determining the value of
the Bonds by appraisal, or (4) by any combination of the above. In
determining the Redemption Price per Unit for a Trust in the Insured
Series, no value will be attributed to the portfolio insurance covering
the Bonds in such Trust unless such Bonds are in default in payment of
principal or interest or in significant risk of such default. On the
other hand, Bonds insured under a policy obtained by the Bond issuer,
the underwriters, the Sponsor or others are entitled to the benefits of
such insurance at all times and such benefits are reflected and included
in the market value of such Bonds. See "Why and How are the Trusts in
the Insured Series Insured?" For a description of the situations in
which the evaluator may value the insurance obtained by a Trust in the
Insured Series, see "Public Offering-How is the Public Offering Price
Determined?" The difference between the bid and offering prices of such
Bonds may be expected to average 1-2% of the principal amount. In the
case of actively traded bonds, the difference may be as little as 1/2 of
1% and, in the case of inactively traded bonds, 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 Bonds in a Trust in order to
make funds available for redemption. To the extent that Bonds are sold,
the size and diversity of such Trust will be reduced. Such sales may be
required at a time when Bonds would not otherwise be sold and might
result in lower prices than might otherwise be realized. The Trustee may
obtain Permanent Insurance on the Bonds in a Trust in the Insured Series
covered by the Insurance Policy. Accordingly, any Bonds insured under
the Insurance Policy may be sold on an insured basis (as will Preinsured
Bonds).
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 Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Page 28
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 Bonds be Removed from the Trusts?
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 Bonds in each 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 Bonds in a Trust which are in default
in payment of principal or interest or in significant risk of such
default and for which value has been attributed to the insurance, if
any, obtained by the Trusts in the Insured Series. See "Rights of Unit
Holders-How May Units be Redeemed?" The Sponsor is empowered, but not
obligated, to direct the Trustee to dispose of Bonds in a Trust in the
event of advanced refunding. The Sponsor may from time to time act as
agent for a Trust with respect to selling Bonds out of a 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 or interest on any Bond
occurs and no provision for payment is made therefor, either pursuant to
the portfolio insurance, if any, or otherwise, 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 Bond within thirty days
after notification by the Trustee to the Sponsor of such default, the
Trustee may, in its discretion, sell the defaulted Bond 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 Bonds to issue new obligations in exchange and
substitution for any Bonds 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 Bonds or in the
written opinion of the Sponsor the issuer will probably default in
respect to such Bonds 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 Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph, the
acquisition by a Trust of any securities other than the Bonds initially
deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust, and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $25 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
Page 29
December 31, 1998, the total partners' capital of Nike Securities L.P.
was $18,506,548 (audited). This paragraph relates only to the Sponsor
and not to the Trust or to any series thereof or to any other
Underwriters. The information is included herein only for the purpose of
informing investors as to the financial responsibility of the Sponsor
and its ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon request.
Who is the Trustee?
The Trustee is The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not
participated in the selection of the portfolio or the Insurance Policies
of Trusts in the Insured Series. 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 Bonds. 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 Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of a Trust which the Trustee may be required to pay under any present or
future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or 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.
Page 30
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor and the Trustee, in which event the
Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee), provided that
the Indenture is not amended to increase the number of Units of any
Trust issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
of any Trust initially deposited in a Trust, except for the substitution
of certain refunding securities for Bonds. In the event of any
amendment, the Trustee is obligated to notify promptly all Unit holders
of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of the Unit
holders of such Trust or by the Trustee when the value of such Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds initially deposited in the Trust. The Indenture will
terminate upon the redemption, sale or other disposition of the last
Bond held thereunder, but in no event shall it continue beyond the
mandatory termination date specified in Part One of this Prospectus. In
the event of termination, written notice thereof will be sent by the
Trustee to all Unit holders of such Trust. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in such
Trust and, after paying all expenses and charges incurred by such Trust,
will distribute to each Unit holder of such Trust (including the Sponsor
if it then holds any Units), upon surrender for cancellation of his or
her Certificate for Units, his or her pro rata share of the balances
remaining in the Interest and Principal Accounts of such 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 & Milburn, 2 Wall Street, New York, New York 10005, acts
as counsel for the Trustee and as special counsel for the Trusts for New
York tax matters.
Experts
The financial statements of each 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 reports thereon
appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
Page 31
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his or
her own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
______________
* As described by Standard & Poor's.
** Bonds insured by Financial Security Assurance, Inc., Capital Markets
Assurance Corporation or Ambac Assurance Corporation are automatically
rated "AAA" by Standard & Poor's.
Page 32
Moody's. 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 large than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a
sustained period of depressed business conditions, but, during periods
of normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Duff & Phelps Credit Rating Company. A brief description of the
applicable Duff & Phelps Credit Rating Co. rating symbols and their
meanings follow:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerable to economic cycles as well as risks
related to such factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost structure, and
management depth and expertise. The projected viability of the obligor
at the trough of the cycle is a critical determination.
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA-High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
Page 33
A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB-Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB-Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B-Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC-Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD-Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
Page 34
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Page 35
CONTENTS:
The First Trust Special Situations Trust
The First Trust Insured Corporate Trust Series:
First Trust Corporate Income Trust, Laddered Series:
Global Corporate Income Trust, Intermediate Series:
What is The First Trust Special Situations Trust? 3
What are Certain Risks of an Investment
in Foreign Issuers? 9
What are Estimated Long-Term Return
and Estimated Current Return? 10
How is Accrued Interest Treated? 10
Why and How are the Trusts in the
Insured Series Insured? 11
Are Unit Holders Compensated for
Foreign Withholding Tax Risks? 16
What is the Federal Tax Status of Unit Holders? 17
What are the Expenses and Charges? 20
Public Offering:
How is the Public Offering Price Determined? 22
How are Units Distributed? 25
What are the Sponsor's Profits? 25
Rights of Unit Holders:
How are Certificates Issued and Transferred? 25
How are Interest and Principal Distributed? 26
How Can Distributions to Unit Holders
be Reinvested? 27
What Reports Will Unit Holders Receive? 27
How May Units be Redeemed? 27
How May Units be Purchased by the Sponsor? 28
How May Bonds be Removed from the Trusts? 29
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 29
Who is the Trustee? 30
Limitations on Liabilities of Sponsor and Trustee 30
Who is the Evaluator? 31
Other Information:
How May the Indenture be Amended or Terminated? 31
Legal Opinions 31
Experts 31
Description of Bond Ratings 32
___________
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.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
FIRST TRUST (registered trademark)
THE FIRST TRUST INSURED
CORPORATE TRUST SERIES
FIRST TRUST CORPORATE INCOME
TRUST, LADDERED SERIES
GLOBAL CORPORATE INCOME
TRUST, INTERMEDIATE SERIES
The First Trust
Special Situations Trust
Prospectus
Part Two
August 31, 1999
FIRST TRUST (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
Page 36
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
97 FIRST TRUST CORPORATE INCOME TRUST, LADDERED SERIES, 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 October 29, 1999.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 97
FIRST TRUST CORPORATE INCOME TRUST,
LADDERED SERIES
(Registrant)
ByNIKE SECURITIES L.P.
(Depositor)
ByRobert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Director of )
Nike Securities )
Corporation, ) October 29, 1999
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
David J. Allen Director of Nike ) Attorney-in-Fact**
Securities Corporation,
the General Partner of
Nike Securities L.P.
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated October 7, 1999 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated October 26, 1999.
ERNST & YOUNG LLP
Chicago, Illinois
October 25, 1999
