SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: FT 520
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of Depositor's 1001 Warrenville Road
Principal Executive Offices: Lisle, Illinois 60532
D. Name and Complete Address of
Agents for Service: NIKE SECURITIES L.P.
Attention: James A. Bowen
Suite 300
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN & CUTLER
Attention: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
E. Title of Securities
Being Registered: An indefinite number of
Units pursuant to Rule
24f-2 promulgated under
the Investment Company Act
of 1940, as amended.
F. Approximate Date of Proposed
Sale to the Public: ____ Check if it is
proposed that this filing
will become effective on
_____ at ____ p.m.
pursuant to Rule 487.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED MARCH 28, 2001
California Municipal Income Closed-End Portfolio Series
New York Municipal Income Closed-End Portfolio Series
FT 520
FT 520 is a series of a unit investment trust, the FT Series. FT 520
consists of two separate portfolios listed above (each, a "Trust," and
collectively, the "Trusts"). Each Trust invests in a diversified
portfolio of common stocks ("Securities") issued by closed-end
investment companies.
California Municipal Income Closed-End Portfolio Series invests in
common stocks of closed-end funds, the portfolios of which are
concentrated in tax-exempt California municipal bonds, and seeks to
provide investors with income that is exempt from federal and state
income taxes, with capital appreciation as a secondary objective.
New York Municipal Income Closed-End Portfolio Series invests in common
stocks of closed-end funds, the portfolios of which are concentrated in
tax-exempt New York municipal bonds, and seeks to provide investors with
income that is exempt from federal, state and local taxes, with capital
appreciation as a secondary objective.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
First Trust (R)
1-800-621-9533
The date of this prospectus is April __, 2001
Page 1
Table of Contents
Summary of Essential Information 3
Fee Table 4
Report of Independent Auditors 5
Statements of Net Assets 6
Schedules of Investments 7
The FT Series 9
Portfolios 9
Risk Factors 10
Public Offering 11
Distribution of Units 14
The Sponsor's Profits 14
The Secondary Market 15
How We Purchase Units 15
Expenses and Charges 15
Tax Status 16
Retirement Plans 17
Rights of Unit Holders 17
Income and Capital Distributions 18
Redeeming Your Units 19
Removing Securities from a Trust 20
Amending or Terminating the Indenture 20
Information on the Sponsor, Trustee and Evaluator 21
Other Information 22
Page 2
Summary of Essential Information
FT 520
At the Opening of Business on the
Initial Date of Deposit-April __, 2001
Sponsor: Nike Securities L.P.
Trustee: The Chase Manhattan Bank
Evaluator: First Trust Advisors L.P.
California New York
Municipal Income Municipal Income
Closed-End Closed-End
Portfolio Series Portfolio Series
_________________ ________________
Initial Number of Units (1)
Fractional Undivided Interest in the Trust per Unit (1) 1/ 1/
Public Offering Price:
Aggregate Offering Price Evaluation of Securities per Unit (2) $ 9.900 $ 9.900
Maximum Transactional Sales Charge of 4.40% of the Public Offering Price per Unit
(4.444% of the net amount invested, exclusive of the deferred sales charge) (3) $ .440 $ .440
Less Deferred Sales Charge per Unit $ (.340) $ (.340)
Public Offering Price per Unit (4) $ 10.000 $ 10.000
Sponsor's Initial Repurchase Price per Unit (5) $ 9.560 $ 9.560
Redemption Price per Unit (based on aggregate underlying
value of Securities less the deferred sales charge) (5) $ 9.560 $ 9.560
Estimated Net Annual Distribution per Unit for the first year (6) $ $
Cash CUSIP Number 30266F 425 30266F 466
Reinvestment CUSIP Number 30266F 433 30266F 474
Fee Accounts Cash CUSIP Number 30266F 441 30266F 482
Fee Accounts Reinvestment CUSIP Number 30266F 458 30266F 490
Security Code
Ticker Symbol
First Settlement Date April __, 2001
Mandatory Termination Date (7) October 5, 2006
Income Distribution Record Date Fifteenth day of each month, commencing May 15, 2001.
Income Distribution Date (6) Last day of each month, commencing May 31, 2001.
______________
<FN>
(1) As of the close of business on the Initial Date of Deposit, we may
adjust the number of Units of a Trust so that the Public Offering Price
per Unit will equal approximately $10.00. If we make such an adjustment,
the fractional undivided interest per Unit will vary from the amount
indicated above.
(2) Each listed Security is valued at its last closing sale price. If a
Security is not listed, or if no closing sale price exists, it is valued
at its closing ask price. Evaluations for purposes of determining the
purchase, sale or redemption price of Units are made as of the close of
trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each day on which it is open (the "Evaluation Time").
(3) The maximum transactional sales charge consists of an initial sales
charge and a deferred sales charge, but does not include the creation
and development fee. See "Fee Table" and "Public Offering."
(4) The Public Offering Price shown above reflects the value of the
Securities on the business day prior to the Initial Date of Deposit. No
investor will purchase Units at this price. The price you pay for your
Units will be based on their valuation at the Evaluation Time on the
date you purchase your Units. On the Initial Date of Deposit, the Public
Offering Price per Unit will not include any accumulated cash in the
Income Account. After this date, a pro rata share of any cash in the
Income Account will be included.
(5) Until the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period the Sponsor's Initial Repurchase
Price per Unit and the Redemption Price per Unit will include the
estimated organization costs per Unit set forth under "Fee Table." After
such date, the Sponsor's Repurchase Price and Redemption Price per Unit
will not include such estimated organization costs. See "Redeeming Your
Units."
(6) The estimated net annual distributions for subsequent years, $______
per Unit for California Municipal Income Closed-End Portfolio Series,
and $______ per Unit for New York Municipal Income Closed-End Portfolio
Series, are expected to be less than that set forth above for the first
year because a portion of the Securities included in the Trusts will be
sold during the first year to pay for organization costs and the
deferred sales charge. The actual net annual distribution you will
receive will vary from that set forth above with changes in a Trust's
fees and expenses, in dividends received and with the sale of
Securities. See "Fee Table" and "Expenses and Charges." Distributions
from the Capital Account will be made monthly on the last day of the
month to Unit holders of record on the fifteenth day of such month if
the amount available for distribution equals at least $1.00 per 100
Units. In any case, we will distribute any funds in the Capital Account
in December of each year and as part of the final liquidation
distribution.
(7) See "Amending or Terminating the Indenture."
</FN>
Page 3
Fee Table
This Fee Table describes the fees and expenses that you may, directly or
indirectly, pay if you buy and hold Units of a Trust. See "Public
Offering" and "Expenses and Charges." Although the Trusts have a term of
approximately five and one-half years and are unit investment trusts rather
than mutual funds, this information allows you to compare fees.
