File No. 33-62759
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD) INTERMEDIATE
SERIES 11
(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 : January 24, 1997
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
December 12, 1996.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
8,107 UNITS
PROSPECTUS
Part One
Dated December 24, 1996
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
The Trust
The First Trust Corporate Income Trust (High Yield), Intermediate Series 11
(the "Trust") is a fixed portfolio of interest-bearing corporate debt
obligations of domestic and foreign companies and zero coupon U.S. corporate
obligations. At November 18, 1996, each Unit represented a 1/8,107 undivided
interest in the principal and net income of the Trust (see "The Fund" in Part
Two).
A significant portion of the Bonds in the Trust are lower rated bonds,
commonly known as "junk bonds," that entail greater risks, including default
risks, than those found in higher rated securities. A portion of the Trust's
investment in junk bonds have been issued by foreign issuers which carry the
additional risks of untimely interest and principal payments and price
volatility than higher rated securities, and may present problems of liquidity
and valuation. Investors should carefully consider these risks before
investing. See "Bond Portfolio Selection" and "Risk Factors" 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 4.6% of the Public Offering Price (4.823%
of the amount invested). At November 18 1996, the Public Offering Price per
Unit was $1,042.68 plus net interest accrued to date of settlement (three
business days after such date) of $.68 and $35.15 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 7.94% per annum on November 18, 1996, and 7.89% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the
semi-annual distribution plan was 7.65% per annum on November 18, 1996, and
7.60% 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 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 18, 1996
Sponsor: Nike Securities L.P.
Evaluator: Muller Data Corporation
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $8,090,000
Number of Units 8,107
Fractional Undivided Interest in the Trust per Unit 1/8,107
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $8,064,038
Aggregate Value of Bonds per Unit $994.70
Sales Charge 4.823% (4.6% of Public Offering Price) $47.98
Public Offering Price per Unit $1,042.68*
Redemption Price and Sponsor's Repurchase Price per Unit
($47.98 less than the Public Offering Price per Unit) $994.70*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,800,000
</TABLE>
Date Trust Established September 26, 1995
Mandatory Termination Date December 31, 2044
Evaluator's Fee: $25 per evaluation. 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 $.50
of the Sponsor per Unit annually
Administrative fee payable to Maximum of $.14
the Sponsor per Unit annually
Annual amortization of organization costs $6,300 annually
[FN]
*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 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 18, 1996
Sponsor: Nike Securities L.P.
Evaluator: Muller Data Corporation
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 $86.67 $86.67
Less: Estimated Annual Expense $4.36 $3.86
Estimated Net Annual Interest Income $82.31 $82.81
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $82.31 $82.81
Divided by 12 and 2, Respectively $6.86 $41.41
Estimated Daily Rate of Net Interest Accrual $.2286 $.2300
Estimated Current Return Based on Public
Offering Price 7.89% 7.94%
Estimated Long-Term Return Based on Public
Offering Price 7.60% 7.65%
</TABLE>
Trustee's Annual Fee: $1.80 and $1.35 per Unit 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>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Special Situations
Trust, Series 125, The First Trust Corporate Income Trust
(High Yield), Intermediate Series 11
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Special Situations Trust, Series
125, The First Trust Corporate Income Trust (High Yield), Intermediate Series
11 as of August 31, 1996, and the related statements of operations and changes
in net assets for the period from the Initial Date of Deposit, September 26,
1995, to August 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Special
Situations Trust, Series 125, The First Trust Corporate Income Trust (High
Yield), Intermediate Series 11 at August 31, 1996, and the results of its
operations and changes in its net assets for the period from the Initial Date
of Deposit, September 26, 1995, to August 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 15, 1996
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Bonds, at market value (cost $8,081,227)
(Note 1) $8,078,388
Accrued interest 199,439
Unamortized deferred organization costs 25,638
__________
8,303,465
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 172,089
Accrued liabilities 5,833
Unit redemptions payable 25,464
Distributions payable and accrued to unit holders 7,013
__________
210,399
__________
Net assets, applicable to 8,292 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $8,081,227
Net unrealized depreciation (Note 2) (2,839)
Distributable funds 14,678
__________
$8,093,066
==========
Net asset value per unit $976.01
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
PORTFOLIO - See notes to portfolio.
August 31, 1996
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Issue and country of issuer(e) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Bethlehem Steel (United States of America),
Senior Notes 10.375% 9/01/2003 B+(d) $425,000 448,375
Borden Chemical & Plastics (United States of
America), Notes 9.50 5/01/2005 2000 @ 104 BB-(d) 675,000 671,625
Century Communications (United States of
America), Notes - (c) 3/15/2003 BB-(d) 225,000 118,688
Century Communications (United States of
America), Notes 9.50 3/01/2005 BB-(d) 675,000 673,312
Continental Cablevision (United States of
America), Debentures 8.875 9/15/2005 BB+(d) 675,000 720,563
Kaufman & Broad Home Corporation (United States
of America), Senior Subordinate Notes 9.375 5/01/2003 2000 @ 100 BB-(d) 650,000 649,187
PDV America Inc. (Venezuela), Senior Notes 7.875 8/01/2003 BB-(d) 425,000 418,625
Playtex Family Products Corporation (United
States of America), Senior Subordinate Notes 9.00 12/15/2003 1998 @ 104.5 B+(d) 525,000 508,594
Ryland Group (United States of America), Senior
Subordinate Notes 9.625 6/01/2004 2000 @ 100 BB-(d) 575,000 570,688
Salomon, Inc. (United States of America),
Senior Notes 6.875 12/15/2003 BBB 70,000 66,325
Tele-Communication, Inc. (United States of
America), Senior Notes 7.25 8/01/2005 BBB- 675,000 622,687
Telefonica De Argentina, S.A. (Argentina), Notes 11.875 11/01/2004 BB+(d) 675,000 712,969
Time Warner, Inc. (United States of America),
Notes 7.75 6/15/2005 BBB- 675,000 658,125
Turner Broadcasting (United States of America),
Senior Notes 7.40 2/01/2004 BB+(d) 675,000 634,500
YPF Sociedad Anonima (Argentina), Notes 8.00 2/15/2004 BB-(d) 675,000 604,125
______________________
$8,295,000 8,078,388
======================
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
NOTES TO PORTFOLIO
August 31, 1996
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). In addition, certain bonds
are sometimes redeemable in whole or in part other than by operation of
the stated redemption or sinking fund provisions under specified unusual
or extraordinary circumstances. Approximately 29% of the aggregate
principal amount of the Bonds in the Trust is subject to call within
five years.