California Municipal New York Municipal
Income Closed-End Income Closed-End
Portfolio Series Portfolio Series
___________________ ___________________
Amount Amount
per Unit per Unit
________ ________
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge 1.00%(a) $.100 1.00%(a) $.100
Deferred sales charge 3.40%(b) $.340 3.40%(b) $.340
Creation and development fee cap over the life of the Trust 0.55%(c) $.055 0.55%(c) $.055
_______ _______ _______ _______
(the annual creation and development fee is .35% of average
daily net assets for the Trust, and is only charged
while a Unit holder remains invested)
Maximum Sales Charges (including creation and development fee cap
over the life of the Trust) (c) 4.95% $.495 4.95% $.495
======= ======= ======= =======
Organization Costs (as a percentage of public offering price)
Estimated organization costs %(d) $ %(d) $
======= ======= ======= =======
Estimated Annual Trust Operating Expenses(e)
(as a percentage of average net assets)
Portfolio supervision, bookkeeping, administrative and evaluation fees % $ % $
Trustee's fee and other operating expenses %(f) $ %(f) $
Underlying Closed-End Fund Expenses %(g) $ %(g) $
________ ________ ________ ________
Total % $ % $
======== ======== ======== ========
Example
This example is intended to help you compare the cost of investing in
the Trusts with the cost of investing in other investment products. The
example assumes that you invest $10,000 in the Trusts for the periods
shown and sell all your Units at the end of those periods. The example
also assumes a 5% return on your investment each year and that the
Trusts' operating expenses stay the same. The example does not take into
consideration transaction fees which may be charged by certain
broker/dealers for processing redemption requests. Although your actual
costs may vary, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 5 1/2 Years
______ _______ _______ ___________
California Municipal Income Closed-End Portfolio Series $ $ $ $
New York Municipal Income Closed-End Portfolio Series
The example will not differ if you hold rather than sell your Units at
the end of each period.
___________________
<FN>
(a) The combination of the initial and deferred sales charge comprises
what we refer to as the "transactional sales charge." The initial sales
charge is actually equal to the difference between the maximum
transactional sales charge of 4.40% and any remaining deferred sales
charge.
(b) The deferred sales charge is a fixed dollar amount equal to $.340
per Unit which, as a percentage of the Public Offering Price, will vary
over time. The deferred sales charge will be deducted in five monthly
installments commencing November 20, 2001.
(c)The creation and development fee compensates the Sponsor for creating
and developing the Trusts. For as long as you own Units, this fee will
be accrued daily based on each Trust's net asset value at the annual
rate of .35% for each Trust. You will only be charged the creation and
development fee while you own Units. Each Trust pays the amount of any
accrued creation and development fee to the Sponsor monthly from such
Trust's assets. Because the creation and development fee is accrued
daily on the basis of a Trust's current net asset value, if the value of
your Units increases, the annual creation and development fee as a
percentage of your initial investment will be greater than .35%.
However, in no event will we collect over the life of a Trust more than
.55% of your initial investment.
(d) Estimated organization costs will be deducted from the assets of a
Trust at the earlier of six months after the Initial Date of Deposit or
the end of the initial offering period.
(e)Each of the fees listed herein is assessed on a fixed dollar amount
per Unit basis which, as a percentage of average net assets, will vary
over time.
(f) Other operating expenses includes the costs incurred by a Trust for
annually updating such Trust's registration statement. Historically, we
paid these costs. Other operating expenses, however, do not include
brokerage costs and other portfolio transaction fees for any of the
Trusts. In certain circumstances the Trusts may incur additional
expenses not set forth above. See "Expenses and Charges."
(g) Although not an actual Trust operating expense, each Trust, and
therefore Unit holders, will indirectly bear similar operating expenses
of the closed-end funds in which the Trusts invest in the estimated
amounts set forth in the table. These expenses are estimated based on
the actual closed-end fund expenses charged in a fund's most recent
fiscal year but are subject to change in the future. An investor in a
Trust will therefore indirectly pay higher expenses than if the
underlying closed-end fund shares were held directly.
</FN>
Page 4
Report of Independent Auditors
The Sponsor, Nike Securities L.P., and Unit Holders
FT 520
We have audited the accompanying statements of net assets, including the
schedules of investments, of FT 520, comprised of the California
Municipal Income Closed-End Portfolio Series and New York Municipal
Income Closed-End Portfolio Series, as of the opening of business on
April __, 2001 (Initial Date of Deposit). These statements of net assets
are the responsibility of the Trusts' Sponsor. Our responsibility is to
express an opinion on these statements of net assets based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the statements of net assets are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statements of net assets. Our procedures
included confirmation of the irrevocable letter of credit held by The
Chase Manhattan Bank, the Trustee, and allocated among the Trusts for
the purchase of Securities, as shown in the statements of net assets, as
of the opening of business on April __, 2001, 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 presentation of the statements of net assets. We believe that
our audits of the statements of net assets provide a reasonable basis
for our opinion.
In our opinion, the statements of net assets referred to above present
fairly, in all material respects, the financial position of FT 520,
comprised of the California Municipal Income Closed-End Portfolio Series
and New York Municipal Income Closed-End Portfolio Series, at the
opening of business on April __, 2001 (Initial Date of Deposit) in
conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April __, 2001
Page 5
Statements of Net Assets
FT 520
At the Opening of Business on the
Initial Date of Deposit-April __, 2001
California New York
Municipal Municipal
Income Closed-End Income Closed-End
Portfolio Series Portfolio Series
_______________ ________________
NET ASSETS
Investment in Securities represented by purchase contracts (1) (2) $ $
Less liability for reimbursement to Sponsor
for organization costs (3) ( ) ( )
Less liability for deferred sales charge (4) ( ) ( )
________ ________
Net assets $ $
======== ========
Units outstanding
ANALYSIS OF NET ASSETS
Cost to investors (5) $ $
Less maximum transactional sales charge (5) ( ) ( )
Less estimated reimbursement to Sponsor for organization costs (3) ( ) ( )
________ ________
Net assets $ $
======== ========
_____________
<FN>
NOTES TO STATEMENTS OF NET ASSETS
(1) Aggregate cost of the Securities listed under "Schedule of
Investments" for each Trust is based on their aggregate underlying value.
(2) An irrevocable letter of credit issued by The Chase Manhattan Bank,
of which $400,000 will be allocated between the two Trusts in FT 520,
has been deposited with the Trustee as collateral, covering the monies
necessary for the purchase of the Securities according to their purchase
contracts.
(3) A portion of the Public Offering Price consists of an amount
sufficient to reimburse the Sponsor for all or a portion of the costs of
establishing the Trusts. These costs have been estimated at $ per
Unit for each Trust. A payment will be made as of the earlier of six
months after the Initial Date of Deposit or the end of the initial
offering period to an account maintained by the Trustee from which the
obligation of the investors to the Sponsor will be satisfied. To the
extent that actual organization costs are greater than the estimated
amount, only the estimated organization costs added to the Public
Offering Price will be reimbursed to the Sponsor and deducted from the
assets of a Trust.
(4) Represents the amount of mandatory deferred sales charge
distributions of $.340 per Unit, payable to us in five equal monthly
installments beginning on November 20, 2001 and on the twentieth day of
each month thereafter (or if such date is not a business day, on the
preceding business day) through March 20, 2002. If you redeem Units
before March 20, 2002 you will have to pay the remaining amount of the
deferred sales charge applicable to such Units when you redeem them.
(5) The aggregate cost to investors in the Trusts includes a maximum
transactional sales charge (comprised of an initial and a deferred sales
charge) computed at the rate of 4.40% of the Public Offering Price per
Unit (equivalent to 4.444% of the net amount invested, exclusive of the
deferred sales charge), assuming no reduction of the transactional sales
charge as set forth under "Public Offering."
</FN>
Page 6
Schedule of Investments
CALIFORNIA MUNICIPAL INCOME CLOSED-END PORTFOLIO SERIES
FT 520
At the Opening of Business on the
Initial Date of Deposit-April __, 2001
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value Securities to
of Shares Name of Issuer of Securities (1) Offering Price per Share the Trust (2)
_____ ________________________________ ____________ ______ _____________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
__________
<FN>
See "Notes to Schedules of Investments" on page 8.