(b) The ratings shown are those effective at December 31, 1996. A
significant portion of the Bonds in the Trust are lower rated bonds,
commonly known as "junk bonds," that entail greater risks, including
default risks, than those found in higher rated securities (see (d)
below). A portion of the Trust's investment in junk bonds have been
issued by foreign issuers which carry the additional risks of untimely
interest and principal payments and price volatility than higher rated
securities, and may present problems of liquidity and valuation.
(c) These Bonds were issued at an original discount on April 1,1993 at a
price of 42.125% of their original principal amount.
(d) Standard & Poor's Corporation states: "Debt rated BB, B, CCC and CC is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposure to adverse conditions."
(e) The Trust consists of fifteen obligations. Three obligations
representing 21% of the aggregate principal amount of the Bonds in the
Trust consist of foreign Corporate Bonds. Twelve obligations
representing approximately 79% of the aggregate principal amount of the
Bonds in the Trust consist of domestic Corporate Bonds and Zero Coupon
Bonds. Of the Bonds included in the Trust, 28% will mature in 2003, 31%
will mature in 2004 and 41% will mature in 2005.
<TABLE>
<CAPTION>
Number of Country Portfolio
Issues of Issuer Percentage
<C> <S> <C>
12 United States of America 79%
2 Argentina 16%
1 Venezuela 5%
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
STATEMENT OF OPERATIONS
Period from the Initial Date of Deposit,
September 26, 1995, to August 31, 1996
<TABLE>
<S> <C>
Interest income $671,344
Expenses:
Trustee's fees and related expenses (13,856)
Evaluators' fees (5,750)
Supervisory fee (3,981)
Administrative fees (796)
Amortization or organization costs (5,862)
_________
Investment income - net 641,099
Net gain (loss) on investments:
Net realized gain (loss) (1,821)
Change in net unrealized appreciation
or depreciation (2,839)
_________
(4,660)
_________
Net increase (decrease) in net assets
resulting from operations $636,439
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
STATEMENT OF CHANGES IN NET ASSETS
Period from the Initial Date of Deposit,
September 26, 1995, to August 31, 1996
<TABLE>
<S> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $641,099
Net realized gain (loss) on investments (1,821)
Change in net unrealized appreciation
or depreciation on investments (2,839)
___________
636,439
Distributions to unit holders:
Investment income - net (597,671)
Principal from investment transactions -
___________
(597,671)
Units issued (8,000) 7,789,627
Unit redemptions (708):
Principal portion (699,468)
Net interest accrued (4,948)
___________
(704,416)
___________
Total increase (decrease) in net assets 7,123,979
Net assets:
At the beginning of the period (representing 1,000
units outstanding) 969,087
___________
At the end of the period (including
distributable funds applicable to
Trust units of $14,678) $8,093,066
============
Trust units outstanding at the end of
the period 8,292
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Muller Data Corporation (the
Evaluator). 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 dates the bonds were deposited in the Trust. The premium or discount
(including original issue discount) existing at the dates the bonds were
deposited 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 $1.80 and $1.35 per unit for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Additionally, a fee
of $25 per evaluation is payable to the Evaluator and the Trust pays all
related expenses of the Trustee, recurring financial reporting costs, an
annual supervisory fee payable to an affiliate of the Sponsor and an annual
administrative fee payable to the Sponsor.
Organization costs -
The Trust has paid a portion of the costs incurred to organize the Trust,
including costs of preparing the registration statement, the trust indenture
and other closing documents, registering units with the Securities and
Exchange Commission and states, the initial audit of the Trust's portfolio and
the initial fees and expenses of the Trustee. Such costs, totaling $31,500,
have been deferred and will be amortized over five years from the Initial Date
of Deposit.
2. Unrealized appreciation and depreciation
An analysis of net unrealized depreciation at August 31, 1996 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(148,724)
Unrealized appreciation 145,885
________
$(2,839)
========
</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 4.5% of the public offering price which is equivalent to
approximately 4.712% 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>
Period from
the Initial
Date of Deposit,
Sept. 26,
Type of 1995, to
distribution Aug. 31,
plan 1996
<S> <C>
Monthly $71.85*
Semi-annual 72.32
</TABLE>
[FN]
*Excludes $.68 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit and to each supplemental Date of
Deposit, totaling $158,407, plus net interest accruing to the first settlement
date and to the settlement date of each supplemental Date of Deposit, totaling
$6,139, were distributed to the Sponsor as the unit holder of record. The
initial subsequent distribution, $3.64 and $3.66 per unit for those portions
of the Trust under the monthly and semi-annual distribution plans,
respectively, was paid on October 31, 1995 to all unit holders of record on
October 15, 1995.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Initial Date of
Deposit Sept. 26,
1995, to
Aug. 31, 1996
<S> <C>
Interest income $80.86
Expenses (3.64)
_______
Investment income - net 77.22
Distributions to unit holders:
Investment income - net (72.56)
Principal from investment transactions -
Net gain (loss) on investments 2.26
_______
Total increase (decrease) in net assets 6.92
Net assets:
Beginning of the period 969.09
_______
End of the period $976.01
=======
</TABLE>
<PAGE>
THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD),
INTERMEDIATE SERIES 11
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 CORPORATE INCOME TRUST (HIGH YIELD)
INTERMEDIATE SERIES
The First Trust (registered trademark) Special Situations Trust
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated January 24, 1997
The First Trust Special Situations Trust, The First Trust Corporate
Income Trust (High Yield), Intermediate Series (the "High Yield Series")
is a unit investment trust consisting of a portfolio of interest-bearing
corporate debt obligations of domestic and foreign companies (the
"Corporate Bonds," or the "Bonds").
The Objective of the Trust is a high level of current income through
investment in a fixed portfolio consisting primarily of domestic high-
yield, high-risk corporate debt obligations issued after July 18, 1984.
The Trust also contains high-yield, high-risk dollar denominated foreign
corporate debt obligations, if interest thereon is U.S. source income.
The objective of the Trust is dependent upon the continuing ability of
the issuers and/or obligors to meet their respective obligations. There
is, of course, no guarantee that the objective of the Trust will be
achieved.
A SIGNIFICANT PORTION OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS IN
THE TRUST ARE LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT
ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN
HIGHER RATED SECURITIES. A PORTION OF A TRUST'S INVESTMENT IN JUNK BONDS
MAY HAVE BEEN ISSUED BY FOREIGN ISSUERS WHICH CARRY THE ADDITIONAL RISKS
OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS AND PRICE VOLATILITY THAN
HIGHER RATED SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND
VALUATION. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING.
Units of a Trust are not deposits of, or guaranteed by, any bank and
Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss
of principal.
Attention Foreign Investors: Your interest income from a Trust 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?"
Distributions to Unit holders may be reinvested as described herein. See
"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 portfolio of a Trust. 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 "How May Units be Redeemed?"
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 sales charge set forth in "Public
Offering." The minimum purchase is 100 Units.
BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
Portfolio Supervisor's Annual Fee. In performing its duties as Portfolio
Supervisor, First Trust Advisors L.P. may obtain research and other
information from a variety of sources, including Fitch Investors
Service, Inc., an affiliate of the Sponsor. Such information will
consist of comments covering the financial condition and business
prospects of the issuers and an analysis of the respective market
sectors, including economic, tax, currency, political, regulatory and
other similar risks. The Sponsor believes that the information will be
beneficial in the present circumstances due to the complexity of the
high-yield debt markets. The Supervisory Fee is set forth under "Summary
of Essential Information" IN PART ONE OF THE PROSPECTUS and MAY BE
greater for this Trust than for other trusts of which Nike Securities
L.P. acts as Sponsor.
Risk Factors. An investment in the Trust should be made with an
understanding of the risks associated therewith, including, among other
factors, loss of principal and/or interest due to changes in economic
conditions, volatile interest rates, lack of liquidity and changing
perceptions regarding junk bonds. See "Risk Factors."
Page 2
The First Trust Corporate Income Trust (High Yield)
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 Corporate
Income Trust (High Yield), Intermediate Series (the "High Yield Series")
is one of a series of investment companies created by the Sponsor under
the name of The First Trust Special Situations Trust, each of which is
separate and is designated by a different series number (a "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, Muller Data Corporation as Evaluator and First Trust
Advisors L.P., as Portfolio Supervisor.
The objective of the Trust is a high level of current income through
investment in a fixed portfolio consisting primarily of domestic high-
yield, high-risk corporate debt obligations issued after July 18, 1984.
The Trust also contains high-yield, high-risk dollar denominated foreign
corporate debt obligations, if interest thereon is U.S. source income. A
majority of the securities included in the Trust are commonly known as
"junk bonds" and are subject to greater market fluctuations and
potential risk of loss of income and principal than are investments in
lower-yielding, higher-rated fixed-income securities. Historically, high-
yield bond investors have received greater returns from their "high-
yield" investments. For the period 1987-1996, for instance, the high-
yield corporate market return averaged 11.24% annually. Compare that to
investment-grade corporates at a 9.20% average annual return over the
same period, and you can see why investors choose high-yield bonds for a
portion of their investment portfolios despite the additional risks. The
above returns represent a comparison of the compounded average annual
returns between the Merrill Lynch High Yield Corporate Index and the
Merrill Lynch Investment Grade Corporate Index. An investment in a Trust
should be made with the understanding that not only will such Trust's
portfolio differ from that of the Merrill Lynch High Yield Corporate
Index, the Trust was not designed to correlate with these, or any other
indexes, nor are Unit prices expected to correlate with these or any
other indexes. The securities included in a Trust should be viewed as
speculative and an investor should review his ability to assume the
risks associated with speculative corporate bonds. The payment of income
is dependent upon the continuing ability of the issuers and/or obligors
to meet their respective obligations. THERE IS, OF COURSE, NO GUARANTEE
THAT A TRUST'S OBJECTIVE WILL BE ACHIEVED.
Each Unit of a Trust represented the undivided fractional interest in
the Bonds deposited in the Trust as set forth under "Summary of
Essential Information" in Part One of the Prospectus. To the extent that
Units of a Trust are redeemed, the aggregate value of the Bonds in the
Trust will be reduced and the undivided fractional interest represented
by each outstanding Unit of the Trust will increase. See "How May Units
be Redeemed?" The Trust has a Mandatory Termination Date as set forth
under "Summary of Essential Information" in Part One of the Prospectus.
Bond Portfolio Selection
The Sponsor of the Trusts selected the Bonds for each Portfolio after
considering a Trust's investment objective as well as the credit quality
of the individual Bonds of the Portfolio. The following facts, among
others, were also considered: (a) the price of the Bonds relative to
other issues of similar quality and maturity; (b) the rating and credit
quality of the issuers of the Bonds and the potential improvement in the
credit quality of such issuers; (c) the diversification of the Bonds as
to location of issuer; (d) the income to the Unit holders of the Trust;
(e) whether the Bonds were issued after July 18, 1984; and (f) the
stated maturity of the Bonds.
As of the Initial Date of Deposit for each Trust, all of the Bonds in
the Trust were rated "B" or better by Moody's Investors Service, Inc.,
("Moody's"), Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's") or Fitch Investors
Service, L.P. ("Fitch"). See "Description of Bond Ratings" and
"Portfolio" in Part One of the Prospectus. Subsequent to the Initial
Page 3
Date of Deposit, a Bond may cease to be so rated. If this should occur,
a Trust would not be required to eliminate the Bond from the Trust, but
such event may be considered in the Sponsor's determination to direct
the Trustee to dispose of such investment. Each Trust follows a buy and
hold investment strategy in contrast to the frequent portfolio changes
of a managed fund based on economic, financial and market analyses. A
Trust may retain an issuer's bonds despite adverse financial developments.
Risk Factors
A Trust may consist 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 a Trust?"
Certain of the Bonds in a Trust 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 a Trust
were lower than the current market interest rates for newly issued bonds
of comparable rating and type. If such interest rates for newly issued
comparable bonds increase, the market discount of previously issued
bonds will become greater, and if such interest rates for newly issued
comparable bonds decline, the market discount of previously issued bonds
will be reduced, other things being equal. Investors should also note
that the value of bonds purchased at a market discount will increase in
value faster than bonds purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of bonds
purchased at a market discount will decrease faster than bonds purchased
at a premium. In addition, if interest rates rise, the prepayment risk
of higher yielding, premium bonds and the prepayment benefit for lower
yielding, discount bonds will be reduced. A discount bond held to
maturity will have a larger portion of its total return in the form of
capital gain and less in the form of interest income than a comparable
bond newly issued at current market rates. Market discount attributable
to interest changes does not indicate a lack of market confidence in the
issue. Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Bonds.
Certain of the Bonds in a Trust may be original issue discount bonds or
zero coupon bonds. Under current law, the original issue discount, which
is the difference between the stated redemption price at 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. See
"What is the Federal Tax Status of Unit Holders?" 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. 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.
Certain of the Bonds in a Trust 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. If such interest rates for newly
issued and otherwise comparable bonds decrease, the market premium of
previously issued bonds will be increased, and if such interest rates
for newly issued comparable bonds increase, the market premium of
previously issued bonds will be reduced, other things being equal. 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
Page 4
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
the 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 a Trust?" and "Other Information-How May the Indenture be Amended
or Terminated?"