</FN>
Page 7
Schedule of Investments
NEW YORK MUNICIPAL INCOME CLOSED-END PORTFOLIO SERIES
FT 520
At the Opening of Business on the
Initial Date of Deposit-April __, 2001
Percentage Market Cost of
Number Ticker Symbol and of Aggregate Value Securities to
of Shares Name of Issuer of Securities (1) Offering Price per Share the Trust (2)
______ ________________________________ _________ ______ _____________
% $ $
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
______ _________
Total Investments 100% $
====== =========
_____________
<FN>
NOTES TO SCHEDULES OF INVESTMENTS
(1) All Securities are represented by regular way contracts to purchase
such Securities which are backed by an irrevocable letter of credit
deposited with the Trustee. We entered into purchase contracts for the
Securities on April __, 2001.
(2) The cost of the Securities to a Trust represents the aggregate
underlying value with respect to the Securities acquired (generally
determined by the last sale prices of the listed Securities and the ask
prices of the over-the-counter traded Securities on the business day
preceding the Initial Date of Deposit). The valuation of the Securities
has been determined by the Evaluator, an affiliate of ours. The cost of
the Securities to us and our profit or loss (which is the difference
between the cost of the Securities to us and the cost of the Securities
to a Trust) are set forth below:
Cost of
Securities Profit
to Sponsor (Loss)
___________ ______
California Municipal Income Closed-End Portfolio Series $ $
New York Municipal Income Closed-End Portfolio Series
</FN>
Page 8
The FT Series
The FT Series Defined.
We, Nike Securities L.P. (the "Sponsor"), have created hundreds of
similar yet separate series of a unit investment trust which we have
named the FT Series. The series to which this prospectus relates, FT
520, consists of two separate portfolios set forth below:
- - California Municipal Income Closed-End Portfolio Series
- - New York Municipal Income Closed-End Portfolio Series
Each Trust was created under the laws of the State of New York by a
Trust Agreement (the "Indenture") dated the Initial Date of Deposit.
This agreement, entered into among Nike Securities L.P., as Sponsor, The
Chase Manhattan Bank as Trustee and First Trust Advisors L.P. as
Portfolio Supervisor and Evaluator, governs the operation of the Trusts.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND
RISKS OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE
TRUSTEE AT 1-800-682-7520.
How We Created the Trusts.
On the Initial Date of Deposit, we deposited portfolios of common stocks
of Closed-End Funds with the Trustee and in turn, the Trustee delivered
documents to us representing our ownership of the Trusts, in the form of
units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities
in the Trusts, or cash (including a letter of credit) with instructions
to buy more Securities, in order to create new Units for sale. If we
create additional Units, we will attempt, to the extent practicable, to
maintain the percentage relationship established among the Securities on
the Initial Date of Deposit (as set forth in "Schedule of Investments"
for each Trust), and not the actual percentage relationship existing on
the day we are creating new Units, since the two may differ. This
difference may be due to the sale, redemption or liquidation of any of
the Securities.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in a Trust, on a market value basis, will also change daily.
The portion of Securities represented by each Unit will not change as a
result of the deposit of additional Securities or cash in a Trust. If we
deposit cash, you and new investors may experience a dilution of your
investment. This is because prices of Securities will fluctuate between
the time of the cash deposit and the purchase of the Securities, and
because the Trusts pay the associated brokerage fees. To reduce this
dilution, the Trusts will try to buy the Securities as close to the
Evaluation Time and as close to the evaluation price as possible. In
addition, because the Trusts pay the brokerage fees associated with
their creation of new Units and with the sale of Securities to meet
redemption and exchange requests, frequent redemption and exchange
activity will likely result in higher brokerage expenses.
An affiliate of the Trustee may receive these brokerage fees or the
Trustee may retain and pay us (or our affiliate) to act as agent for the
Trusts to buy Securities. If we or an affiliate of ours act as agent to
the Trusts we will be subject to the restrictions under the Investment
Company Act of 1940, as amended.
We cannot guarantee that a Trust will keep its present size and
composition for any length of time. Securities may periodically be sold
under certain circumstances, and the proceeds from these sales will be
used to meet Trust obligations or distributed to Unit holders, but will
not be reinvested. However, Securities will not be sold to take
advantage of market fluctuations or changes in anticipated rates of
appreciation or depreciation, or if they no longer meet the criteria by
which they were selected. You will not be able to dispose of or vote any
of the Securities in the Trusts. As the holder of the Securities, the
Trustee will vote all of the Securities and will do so based on our
instructions.
Neither we nor the Trustee will be liable for a failure in any of the
Securities. However, if a contract for the purchase of any of the
Securities initially deposited in a Trust fails, unless we can purchase
substitute Securities ("Replacement Securities") we will refund to you
that portion of the purchase price and transactional sales charge
resulting from the failed contract on the next Income Distribution Date.
Any Replacement Security a Trust acquires will be identical to those
from the failed contract.
Portfolios
Objectives.
California Municipal Income Closed-End Portfolio Series. The objective
of the California Municipal Income Closed-End Portfolio Series is to
provide investors with income that is exempt from federal and state
income taxes, with capital appreciation as a secondary objective. The
California Municipal Income Closed-End Portfolio Series seeks to achieve
its objective by investing in a diversified portfolio of common stocks
of closed-end funds that invest primarily in California municipal bonds.
Page 9
New York Municipal Income Closed-End Portfolio Series. The objective of
the New York Municipal Income Closed-End Portfolio Series is to provide
investors with income that is exempt from federal, state and local
income taxes, with capital appreciation as a secondary objective. The
New York Municipal Income Closed-End Portfolio Series seeks to achieve
its objective by investing in a diversified portfolio of common stocks
of closed-end funds that invest primarily in New York municipal bonds.
Americans deal with a number of different taxes in their everyday lives.
Perhaps none are more noticeable than individual income taxes. In fact,
individual income taxes comprise the largest component of the nation's
tax bill. On average, Americans had to work a full 50 days in the year
2000 just to earn enough money to pay for them.
In addition, as a percentage of income needed from each eight-hour
workday to pay for various goods and services, more time is spent
working to pay for taxes (34%) than for food, clothing, and shelter
combined (30%). [The Tax Foundation]
Advantages of the Closed-End Fund structure include portfolio control,
diversification and consistent income. Since Closed-End Funds maintain a
relatively fixed pool of investment capital, portfolio managers are
better able to adhere to their investment philosophies through greater
flexibility and control. In addition, Closed-End Funds don't have to
manage fund liquidity to meet potentially large redemptions. Closed-End
Funds are also structured to generally provide a more stable income
stream than other managed fixed-income investment products because they
are not subjected to cash inflows and outflows, which can dilute
dividends over time. However, as a result of bond calls, redemptions and
advanced refundings, which can dilute a fund's income, stable income
cannot be assured.
You should be aware that predictions stated herein for a particular type
of security may not be realized. In addition, the Securities in each
Trust are not intended to be representative of the particular type of
security as a whole and the performance of a Trust is expected to
differ. Of course, as with any similar investments, there can be no
guarantee that the objective of the Trusts will be achieved. See "Risk
Factors" for a discussion of the risks of investing in the Trusts.
Risk Factors
Price Volatility. The Trusts invest in common stocks of Closed-End
Funds. The value of a Trust's Units will fluctuate with changes in the
value of these common stocks. Common stock prices fluctuate for several
reasons including changes in investors' perceptions of the financial
condition of an issuer or the general condition of the relevant stock
market, or when political or economic events affecting the issuers
occur. In addition, common stock prices may be particularly sensitive to
rising interest rates, as the cost of capital rises and borrowing costs
increase.
Because the Trusts are not managed, the Trustee will not sell stocks in
response to or in anticipation of market fluctuations, as is common in
managed investments. As with any investment, we cannot guarantee that
the performance of a Trust will be positive over any period of time or
that you won't lose money. Units of the Trusts are not deposits of any
bank and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
California. The California Municipal Income Closed-End Portfolio invests
in closed-end municipal funds which are considered to be concentrated in
tax-exempt bonds issued by California municipalities. Risks associated
with investing in such bonds include political, economic and regulatory
factors which may affect the issuers. Additionally, many factors
including national economic, social and enviornmental policies and
conditions, which are not within the control of the issuers of the
bonds, could affect or have an adverse impact on the financial condition
of the issuers. The effect of California's current energy shortage and
increasing energy demand may also pose a significant risk to California
municipalities.
New York. The New York Municipal Income Closed-End Portfolio invests in
closed-end municipal funds which are considered to be concentrated in
tax-exempt bonds issued by New York municipalities. Risks associated
with investing in such bonds include political, economic and regulatory
factors which may affect the issuers. Additionally, many factors
including national economic, social and enviornmental policies and
conditions, which are not within the control of the issuers of the
bonds, could affect or have an adverse impact on the financial condition
of the issuers.
Alternative Minimum Tax. While distributions of interest from the Trusts
are generally exempt from federal income taxes, a portion of such
interest may be taken into account in computing the alternative minimum
tax.
Closed-End Funds. Closed-End Funds are actively managed investment
companies which invest in various types of securities. Closed-End Funds
issue shares of common stock that are traded on a securities exchange.
Page 10
Closed-End Funds are subject to various risks, including management's
ability to meet the Closed-End Fund's investment objective, and to
manage the Closed-End Fund portfolio when the underlying securities are
redeemed or sold, during periods of market turmoil and as investors'
perceptions regarding Closed-End Funds or their underlying investments
change.
Shares of Closed-End Funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct
from the risk that the net asset value of Closed-End Fund shares may
decrease. The amount of such discount from net asset value is subject to
change from time to time in response to various factors.
Municipal Bonds. Certain of the Closed-End Funds held by the Trusts
invest in tax-exempt municipal bonds. Municipal bonds are debt
obligations issued by states or by political subdivisions or authorities
of states. Municipal bonds are typically designated as general
obligation bonds, which are general obligations of a governmental entity
that are backed by the taxing power of such entity, or revenue bonds,
which are payable from the income of a specific project or authority and
are not supported by the issuer's power to levy taxes. Municipal bonds
are long-term fixed rate debt obligations that generally decline in
value with increases in interest rates, when an issuer's financial
condition worsens or when the rating on a bond is decreased. Many
municipal bonds may be called or redeemed prior to their stated
maturity, an event which is more likely to occur when interest rates
fall. In such an occurrence, a Closed-End Fund may not be able to
reinvest the money it receives in other bonds that have as high a yield
or as long a maturity.
Many municipal bonds are subject to continuing requirements as to the
actual use of the bond proceeds or manner of operation of the project
financed from bond proceeds that may affect the exemption of interest on
such bonds from federal income taxation. The market for municipal bonds
is generally less liquid than for other securities and therefore the
price of municipal bonds may be more volatile and subject to greater
price fluctuations than securities with greater liquidity. In addition,
an issuer's ability to make income distributions generally depends on
several factors including the financial condition of the issuer and
general economic conditions. Any of these factors may negatively impact
the price of municipal bonds held by a Closed-End Fund and would
therefore impact the price of both the Securities and the Units.
Legislation/Litigation. From time to time, various legislative
initiatives are proposed which may have a negative impact on the prices
of certain municipal bonds owned by the Closed-End Funds represented in
the Trusts. In addition, litigation regarding any of the issuers of the
municipal bonds owned by such Closed-End Funds, such as litigation
affecting the validity of certain municipal bonds or the tax-free nature
of the interest thereon, may negatively impact the share prices of these
Securities. We cannot predict what impact any pending or proposed
legislation or pending or threatened litigation will have on the share
prices of the Securities or of the issuers of the underlying bonds in
which they invest.
Public Offering
The Public Offering Price.
You may buy Units at the Public Offering Price, the price per Unit of
which is comprised of the following:
- - The aggregate underlying value of the Securities;
- - The amount of any cash in the Income and Capital Accounts;
- - Dividends receivable on Securities; and
- - The maximum transactional sales charge (which combines an initial
upfront sales charge and a deferred sales charge).
The price you pay for your Units will differ from the amount stated
under "Summary of Essential Information" due to various factors,
including fluctuations in the prices of the Securities and changes in
the value of the Income and/or Capital Accounts.
Although you are not required to pay for your Units until three business
days following your order (the "date of settlement"), you may pay before
then. You will become the owner of Units ("Record Owner") on the date of
settlement if payment has been received. If you pay for your Units
before the date of settlement, we may use your payment during this time
and it may be considered a benefit to us, subject to the limitations of
the Securities Exchange Act of 1934.
Organization Costs. Securities purchased with the portion of the Public
Offering Price intended to be used to reimburse the Sponsor for a
Trust's organization costs (including costs of preparing the
registration statement, the Indenture and other closing documents,
registering Units with the Securities and Exchange Commission ("SEC")
and states, the initial audit of each Trust portfolio, legal fees and
the initial fees and expenses of the Trustee) will be purchased in the
same proportionate relationship as all the Securities contained in a
Trust. Securities will be sold to reimburse the Sponsor for a Trust's
organization costs at the earlier of six months after the Initial Date
of Deposit or the end of the initial offering period (a significantly
Page 11
shorter time period than the life of the Trusts). During the period
ending with the earlier of six months after the Initial Date of Deposit
or the end of the initial offering period, there may be a decrease in
the value of the Securities. To the extent the proceeds from the sale of
these Securities are insufficient to repay the Sponsor for Trust
organization costs, the Trustee will sell additional Securities to allow
a Trust to fully reimburse the Sponsor. In that event, the net asset
value per Unit of a Trust will be reduced by the amount of additional
Securities sold. Although the dollar amount of the reimbursement due to
the Sponsor will remain fixed and will never exceed the per Unit amount
set forth for a Trust in "Notes to Statements of Net Assets," this will
result in a greater effective cost per Unit to Unit holders for the
reimbursement to the Sponsor. To the extent actual organization costs
are less than the estimated amount, only the actual organization costs
will be deducted from the assets of a Trust. When Securities are sold to
reimburse the Sponsor for organization costs, the Trustee will sell
Securities, to the extent practicable, which will maintain the same
proportionate relationship among the Securities contained in a Trust as
existed prior to such sale.
Minimum Purchase.
The minimum amount you can purchase of a Trust is $1,000 worth of Units
($500 if you are purchasing Units for your Individual Retirement Account
or any other qualified retirement plan).
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and
deferred component. The initial sales charge, which you will pay at the
time of purchase, is equal to the difference between the maximum
transactional sales charge of 4.40% of the Public Offering Price and the
maximum remaining deferred sales charge (initially $.340 per Unit). This
initial sales charge is initially equal to approximately 1.00% of the
Public Offering Price of a Unit, but will vary from 1.00% depending on
the purchase price of your Units and as deferred sales charge payments
are made. When the Public Offering Price exceeds $10.00 per Unit, the
initial sales charge will exceed 1.00% of the Public Offering Price.