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 a Trust will retain for any length of time its 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 a Trust 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. 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 a Trust. 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.
To the best knowledge of the Sponsor, there is no litigation pending as
of the Initial Date of Deposit in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon a Trust.
At any time after the Initial Date of Deposit, litigation may be
initiated on a variety of grounds with respect to Bonds in a Trust. 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 that fractional undivided
interest in the Trust as is set forth in the "Summary of Essential
Information" in Part One of the Prospectus for each Trust. To the extent
that any Units of a Trust are redeemed by the Trustee, the fractional
undivided interest in the Trust represented by each unredeemed Unit will
increase, although the actual interest in the Trust represented by such
fraction will remain substantially unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination of the
Trust Agreement.
High-Yield Obligations. An investment in Units of a Trust should be made
with an understanding of the risks that an investment in "high-yield,
high-risk," fixed-rate, domestic and foreign corporate debt obligations
or "junk bonds" may entail, including increased credit risks and the
risk that the value of the Units will decline, and may decline
precipitously, with increases in interest rates. In recent years there
have been wide fluctuations in interest rates and thus in the value of
fixed-rate, debt obligations generally. Securities such as those
included in a Trust are, under most circumstances, subject to greater
Page 5
market fluctuations and risk of loss of income and principal than are
investments in lower-yielding, higher-rated securities, and their value
may decline precipitously because of increases in interest rates, not
only because the increases in rates generally decrease values, but also
because increased rates may indicate a slowdown in the economy and a
decrease in the value of assets generally that may adversely affect the
credit of issuers of high-yield, high-risk securities resulting in a
higher incidence of defaults among high-yield, high-risk securities. A
slowdown in the economy, or a development adversely affecting an
issuer's creditworthiness, may result in the issuer being unable to
maintain earnings or sell assets at the rate and at the prices,
respectively, that are required to produce sufficient cash flow to meet
its interest and principal requirements. For an issuer that has
outstanding both senior commercial bank debt and subordinated high-
yield, high-risk securities, an increase in interest rates will increase
that issuer's interest expense insofar as the interest rate on the bank
debt is fluctuating. However, many leveraged issuers enter into interest
rate protection agreements to fix or cap the interest rate on a large
portion of their bank debt. This reduces exposure to increasing rates,
but reduces the benefit to the issuer of declining rates. The Sponsor
cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar market fluctuations in
the future.
Certain of the Bonds in a Trust consist of "high-yield, high-risk"
foreign and domestic corporate bonds. "High-yield" or "junk" bonds, the
generic names for corporate bonds rated below BBB by Standard & Poor's
or Fitch, or below Baa by Moody's, are frequently issued by corporations
in the growth stage of their development, by established companies whose
operations or industries are depressed or by highly leveraged companies
purchased in leveraged buyout transactions. The market for high-yield
bonds is very specialized and investors in it have been predominantly
financial institutions. High-yield bonds are generally not listed on a
national securities exchange. Trading of high-yield bonds, therefore,
takes place primarily in over-the-counter markets which consist of
groups of dealer firms that are typically major securities firms.
Because the high-yield bond market is a dealer market, rather than an
auction market, no single obtainable price for a given bond prevails at
any given time. Prices are determined by negotiation between traders.
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. Not all dealers maintain markets in all high-yield
bonds. Therefore, since there are fewer traders in these bonds than
there are in "investment grade" bonds, the bid-offer spread is usually
greater for high-yield bonds than it is for investment grade bonds. The
price at which the Bonds may be sold to meet redemptions and the value
of a Trust will be adversely affected if trading markets for the Bonds
are limited or absent. If the rate of redemptions is great, the value of
a Trust may decline to a level that requires liquidation (see "Other
Information-How May the Indenture be Amended or Terminated?").
Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the
issuers of lower-rated securities may not be as strong as that of other
issuers. Moreover, if a Bond is recharacterized as equity by the
Internal Revenue Service for federal income tax purposes, the issuer's
interest deduction with respect to the Bond will be disallowed and this
disallowance may adversely affect the issuer's credit rating. Because
investors generally perceive that there are greater risks associated
with the lower-rated securities in a Trust, the yields and prices of
these securities tend to fluctuate more than higher-rated securities
with changes in the perceived quality of the credit of their issuers. In
addition, the market value of high-yield, high-risk, fixed-income
securities may fluctuate more than the market value of higher-rated
securities since high-yield, high-risk, fixed-income securities tend to
reflect short-term credit development to a greater extent than higher-
rated securities. Lower-rated securities generally involve greater risks
of loss of income and principal than higher-rated securities. Issuers of
lower-rated securities may possess fewer creditworthiness
characteristics than issuers of higher-rated securities and, especially
in the case of issuers whose obligations or credit standing have
recently been downgraded, may be subject to claims by debtholders,
owners of property leased to the issuer or others which, if sustained,
would make it more difficult for the issuers to meet their payment
obligations. High-yield, high-risk bonds are also affected by variables
such as interest rates, inflation rates and real growth in the economy.
Therefore, investors should consider carefully the relative risks
associated with investment in securities which carry lower ratings.
Page 6
The value of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should the issuer
of any Bond default in the payment of principal or interest, a Trust may
incur additional expenses seeking payment on the defaulted Bond. Because
amounts (if any) recovered by a Trust in payment under the defaulted
Bond may not be reflected in the value of the Units until actually
received by the Trust, and depending upon when a Unit holder purchases
or sells his Units, it is possible that a Unit holder would bear a
portion of the cost of recovery without receiving any portion of the
payment recovered.
High-yield, high-risk bonds are generally subordinated obligations. The
payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of
the issuer. Senior obligations generally include most, if not all,
significant debt obligations of an issuer, whether existing at the time
of issuance of subordinated debt or created thereafter. Upon any
distribution of the assets of an issuer with subordinated obligations
upon dissolution, total or partial liquidation or reorganization of or
similar proceeding relating to the issuer, the holders of senior
indebtedness will be entitled to receive payment in full before holders
of subordinated indebtedness will be entitled to receive any payment.
Moreover, generally no payment with respect to subordinated indebtedness
may be made while there exists a default with respect to any senior
indebtedness. Thus, in the event of insolvency, holders of senior
indebtedness of an issuer generally will recover more, ratably, than
holders of subordinated indebtedness of that issuer.
Obligations that are rated lower than BBB by Standard & Poor's or Fitch,
or Baa by Moody's, respectively, should be considered speculative as
such ratings indicate a quality of less than investment grade. Investors
should carefully review the objective of a Trust and consider their
ability to assume the risks involved before making an investment in a
Trust. See "Description of Bond Ratings" for a description of
speculative ratings issued by Standard & Poor's, Moody's or Fitch.
Foreign Issuers. A portion of the Bonds in a Trust may be invested in
securities of foreign issuers. It is appropriate for investors in a
Trust 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 the 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 a
Trust invests 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 a Trust 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 a Trust will be
adversely affected if trading markets for the Bonds are limited or
absent. A Trust 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.
Page 7
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
with payment to a Trust 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 a 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 a Trust and on the ability of the Trust to satisfy its
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, the 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 the 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?
As of the date of Part One of the Prospectus, the Estimated Current
Return and the Estimated Long-Term Return are as set forth in "Summary
of Essential Information" in Part One. 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. 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 a Trust change. Therefore, there is no assurance that
the Estimated Current Return indicated in "Summary of Essential
Information" in Part One of the Prospectus 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 a Trust; and (2) takes into account a
compounding factor and the expenses and sales charge associated with
each Unit of a Trust. Since the market values and estimated retirements
of the Bonds and the expenses of a Trust will change, there is no
assurance that the Estimated Long-Term Return indicated in "Summary of
Essential Information" in Part One of the Prospectus 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
certain delays in the distributions to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. 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 "Summary of
Essential Information" in Part One of the Prospectus for the Trust.
Record Dates for monthly distributions of interest are the fifteenth day
of each month. The Distribution Dates for distributions of interest
under the monthly plan is the last day of each month in which the
related Record Date occurs. All Unit holders will receive such
distributions, if any, from the Principal Account as are made as of the
Record Dates for monthly distributions.
Page 8
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
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, with respect to
sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unit holders will receive on
the next distribution date of a Trust the amount, if any, of accrued
interest paid on their Units.
In an effort to reduce the amount of accrued interest which would
otherwise have to be paid in addition to the Public Offering Price in
the sale of Units to the public, the Trustee will advance the amount of
accrued interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. 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 Units, he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds 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.
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.
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 a 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 gross income the
entire amount of interest paid on his 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 discussion and opinion, it is assumed that
interest on the Bonds 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) Each Trust is not an association taxable as a corporation 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 pro
rata share of income derived from each Trust asset when such income is
considered to be received by a Trust. Each Unit holder will also be
required to include in taxable income for Federal income tax purposes,
Page 9
original issue discount with respect to his 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 a Trust
is disposed of whether by sale, liquidation, redemption, or payment at
maturity or otherwise, or when the Unit holder redeems or sells his
Units. The Unit holder's tax basis in his Units will equal his tax basis
in his pro rata portion of all of the assets of a Trust. Such basis is
determined (before the adjustments described below) by apportioning the
tax basis for the Units among each of a Trust's assets 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 before the date a Trust acquired
ownership of the Bonds (and the amount of this reduction may exceed the
amount of accrued interest paid to the sellers) 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 basis for his fractional interest in the asset disposed of. The
basis of each Unit and of each Bond which was issued with original issue
discount (or which has market discount) must be increased by the amount
of accrued original issue discount (and market discount, if the Unit
holder elects to include market discount in income as it accrues) and
the basis of each Unit and of each Bond which was purchased by a Trust
at a premium must be reduced by the annual amortization of bond premium
which the Unit holder has properly elected to amortize under Section 171
of the Code. The tax basis reduction requirements of the Code relating
to amortization of bond premium may, under some circumstances, result in
the Unit holder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to or less than his original cost. Original
issue discount is effectively treated as interest for Federal income tax
purposes and the amount of original issue discount in this case is
generally the difference between the bond's purchase price and its
stated redemption price at maturity. A Unit holder will be required to
include in gross income for each taxable year the sum of his daily
portions of original issue discount 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, unless the original issue discount on a Bond
is less than a "de minimis" amount as determined under Treasury
Regulations. To the extent the amount of such discount is less than the
respective "de minimis" amount, such discount shall be treated as zero.
In general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual
compounding of accrued interest. Unit holders should consult their tax
advisers regarding the Federal income tax consequences and accretion of
original issue discount.
Each Unit holder's pro rata share of each expense paid by a Trust is
deductible by the Unit holder to the same extent as though the expense
had been paid directly by him. 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 (similar
limitations also apply to estates and trusts). Unit holders may be
required to treat some or all of the expenses paid by a Trust as
miscellaneous itemized deductions subject to this limitation.
If a Unit holder's tax basis of his 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 Bond, such excess
would be considered premium which may be amortized by the Unit holder at
Page 10
the Unit holder's election as provided in Section 171 of the Code. Unit
holders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
Certain of the Bonds in a Trust may have been acquired with "original
issue discount." In the case of any Bonds in a Trust acquired with
"original issue discount" that exceeds a "de minimis" amount as
specified in the Code, such discount is includable in taxable income of
the Unit holders on an accrual basis computed daily, without regard to
when payments of interest on such 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 pro rata
portion of a Bond issued with original issue discount exceeds his pro
rata portion of its adjusted issue price. Unit holders should also
consult their tax advisers regarding these special rules.
It is possible that a 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.
If a Unit holder's tax basis in his 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. 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 is incurred to purchase or carry his
Units will be reduced by such accrued market discount. In general, the
portion of any interest expense which was not currently deductible would
ultimately be deductible when the accrued market discount is included in
income. Unit holders should consult their tax advisers regarding whether
an election should be made to include market discount in income as it
accrues and as to the amount of interest expense which may not be
currently deductible.
The tax basis of a Unit holder with respect to his 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 Units will equal his tax basis in
his pro rata portion of all of the assets of a Trust.
A Unit holder will recognize taxable capital gain (or loss) when all or
part of his pro rata interest in a Bond is disposed of in a taxable
transaction for an amount greater (or less) than his tax basis therefor.
As previously discussed, gain realized on the disposition of the
interest of a Unit holder in any 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 Units for more than one year in which case such capital
gain or loss will be long-term. For taxpayers other than corporations,
Page 11
net capital gains (which is defined as net long-term capital gain over
net short-term capital loss for a taxable year) are presently subject to
a maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. The tax 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
Units are redeemed for an amount equal to or less than his original cost.
The Revenue Reconciliation Act of 1993 (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28% maximum
stated rate for taxpayers other than corporations. Because some or all
capital gains are taxed at a comparatively lower rate under the Tax Act,
the Tax Act includes a provision that characterizes capital gains as
ordinary income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after
April 30, 1993. Unit holders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision
on their investment in Units.