Monthly Deferred Sales Charge. In addition, five monthly deferred sales
charges of $.068 per Unit will be deducted from a Trust's assets on
approximately the 20th day of each month from November 20, 2001 through
March 20, 2002. If you buy Units at a price of less than $10.00 per
Unit, the dollar amount of the deferred sales charge will not change,
but the deferred sales charge on a percentage basis will be more than
3.40% of the Public Offering Price.
If you purchase Units after the last deferred sales charge payment has
been assessed, your transactional sales charge will consist of a one-
time initial sales charge of 4.40% of the Public Offering Price
(equivalent to 4.603% of the net amount invested). The transactional
sales charge will be reduced by 1/2 of 1% on each subsequent April 30,
commencing April 30, 2002 to a minimum transactional sales charge of 3.0%.
Discounts for Certain Persons.
If you invest at least $50,000 (except if you are purchasing for "Fee
Accounts" as described below), the maximum transactional sales charge is
reduced, as follows:
Your maximum
If you invest sales charge
(in thousands):* will be:
______________ ____________
$50 but less than $100 4.15%
$100 but less than $250 3.90%
$250 but less than $500 3.40%
$500 but less than $1,000 2.40%
$1,000 or more 1.50%
* Breakpoint transactional sales charges are also applied on a Unit
basis utilizing a breakpoint equivalent in the above table of $10 per
Unit and will be applied on whichever basis is more favorable to the
investor. The breakpoints will be adjusted to take into consideration
purchase orders stated in dollars which cannot be completely fulfilled
due to the requirement that only whole Units be issued.
The reduced transactional sales charge for quantity purchases will apply
only to purchases made by the same person on any one day from any one
dealer. To help you reach the above levels, you can combine the Units
you purchase of the Trusts in this prospectus with any other same day
purchases of other trusts for which we are Principal Underwriter and are
currently in the initial offering period. In addition, we will also
consider Units you purchase in the name of your spouse or child under 21
years of age to be purchases by you. The reduced transactional sales
charges will also apply to a trustee or other fiduciary purchasing Units
for a single trust estate or single fiduciary account. You must inform
your dealer of any combined purchases before the sale in order to be
eligible for the reduced transactional sales charge. Broker/dealers will
receive a concession of 1.00% of the Public Offering Price on Units sold
subject to the transactional sales charge reduction for purchases of $1
million or more. In all other instances, any reduced transactional sales
charge is the responsibility of the party making the sale.
You may use redemption or termination proceeds from any unit investment
Page 12
trust we sponsor to purchase Units of a Trust during the initial
offering period at the Public Offering Price less 1.00%. Please note
that any deferred sales charge remaining on units you redeem to buy
Units of a Trust will be deducted from those redemption proceeds.
Investors purchasing Units through registered broker/dealers who charge
periodic fees in lieu of commissions or who charge for financial
planning, investment advisory or asset management services or provide
these or comparable services as part of an investment account where a
comprehensive "wrap fee" or similar charge is imposed ("Fee Accounts")
will not be assessed the transactional sales charge described in this
section on the purchase of Units. We reserve the right to limit or deny
purchases of Units not subject to the transactional sales charge by
investors whose frequent trading activity we determine to be detrimental
to the Trusts.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies, dealers and their affiliates, and
vendors providing services to us may purchase Units at the Public
Offering Price less the applicable dealer concession. Immediate family
members include spouses, children, grandchildren, parents, grandparents,
siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law,
brothers-in-law and sisters-in-law, and trustees, custodians or
fiduciaries for the benefit of such persons.
The Sponsor and certain dealers may establish a schedule where
employees, officers and directors of such dealers can purchase Units of
a Trust at the Public Offering Price less the established schedule
amount, which is designed to compensate such dealers for activities
relating to the sale of Units (the "Employee Dealer Concession").
You will be charged the deferred sales charge per Unit regardless of any
discounts. However, if you are eligible to receive a discount such that
the maximum transactional sales charge you must pay is less than the
applicable maximum deferred sales charge, including Fee Accounts Units,
you will be credited the difference between your maximum transactional
sales charge and the maximum deferred sales charge at the time you buy
your Units. If you elect to have distributions reinvested into
additional Units of the Trust, in addition to the reinvestment Units you
receive you will also be credited additional Units with a dollar value
at the time of reinvestment sufficient to cover the amount of any
remaining deferred sales charge to be collected on such reinvestment
Units. The dollar value of these additional credited Units (as with all
Units) will fluctuate over time, and may be less on the dates deferred
sales charges are collected than their value at the time they were issued.
As Sponsor, we will also receive, and the Unit holders will pay, a
creation and development fee. See "Expenses and Charges" for a
description of the services provided for this fee.
The Value of the Securities.
The Evaluator will determine the aggregate underlying value of the
Securities in a Trust as of the Evaluation Time on each business day and
will adjust the Public Offering Price of the Units according to this
valuation. This Public Offering Price will be effective for all orders
received before the Evaluation Time on each such day. If we or the
Trustee receive orders for purchases, sales or redemptions after that
time, or on a day which is not a business day, they will be held until
the next determination of price. The term "business day" as used in this
prospectus will exclude Saturdays, Sundays and certain national holidays
on which the NYSE is closed.
The aggregate underlying value of the Securities in a Trust will be
determined as follows: if the Securities are listed on a securities
exchange or The Nasdaq Stock Market, their value is generally based on
the closing sale prices on that exchange or system (unless it is
determined that these prices are not appropriate as a basis for
valuation). However, if there is no closing sale price on that exchange
or system, they are valued based on the closing ask prices. If the
Securities are not so listed, or, if so listed and the principal market
for them is other than on that exchange or system, their value will
generally be based on the current ask prices on the over-the-counter
market (unless it is determined that these prices are not appropriate as
a basis for valuation). If current ask prices are unavailable, the
valuation is generally determined:
a) On the basis of current ask prices for comparable securities;
b) By appraising the value of the Securities on the ask side of the
market; or
c) By any combination of the above.
After the initial offering period is over, the aggregate underlying
value of the Securities will be determined as set forth above, except
that bid prices are used instead of ask prices when necessary.
Distribution of Units
We intend to qualify Units of the Trusts for sale in a number of states.
All Units will be sold at the then current Public Offering Price.
Page 13
Dealer Concessions.
Dealers and other selling agents can purchase Units at prices which
represent a concession or agency commission of 3.3% of the Public
Offering Price per Unit (or 65% of the maximum transactional sales
charge after April 30, 2002). However, for Units subject to a
transactional sales charge which are purchased using redemption or
termination proceeds, this amount will be reduced to 2.3% of the sales
price of these Units. Dealers and selling agents will receive an
additional volume concession or agency commission of 0.30% of the Public
Offering Price if they purchase at least $100,000 worth of Units of a
Trust on the Initial Date of Deposit or $250,000 on any day thereafter
or if they were eligible to receive a similar concession in connection
with sales of similarly structured trusts sponsored by us which are
currently in the initial offering period.