If the Unit holder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets including
his pro rata portion of all of the 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 pro rata interest in any Bond or the sale of his Units provided that
all of the following conditions are met: (i) the interest income or gain
is not effectively connected with the conduct by the foreign investor of
a trade or business within the United States (ii) if the interest is
United States source income (which is the case for most securities
issued by United States issuers), and the Bond is issued after July 18,
1984 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 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 a
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 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, the 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 a
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 the Tax Act included 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
Page 12
and to certify that the Unit holder has not been notified that payments
to the Unit holder are subject to back-up withholding. If the proper
taxpayer identification number and appropriate certification are not
provided when requested, distributions by the Trust to such Unit holder
including amounts received upon the redemption of the Units will be
subject to back-up withholding.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the
Trust for New York tax matters, each Trust is not an association taxable
as a corporation and the income of the Trust will be treated as the
income of the Unit holders under the existing income tax laws of the
State and City of New York.
The foregoing discussion relates only to United States Federal and New
York State and City income taxes; Unit holders may be subject to state
and local taxation in other jurisdictions (including a foreign
investor's country of residence). Unit holders should consult their tax
advisers regarding potential state, local, or foreign taxation with
respect to the Units.
Why are Investments in a Trust Suitable for Retirement Plans?
Units of a Trust may be well suited for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other tax-deferred
retirement plans. Generally, the Federal income tax relating to capital
gains and income received in each of the foregoing plans is deferred
until distributions are received. Distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible
for special averaging or tax-deferred rollover treatment. Investors
considering participation in any such plan should review specific tax
laws related thereto and should consult their attorneys or tax advisers
with respect to the establishment and maintenance of any such plan. Such
plans are offered by brokerage firms and other financial institutions.
Fees and charges with respect to such plans may vary.
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to a Trust, for which the Sponsor will be reimbursed in the
amount set forth under "Summary of Essential Information" in Part One of
the Prospectus, the Sponsor will not receive any fees in connection with
its activities relating to such Trust.
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" in Part One of the Prospectus
for providing portfolio supervisory services for a Trust. Such fee is
based on the number of Units outstanding in such Trust on January 1 of
each year. In providing such supervisory services, the portfolio
Supervisor may purchase research services from a variety of sources
which may include dealers of a Trust.
Muller Data Corporation, in its capacity as Evaluator, will receive an
evaluation fee as set forth in "Summary of Essential Information" in
Part One of the Prospectus for each Trust.
The Trustee pays certain expenses of a 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 "Summary of Essential
Information" in Part One of the Prospectus for a 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 the above described fees are payable from the Interest
Account of the Trust to the extent funds are available and then from the
Principal Account of a 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
Trust is expected to result from the use of these funds.
Each of the above mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services,
supervisory services and evaluation services, such individual fees may
exceed the actual costs of providing such services for the Trust, but at
no time will the total amount received for such services rendered to all
unit investment trusts of which Nike Securities L.P. is the Sponsor in
any calendar year exceed the actual cost to the Sponsor or its affiliate
of supplying such services in such year.
Page 13
Expenses incurred in establishing a Trust, including costs of preparing
the registration statement, the trust indenture and other closing
documents, registering Units with the Securities and Exchange Commission
and states, the initial audit of the Trust portfolio, legal fees, the
initial fees and expenses of the Trustee and any other non-material out-
of-pocket expenses, will be paid by such Trust and charged off over a
period not to exceed five years from the Initial Date of Deposit.
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 Trust. 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.
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 such Trust by independent auditors
selected by the Sponsor. So long as the Sponsor is making a secondary
market for Units, the Sponsor shall bear the cost of such annual audits
to the extent such cost exceeds $0.005 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?
Units are offered at the Public Offering Price. Units may be purchased
in the secondary market at the Public Offering Price less the concession
the Sponsor typically allows to dealers and other selling agents for
purchases by investors who purchase Units through registered investment
advisers, certified financial planners and registered broker-dealers who
in each case either charge periodic fees for financial planning,
investment advisory or asset management services, or provide such
services in connection with the establishment of an investment account
for which a comprehensive "wrap fee" charge is imposed.
The Public Offering Price of Units of a Trust for secondary market
purchases will be determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds in the 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 the Trust, adjusting the total to reflect the amount of
any cash held in or advanced to the principal account of the Trust and
dividing the result by the number of Units of the Trust then
outstanding. The maximum sales charge on Units will be 5.0% of the
Public Offering Price (equivalent to 5.263% of the net amount invested).
For purposes of computation, Bonds will be deemed to mature on their
expressed maturity dates unless (a) 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; or (b) such Bonds are
subject to a "mandatory tender," in which case such mandatory tender
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 a Trust based upon the maturities of such bonds, in accordance
with the following schedule:
Page 14
<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 5.00 5.263
</TABLE>
There will be no reduction of the sales charges for volume purchases for
secondary market transactions. A dealer will receive from the Sponsor a
dealer concession of 70% of the total sales charges for Units sold by
such dealer and dealers will not be eligible for additional concessions
for Units sold pursuant to the above schedule.
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 periods.
The aggregate price of the Bonds in a Trust is determined by whomever
from time to time is acting as evaluator (the "Evaluator"), on the basis
of bid prices or offering 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 Trust; (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. The
Evaluator will be requested to make such a determination, 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 will be equal to the bid
price per Unit of the Bonds in the Trust plus the applicable sales
charge. The offering price of Bonds in the Trust may be expected to be
greater than the bid price of such Bonds by approximately 1-3% of the
aggregate principal amount of such Bonds.
Although payment is normally made three business days following the
order for purchase (the "date of settlement"), payment may be made prior
thereto. A person will become owner of Units on the date of settlement
provided payment has been received. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be
used in the Sponsor's business and may be deemed to be a benefit to the
Sponsor, subject to the limitations of the Securities Exchange Act of
1934. Delivery of Certificates representing Units so ordered will be
made three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market may be offered by this Part
Two Prospectus at the public offering price determined in the manner above.
Resales of Units of the Trusts by such dealers and others to the public
will be made at the Public Offering Price described in this Part Two
Prospectus. Dealers and others will receive a concession equal to 70% of
the current sales charge. The Sponsor reserves the right to change the
amount of the concession or agency commission from time to time. Certain
commercial banks are making Units of the 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
Page 15
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.
From time to time the Sponsor may implement programs under which
Underwriters and dealers of a Trust may receive nominal awards from the
Sponsor for each of their registered representatives who have sold a
minimum number of UIT Units during a specified time period. In addition,
at various times the Sponsor may implement other programs under which
the sales force of an Underwriter or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor
will reallow to any such Underwriter or dealer that sponsors sales
contests or recognition programs conforming to criteria established by
the Sponsor, or participates in sales programs sponsored by Sponsor, an
amount not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to
qualifying Underwriters or dealers for certain services or activities
which are primarily intended to result in sales of Units of a Trust.
Such payments are made by the Sponsor out of its own assets, and not out
of the assets of a Trust. These programs will not change the price Unit
holders pay for their Units or the amount that a Trust 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
other similar Trusts sponsored by Nike Securities L.P. with returns on
investments such as 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.
What are the Sponsor's Profits?
In maintaining a market for the Units, the Sponsor will realize profits
or sustain losses in the amount of any difference between the price at
which Units are purchased and the price at which Units are resold (which
price includes a sales charge as indicated in Part One for each Trust)
or redeemed. The secondary market public offering price of Units may be
greater or less than the cost of such Units to the Sponsor.
Will There be a Secondary Market?
Although it is not obligated to do so, the 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 a Trust plus interest accrued to
the date of settlement. All expenses incurred in maintaining a secondary
market, other than the fees of the Evaluator, the other expenses of 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 UNITS, HE SHOULD INQUIRE OF THE SPONSOR AS TO CURRENT
MARKET PRICES PRIOR TO MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE.
RIGHTS OF UNIT HOLDERS
How 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
Page 16
a written instrument or instruments of transfer. A Unit holder must sign
exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or exchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit
holder may be required to furnish indemnity satisfactory to the Trustee
and pay such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from a Trust after deduction of amounts sufficient to reimburse
the Trustee, without interest, for any amounts advanced and paid to the
Sponsor as the Unit holder of record as of the First Settlement Date
(see "How is Accrued Interest Treated?") will be distributed on or
shortly after the last day of each month 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 the
Trust.
The pro rata share of cash in the Principal Account of the Trust will be
computed as of the fifteenth day of each month, and distributions to the
Unit holders of a Trust as of such Record Date will be made on or
shortly after the last day of each month. Proceeds from the disposition
of any of the Bonds of a Trust received after such Record Date and prior
to the following Distribution Date will be held in the Principal Account
of the Trust and not distributed until the next Distribution Date. The
Trustee is not required to make a distribution from the Principal
Account of a Trust unless the amount available for distribution shall
equal at least $.01 per Unit.
The Trustee will credit to the Interest Account of a Trust all interest
received by the Trust, including that part of the proceeds of any
disposition of Bonds which represents accrued interest. Other receipts
will be credited to the Principal Account of the 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 the Trust after deducting
estimated expenses. 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 shall be
reimbursed, without interest, for any advances from funds in the
Interest Account of a 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 a Trust and, to the extent funds are not sufficient
therein, from the Principal Account of the Trust, amounts necessary to
pay the expenses of the Trust. The Trustee also may withdraw from said
accounts such amounts, if any, as it deems necessary to establish a
reserve for any governmental charges payable out of a Trust. Amounts so
withdrawn shall not be considered a part of the Trust's assets until
such time as the Trustee shall return all or any part of such amounts to
the appropriate account. In addition, the Trustee may withdraw from the
Interest Account and the Principal Account of a Trust such amounts as
may be necessary to cover redemption of Units of the Trust by the Trustee.
Record Dates for monthly distributions will be the fifteenth day of each
month and Record Dates for semi-annual distributions will be the
fifteenth day of June and December. Distributions will be made on the
last day of the month of the respective Record Date.
Page 17
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 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,
capital gains or principal on the participant's Units to, among other
investment vehicles, a Unit holder's checking, bank savings, money
market, insurance, reinvestment or any other account. All such
distributions, of course, are subject to the minimum investment and
sales charges, if any, of the particular investment vehicle to which
distributions are directed. The Trustee will notify the participant of
each distribution pursuant to the Universal Distribution Option. The
Trustee will distribute directly to the Unit holder any distributions
which are not accepted by the specified investment vehicle. A
participant may at any time, by so notifying the Trustee in writing,
elect to terminate his participation in the Universal Distribution
Option and receive directly future distributions on his Units.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of a 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
the Trust (including amounts representing interest received upon any
disposition of Bonds of the Trust), deductions for payment of applicable
taxes and for fees and expenses of the Trust, redemption of Units and
the balance remaining after such distributions and deductions, expressed
both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) the Principal Account: the dates of disposition of
any Bonds of the Trust and the net proceeds received therefrom
(excluding any portion representing interest), 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 the Trust outstanding on the last business day of
such calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5) the
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account of the Trust, separately stated,
expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its corporate trust office in the City of New York of the
certificates representing the Units to be redeemed, 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
Page 18
applicable governmental charges, if any. No redemption fee will be
charged. On the third business day following such tender, the Unit
holder will be entitled to receive in cash an amount for each Unit equal
to the Redemption Price per Unit next computed after receipt by the
Trustee of such tender of Units. The "date of tender" is deemed to be
the date on which Units are received by the Trustee (if such day is a
day on which the New York Stock Exchange is open for trading), except
for 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 the New York Stock Exchange is open for trading and
such Units will be deemed to have been tendered to the Trustee on such
day for redemption at the redemption price computed on that day. Units
so redeemed shall be cancelled.
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 the Trust. All
other amounts paid on redemption shall be withdrawn from the Principal
Account of a Trust.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Bonds in a Trust. The Redemption Price per Unit is the pro rata share of
each Unit determined by the Trustee on the basis of (1) the cash on hand
in the Trust or moneys in the process of being collected, (2) the value
of the Bonds in the Trust based on the bid prices of the Bonds, and (3)
accrued interest on the bonds, less (a) amounts representing taxes or
other governmental charges payable out of the Trust, (b) the accrued
expenses of the Trust and (c) cash held for distribution to Unit holders
of record as of a date prior to the evaluation then being made. The
Evaluator may determine the value of the Bonds in the 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 the
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.
The difference between the bid and offering prices of such Bonds may be
expected to average 1-3% 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 4%. 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 a 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 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
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 a Trust?
The Trustee, in its sole discretion, is empowered to sell underlying
Bonds of a Trust in order to make funds available for the redemption of
Page 19
Units of such Trust or to provide for the payment of expenses of such
Trust for which funds are not available. The Depositor shall maintain
with the Trustee a current list of Bonds held in each Trust designated
to be sold for such purposes. As described in the following paragraph,
the Trustee may also sell Bonds in a Trust which are in default in the
payment of principal or interest or in significant risk of such default
where, in the Sponsor's opinion, such sale is in the best interests of
Unit holders or no other alternative exists. In addition, at the
Sponsor's request, the Trustee shall sell Bonds of a Trust if factors
arise which, in the Sponsor's opinion, adversely affect the tax or
exchange control status of the Bonds. See "How May Units be Redeemed?"