Dealers and other selling agents who sell Units of a Trust during the
initial offering period in the dollar amounts shown below will be
entitled to the following additional sales concessions as a percentage
of the Public Offering Price:
Total Sales
per Trust Additional
(in millions) Concession
_____________________ __________
$1 but less than $10 .10%
$10 or more .20%
Dealers and other selling agents will not receive a concession on the
sale of Units which are not subject to a transactional sales charge, but
such Units will be included in determining whether the above volume
sales levels are met. Dealers and other selling agents who, during any
consecutive 12-month period, sell at least $1.75 billion worth of
primary market units of unit investment trusts sponsored by us will
receive a concession of $30,000 in the month following the achievement
of this level. We reserve the right to change the amount of concessions
or agency commissions from time to time. Certain commercial banks may be
making Units of the Trust available to their customers on an agency
basis. A portion of the transactional sales charge paid by these
customers is kept by or given to the banks in the amounts shown above.
Award Programs.
From time to time we may sponsor programs which provide awards to a
dealer's or selling agent's registered representatives who have sold a
minimum number of Units during a specified time period. We may also pay
fees to qualifying dealers for services or activities which are meant to
result in sales of Units of the Trusts. In addition, we will pay to
dealers who sponsor sales contests or recognition programs that conform
to our criteria, or participate in our sales programs, amounts equal to
no more than the total applicable transactional sales charge on Units
sold by such persons during such programs. We make these payments out of
our own assets and not out of Trust assets. These programs will not
change the price you pay for your Units
Investment Comparisons.
From time to time we may compare the estimated returns of the Trusts
(which may show performance net of the expenses and charges such Trust
would have incurred) and returns over specified periods of other similar
trusts we sponsor in our advertising and sales materials, with (1)
returns on other taxable investments such as the common stocks
comprising various market indexes, corporate or U.S. Government bonds,
bank CDs and money market accounts or funds, (2) performance data from
Morningstar Publications, Inc. or (3) information from publications such
as Money, The New York Times, U.S. News and World Report, BusinessWeek,
Forbes or Fortune. The investment characteristics of each Trust differ
from other comparative investments. You should not assume that these
performance comparisons will be representative of a Trust's future
performance. We may also, from time to time, use advertising which
classifies Trusts according to capitalization and/or investment style.
The Sponsor's Profits
We will receive a gross sales commission equal to the maximum
transactional sales charge per Unit of a Trust less any reduction as
stated in "Public Offering." We will also receive the amount of any
accrued and collected creation and development fee. Also, any difference
between our cost to purchase the Securities and the price at which we
sell them to a Trust is considered a profit or loss (see Note 2 of
"Notes to Schedules of Investments"). During the initial offering
period, dealers and others may also realize profits or sustain losses as
a result of fluctuations in the Public Offering Price they receive when
they sell the Units.
In maintaining a market for the Units, any difference between the price
at which we purchase Units and the price at which we sell or redeem them
will be a profit or loss to us.
Page 14
The Secondary Market
Although not obligated, we intend to maintain a market for the Units
after the initial offering period and continuously offer to purchase
Units at prices based on the Redemption Price per Unit.
We will pay all expenses to maintain a secondary market, except the
Evaluator fees, Trustee costs to transfer and record the ownership of
Units and costs incurred in annually updating the Trusts' registration
statements. We may discontinue purchases of Units at any time. IF YOU
WISH TO DISPOSE OF YOUR UNITS, YOU SHOULD ASK US FOR THE CURRENT MARKET
PRICES BEFORE MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE. If you sell
or redeem your Units before you have paid the total deferred sales
charge on your Units, you will have to pay the remainder at that time.
How We Purchase Units
The Trustee will notify us of any tender of Units for redemption. If our
bid is equal to or greater than the Redemption Price per Unit, we may
purchase the Units. You will receive your proceeds from the sale no
later than if they were redeemed by the Trustee. We may tender Units we
hold to the Trustee for redemption as any other Units. If we elect not
to purchase Units, the Trustee may sell tendered Units in the over-the-
counter market, if any. However, the amount you will receive is the same
as you would have received on redemption of the Units.
Expenses and Charges
The estimated annual expenses of the Trusts are listed under "Fee
Table." If actual expenses exceed the estimate, the appropriate Trust
will bear the excess. The Trustee will pay operating expenses of a Trust
from the Income Account of such Trust if funds are available, and then
from the Capital Account. The Income and Capital Accounts are
noninterest-bearing to Unit holders, so the Trustee may earn interest on
these funds, thus benefiting from their use. In addition, investors will
also indirectly pay a portion of the expenses of the underlying Closed-
End Funds.
As Sponsor, we will be compensated for providing bookkeeping and other
administrative services to the Trusts, and will receive brokerage fees
when the Trusts use us (or an affiliate of ours) as agent in buying or
selling Securities. Legal, typesetting, electronic filing and regulatory
filing fees and expenses associated with updating the Trusts'
registration statements yearly are also now chargeable to the Trusts.
Historically, we paid these fees and expenses. First Trust Advisors
L.P., an affiliate of ours, acts as both Portfolio Supervisor and
Evaluator to the Trusts and will receive the fees set forth under "Fee
Table" for providing portfolio supervisory and evaluation services to
the Trusts. In providing portfolio supervisory services, the Portfolio
Supervisor will purchase research services from a number of sources,
which may include underwriters or dealers of the Trusts.
The fees payable to us, First Trust Advisors L.P. and the Trustee are
based on the largest aggregate number of Units of a Trust outstanding at
any time during the calendar year, except during the initial offering
period, in which case these fees are calculated based on the largest
number of Units outstanding during the period for which compensation is
paid. These fees may be adjusted for inflation without Unit holders'
approval, but in no case will the annual fees paid to us or our
affiliates for providing a given service to all unit investment trusts
for which we provide such services be more than the actual cost of
providing such service in such year.
As Sponsor, we will receive a fee from each Trust for creating and
developing the Trusts, including determining each Trust's objectives,
policies, composition and size, selecting service providers and
information services, and for providing other similar administrative and
ministerial functions. The "creation and development fee" is accrued
(and becomes a liability of each Trust) on a daily basis. The dollar
amount of the creation and development fee accrued each day, which will
vary with fluctuations in a Trust's net asset value, is determined by
multiplying the net asset value of each Trust on that day by 1/365 of
the annual creation and development fee of .35%. The total amount of any
accrued but unpaid creation and development fee is paid to the Sponsor
on a monthly basis from the assets of your Trust. If you redeem your
Units, you will only be responsible for any accrued and unpaid creation
and development fee through the date of redemption. In connection with
the creation and development fee, in no event will the Sponsor collect
over the life of each Trust more than .55% of a Unit holder's initial
investment. We do not use this fee to pay distribution expenses or as
compensation for sales efforts.
In addition to a Trust's operating expenses, and those fees described
above, each Trust may also incur the following charges:
- - All legal expenses of the Trustee according to its responsibilities
under the Indenture;
- - The expenses and costs incurred by the Trustee to protect a Trust and
Page 15
your rights and interests;
- - Fees for any extraordinary services the Trustee performed under the
Indenture;
- - Payment for any loss, liability or expense the Trustee incurred
without negligence, bad faith or willful misconduct on its part, in
connection with its acceptance or administration of a Trust;
- - Payment for any loss, liability or expenses we incurred without
negligence, bad faith or willful misconduct in acting as Depositor of a
Trust; and/or
- - All taxes and other government charges imposed upon the Securities or
any part of a Trust.
The above expenses and the Trustee's annual fee are secured by a lien on
the respective Trust. In addition, if there is not enough cash in the
Income or Capital Accounts of a Trust, the Trustee has the power to sell
Securities to make cash available to pay these charges which may result
in capital gains or losses to you. See "Tax Status."