The Sponsor may from time to time act as agent for a Trust with respect
to selling Bonds out of the Trust. From time to time, the Trustee may
retain and pay compensation to the Sponsor, subject to the restrictions
under the Investment Company Act of 1940, as amended.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor, within thirty
days, the Trustee is required to notify the Sponsor thereof. If the
Sponsor fails to instruct the Trustee to sell or to hold such 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 and under "What
is the First Trust Special Situations Trust?" for Failed Bonds, 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 $9 billion in First Trust
unit investment trusts have been deposited. The Sponsor's employees
include a team of professionals with many years of experience in the
unit investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (630) 241-4141. As of
December 31, 1995, the total partners' capital of Nike Securities L.P.
was $9,033,760 (audited). (This paragraph relates only to the Sponsor
and not to a 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 Trust may
call the Customer Service Help Line at 1-800-682-7520. The Trustee is
Page 20
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. 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 the Trust which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trust as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Muller Data Corporation, 395 Hudson Street, New York,
New York 10014. The Evaluator may resign or may be removed by the
Sponsor and the Trustee, in which event the Sponsor and the Trustee are
to use their best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon the acceptance of
appointment by the successor Evaluator. If upon resignation of the
Evaluator no successor has accepted appointment within 30 days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
Page 21
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 a Trust
issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
initially deposited in a Trust, except for the substitution of certain
refunding securities for Bonds or New Bonds for Failed Bonds. In the
event of any amendment, the Trustee is obligated to notify promptly all
Unit holders of the substance of such amendment.
The Trust may be liquidated at any time by consent of 100% of the Unit
holders of a Trust or by the Trustee when the value of a Trust, as shown
by any evaluation, is less than 20% of the aggregate principal amount of
the Bonds initially deposited in such Trust during the primary offering
period or by the Trustee in the event that Units of a Trust not yet sold
aggregating more than 60% of the Units of the Trust are tendered for
redemption by the Underwriters, including the Sponsor. If a Trust is
liquidated because of the redemption of unsold Units of the Trust by the
Underwriters, the Sponsor will refund to each purchaser of Units of the
Trust the entire sales charge paid by such purchaser. 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 set forth in Part One of the Prospectus. In
the event of termination, written notice thereof will be sent by the
Trustee to all Unit holders of a 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 the Trust, will
distribute to each Unit holder of the Trust (including the Sponsor if it
then holds any Units), upon surrender for cancellation of his
Certificate for Units, his pro rata share of the balances remaining in
the Interest and Principal Accounts of the Trust, all as provided in the
Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Carter, Ledyard & Milburn, 2 Wall Street, New York, New York 10005, will
act as counsel for the Trustee and as special counsel for the Trust for
New York tax matters.
Experts
The statement of net assets, including the portfolio, of each Trust
appearing in Part One of this Prospectus and Registration Statement has
been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere therein and in the Registration
Statement, and is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
DESCRIPTION OF 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, sus-
____________________
* As published by the rating companies.
Page 22
pended 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:
I. 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;
II. Nature of and provisions of the obligation;
III. 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.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
Moody's. A brief description of the applicable Moody's rating symbols
and their meanings follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
Page 23
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.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
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.
Fitch Investors Service, L.P. A brief description of the applicable
Fitch rating symbols and their meanings follow:
AAA - These bonds are considered to be investment grade and of the
highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - These bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal,
which is very strong, is somewhat less than for AAA-rated securities or
more subject to possible change over the term of the issue.
A - These bonds are considered to be investment grade and of good
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB - These bonds are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in
its rating.
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Page 27
CONTENTS:
The First Trust Corporate Income Trust (High Yield)
Intermediate Series:
What is The First Trust Special Situations Trust? 3
Bond Portfolio Selection 3
Risk Factors 4
What are Estimated Long-Term Return and
Estimated Current Return? 8
How is Accrued Interest Treated? 9
Are Unit Holders Compensated for Foreign
Withholding Tax Risks? 9
What is the Federal Tax Status of Unit Holders? 9
Why are Investments in a Trust Suitable for
Retirement Plans? 13
What are the Expenses and Charges? 13
Public Offering:
How is the Public Offering Price Determined? 14
How are Units Distributed? 15
What are the Sponsor's Profits? 16
Will There be a Secondary Market? 16
Rights of Unit Holders:
How are Certificates Issued and Transferred? 16
How are Interest and Principal Distributed? 17
How Can Distributions to Unit Holders be
Reinvested? 18
What Reports Will Unit Holders Receive? 18
How May Units be Redeemed? 18
How May Units be Purchased by the Sponsor? 19
How May Bonds be Removed from a Trust? 19
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 20
Who is the Trustee? 20
Limitations on Liabilities of Sponsor and Trustee 21
Who is the Evaluator? 21
Other Information:
How May the Indenture be Amended or Terminated? 22
Legal Opinions 22
Experts 22
Description of Bond Ratings 22
______________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (registered trademark)
THE FIRST TRUST CORPORATE
INCOME TRUST (HIGH YIELD)
INTERMEDIATE SERIES
Prospectus
Part Two
January 24, 1997
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, THE FIRST TRUST SPECIAL SITUATIONS TRUST, SERIES
125 THE FIRST TRUST CORPORATE INCOME TRUST (HIGH YIELD)
INTERMEDIATE SERIES 11, 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
January 24, 1997.
THE FIRST TRUST SPECIAL SITUATIONS TRUST,
SERIES 125
THE FIRST TRUST CORPORATE INCOME TRUST
(HIGH YIELD) INTERMEDIATE SERIES 11
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) January 24, 1997
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated November 15, 1996 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Special Situations Trust
dated December 24, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
December 23, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> CORPORATE INCOME HIGH YIELD INTER. TRUST SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-26-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 8,081,227
<INVESTMENTS-AT-VALUE> 8,078,388
<RECEIVABLES> 199,439
<ASSETS-OTHER> 25,638
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,303,465
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,399
<TOTAL-LIABILITIES> 210,399
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,081,227
<SHARES-COMMON-STOCK> 8,292
<SHARES-COMMON-PRIOR> 1,000
<ACCUMULATED-NII-CURRENT> 14,678
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,839)
<NET-ASSETS> 8,093,066
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 671,344
<OTHER-INCOME> 0
<EXPENSES-NET> 30,245
<NET-INVESTMENT-INCOME> 641,099
<REALIZED-GAINS-CURRENT> (1,821)
<APPREC-INCREASE-CURRENT> (2,839)
<NET-CHANGE-FROM-OPS> 641,099
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 597,671
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,000
<NUMBER-OF-SHARES-REDEEMED> 708
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,123,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