The Trusts will be audited annually. So long as we are making a
secondary market for Units, we will bear the cost of these annual audits
to the extent the cost exceeds $0.0050 per Unit. Otherwise, a Trust will
pay for the audit. You can request a copy of the audited financial
statements from the Trustee.
Tax Status
This section summarizes some of the main U.S. federal income tax
consequences of owning Units of the Trusts. This section is current as
of the date of this prospectus. Tax laws and interpretations change
frequently, and these summaries do not describe all of the tax
consequences to all taxpayers. For example, these summaries generally do
not describe your situation if you are a non-U.S. person, a
broker/dealer, or other investor with special circumstances. In
addition, this section does not describe your state or foreign taxes. As
with any investment, you should consult your own tax professional about
your particular consequences. In addition, the Internal Revenue Service
issued new withholding and reporting regulations effective January 1,
2001. Foreign investors should consult their own tax advisors regarding
the tax consequences of these regulations.
Assets of the Trusts.
Each Trust will hold shares of Closed-End Funds (the "Securities")
qualifying as regulated investment companies ("RICs"). The Trusts are
invested in municipal bonds. For purposes of this federal tax
discussion, it is assumed that the Securities constitute qualifying
shares in regulated investment companies for federal income tax purposes.
Trust Status and Distributions.
The Trusts will not be taxed as corporations for federal income tax
purposes. As a Unit owner, you will be treated as the owner of a pro
rata portion of the Securities and other assets held by your Trust, and
as such you will be considered to have received a pro rata share of
income (i.e., dividends, interest and capital gains, if any) from each
Security when such income is considered to be received by your Trust.
This is true even if you elect to have your distributions automatically
reinvested into additional Units. In addition, the income from a Trust
which you must take into account for federal income tax purposes is not
reduced by amounts used to pay Trust expenses (including the deferred
sales charge, if any).
Distributions received by the Trusts from the Securities, other than
distributions which are designated as capital gain dividends or exempt-
interest dividends, will be taxable to you as ordinary income.
Distributions from the Trusts attributable to dividends received from
the Securities will not be eligible for the dividends received deduction
for corporations.
Your Tax Basis and Income or Loss upon Disposition.
If your Trust disposes of Securities, you will generally recognize gain
or loss. If you dispose of your Units or redeem your Units for cash, you
will also generally recognize gain or loss. To determine the amount of
this gain or loss, you must subtract your tax basis in the related
Securities from your share of the total amount received in the
transaction. You can generally determine your initial tax basis in each
Security or other Trust asset by apportioning the cost of your Units,
generally including sales charges, among each Security or other Trust
asset ratably according to their value on the date you purchase your
Units. In certain circumstances, however, you may have to adjust your
tax basis after you purchase your Units (for example, in the case of
certain dividends paid to the Trusts on the Securities that exceed the
RIC's accumulated earnings and profits).
If you are an individual, the maximum marginal federal tax rate for net
capital gain is generally 20% (10% for certain taxpayers in the lowest
tax bracket). For tax years beginning after December 31, 2000, the 20%
rate is reduced to 18% and the 10% rate is reduced to 8% for long-term
gains from most property with a holding period of more than five years.
Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if
the holding period for the asset is more than one year and is short-term
if the holding period for the asset is one year or less. You must
Page 16
exclude the date you purchase your Units to determine the holding period
of your Units. The tax rates for capital gains realized from assets held
for one year or less are generally the same as for ordinary income. The
Internal Revenue Code may, however, treat certain capital gains as
ordinary income in special situations.
Dividends from Securities.
Some dividends on the Securities may qualify as "capital gain
dividends," taxable to you as long-term capital gains. In addition, some
dividends on the Securities in the Municipal Closed-End Portfolio may
qualify as "exempt interest dividends," which generally are excluded
from your gross income for federal income tax purposes. Some or all of
the exempt-interest dividends, however, may be taken into account in
determining your alternative minimum tax, and may have other tax
consequences (e.g., they may affect the amount of your social security
benefits that are taxed).
If you hold a Unit for six months or less or if a Trust holds a Security
for six months or less, any loss incurred by you related to the
disposition of such Security will be disallowed to the extent of the
exempt-interest dividends you received. If such loss is not entirely
disallowed, it will be treated as long-term capital loss to the extent
of any long-term capital gain distributions received (or deemed to have
been received) with respect to such Security. Distributions of income or
capital gains declared on the Securities in October, November, or
December will be deemed to have been paid to you on December 31 of the
year they are declared, even when paid by the RIC during the following
January.
In-Kind Distributions.
Under certain circumstances, you may request a distribution of
Securities (an "In-Kind Distribution") when you redeem your Units
(except for Fee Accounts) or at a Trust's termination. If you request an
In-Kind Distribution you will be responsible for any expenses related to
this distribution. By electing to receive an In-Kind Distribution, you
will receive an undivided interest in the Securities plus, possibly, cash.
You will not recognize gain or loss if you only receive Securities in
exchange for your pro rata portion of the Securities held by a Trust.
However, if you also receive cash in exchange for a fractional share of
a Security held by a Trust, you will generally recognize gain or loss
based on the difference between the amount of cash you receive and your
tax basis in such fractional share of the Security.
Limitations on the Deductibility of Trust Expenses and Your Interest
Expenses.
Generally, for federal income tax purposes, you must take into account
your full pro rata share of a Trust's income, even if some of that
income is used to pay Trust expenses. You may deduct your pro rata share
of each expense paid by a Trust to the same extent as if you directly
paid the expense. You may, however, be required to treat some or all of
the expenses of the Trusts as miscellaneous itemized deductions.
Individuals may only deduct certain miscellaneous itemized deductions to
the extent they exceed 2% of adjusted gross income.
Because some of the Securities pay exempt interest dividends, which are
treated as tax-exempt interest for federal income tax purposes, you will
not be able to deduct some of your share of the Trust expenses. In
addition, you will not be able to deduct some of your interest expense
for debt that you incur or continue to purchase or carry your Units.
State and Local Taxes.
Under the existing income tax laws of the State and City of New York,
the Trusts will not be taxed as corporations, and the income of the
Trusts will be treated as the income of the Unit holders in the same
manner as for federal income tax purposes.
Retirement Plans
You may purchase Units of the Trusts for:
- - Individual Retirement Accounts,
- - Keogh Plans,
- - Pension funds, and
- - Other tax-deferred retirement plans.
Generally, the federal income tax on capital gains and income received
in each of the above plans is deferred until you receive distributions.
These distributions are generally treated as ordinary income but may, in
some cases, be eligible for special averaging or tax-deferred rollover
treatment. Before participating in a plan like this, you should review
the tax laws regarding these plans and consult your attorney or tax
adviser. Brokerage firms and other financial institutions offer these
plans with varying fees and charges.
Rights of Unit Holders
Unit Ownership.
The Trustee will treat as Record Owner of Units persons registered as
such on its books. It is your responsibility to notify the Trustee when
you become Record Owner, but normally your broker/dealer provides this
notice. You may elect to hold your Units in either certificated or
Page 17
uncertificated form. All Fee Accounts Units, however, will be held in
uncertificated form.
Certificated Units. When you purchase your Units you can request that
they be evidenced by certificates, which will be delivered shortly after
your order. 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. You can transfer or redeem your
certificated Units by endorsing and surrendering the certificate to the
Trustee, along with a written instrument of transfer. You must sign your
name exactly as it appears on the face of the certificate with your
signature guaranteed by an eligible institution. In certain cases the
Trustee may require additional documentation before they will transfer
or redeem your Units.
You may be required to pay a nominal fee to the Trustee for each
certificate reissued or transferred, and to pay any government charge
that may be imposed for each transfer or exchange. If a certificate gets
lost, stolen or destroyed, you may be required to furnish indemnity to
the Trustee to receive replacement certificates. You must surrender
mutilated certificates to the Trustee for replacement.
Uncertificated Units. You may also choose to hold your Units in
uncertificated form. If you choose this option, the Trustee will
establish an account for you and credit your account with the number of
Units you purchase. Within two business days of the issuance or transfer
of Units held in uncertificated form, the Trustee will send you:
- - A written initial transaction statement containing a description of
the Trust;
- - A list of the number of Units issued or transferred;
- - Your name, address and Taxpayer Identification Number ("TIN");
- - A notation of any liens or restrictions of the issuer and any adverse
claims; and
- - The date the transfer was registered.
Uncertificated Units may be transferred the same way as certificated
Units, except that no certificate needs to be presented to the Trustee.
Also, no certificate will be issued when the transfer takes place unless
you request it. You may at any time request that the Trustee issue
certificates for your Units.
Unit Holder Reports.
In connection with each distribution, the Trustee will provide you with
a statement detailing the per Unit amount of income (if any)
distributed. After the end of each calendar year, the Trustee will
provide you:
- - A summary of transactions in your Trust for the year;
- - A list of any Securities sold during the year and the Securities held
at the end of that year by your Trust;
- - The Redemption Price per Unit, computed on the 31st day of December
of such year (or the last business day before); and
- - Amounts of income and capital distributed during the year.
You may request from the Trustee copies of the evaluations of the
Securities as prepared by the Evaluator to enable you to comply with
federal and state tax reporting requirements.
Income and Capital Distributions
You will begin receiving distributions on your Units only after you
become a Record Owner. The Trustee will credit any dividends received on
a Trust's Securities to the Income Account of such Trust. All other
receipts, such as return of capital, are credited to the Capital Account.
The Trustee will distribute any net income in the Income Account on or
near the Income Distribution Dates to Unit holders of record on the
preceding Income Distribution Record Date. See "Summary of Essential
Information." No income distribution will be paid if accrued expenses of
a Trust exceed amounts in the Income Account on the Income Distribution
Dates. Distribution amounts will vary with changes in a Trust's fees and
expenses, in dividends received and with the sale of Securities. The
Trustee will distribute amounts in the Capital Account, net of amounts
designated to meet redemptions, pay the deferred sales charge or pay
expenses on the last day of each month to Unit holders of record on the
fifteenth day of each month provided the amount equals at least $1.00
per 100 Units. If the Trustee does not have your TIN, it is required to
withhold a certain percentage of your distribution and deliver such
amount to the Internal Revenue Service ("IRS"). You may recover this
amount by giving your TIN to the Trustee, or when you file a tax return.
However, you should check your statements to make sure the Trustee has
your TIN to avoid this "back-up withholding."
We anticipate that there will be enough money in the Capital Account of
a Trust to pay the deferred sales charge. If not, the Trustee may sell
Securities to meet the shortfall.
Within a reasonable time after a Trust is terminated, you will receive
the pro rata share of the money from the sale of the Securities.
However, if you are eligible, you may elect to receive an In-Kind
Distribution as described under "Amending or Terminating the Indenture."
Page 18
You will receive a pro rata share of any other assets remaining in your
Trust after deducting any unpaid expenses.
The Trustee may establish reserves (the "Reserve Account") within a
Trust to cover anticipated state and local taxes or any governmental
charges to be paid out of such Trust.
Distribution Reinvestment Option. You may elect to have each
distribution of income and/or capital reinvested into additional Units
of a Trust by notifying the Trustee at least 10 days before any Record
Date. Each later distribution of income and/or capital on your Units
will be reinvested by the Trustee into additional Units of your Trust.
There is no transactional sales charge on Units acquired through the
Distribution Reinvestment Option, as discussed under "Public Offering."
This option may not be available in all states. PLEASE NOTE THAT EVEN IF
YOU REINVEST DISTRIBUTIONS, THEY ARE STILL CONSIDERED DISTRIBUTIONS FOR
INCOME TAX PURPOSES.
Redeeming Your Units
You may redeem all or a portion of your Units at any time by sending the
certificates representing the Units you want to redeem to the Trustee at
its unit investment trust office. If your Units are uncertificated, you
need only deliver a request for redemption to the Trustee. In either
case, the certificates or the redemption request must be properly
endorsed with proper instruments of transfer and signature guarantees as
explained in "Rights of Unit Holders-Unit Ownership" (or by providing
satisfactory indemnity if the certificates were lost, stolen, or
destroyed). No redemption fee will be charged, but you are responsible
for any governmental charges that apply. Certain broker/dealers may
charge a transaction fee for processing redemption requests. Units
redeemed directly through the Trustee are not subject to such
transaction fees. Three business days after the day you tender your
Units (the "Date of Tender") you will receive cash in an amount for each
Unit equal to the Redemption Price per Unit calculated at the Evaluation
Time on the Date of Tender.
The Date of Tender is considered to be the date on which the Trustee
receives your certificates or redemption request (if such day is a day
the NYSE is open for trading). However, if your certificates or
redemption request are received after 4:00 p.m. Eastern time (or after
any earlier closing time on a day on which the NYSE is scheduled in
advance to close at such earlier time), the Date of Tender is the next
day the NYSE is open for trading.
Any amounts paid on redemption representing income will be withdrawn
from the Income Account if funds are available for that purpose, or from
the Capital Account. All other amounts paid on redemption will be taken
from the Capital Account. The IRS will require the Trustee to withhold a
portion of your redemption proceeds if the Trustee does not have your
TIN, as generally discussed under "Income and Capital Distributions."
If you tender 1,000 Units or more for redemption (except for Fee
Accounts), rather than receiving cash, you may elect to receive an In-
Kind Distribution in an amount equal to the Redemption Price per Unit by
making this request in writing to the Trustee at the time of tender.
However, no In-Kind Distribution requests submitted during the nine
business days prior to a Trust's Mandatory Termination Date will be
honored. Where possible, the Trustee will make an In-Kind Distribution
by distributing each of the Securities in book-entry form to your bank
or broker/dealer account at the Depository Trust Company. The Trustee
will subtract any customary transfer and registration charges from your
In-Kind Distribution. As a tendering Unit holder, you will receive your
pro rata number of whole shares of the Securities that make up the
portfolio, and cash from the Capital Account equal to the fractional
shares to which you are entitled.
The Trustee may sell Securities to make funds available for redemption.
If Securities are sold, the size and diversification of a Trust will be
reduced. These sales may result in lower prices than if the Securities
were sold at a different time.
Your right to redeem Units (and therefore, your right to receive
payment) may be delayed:
- - If the NYSE is closed (other than customary weekend and holiday
closings);
- - If the SEC determines that trading on the NYSE is restricted or that
an emergency exists making sale or evaluation of the Securities not
reasonably practical; or
- - For any other period permitted by SEC order.
The Trustee is not liable to any person for any loss or damage which may
result from such a suspension or postponement.
The Redemption Price.
The Redemption Price per Unit is determined by the Trustee by:
adding
1. cash in the Income and Capital Accounts of a Trust not designated to
purchase Securities;
2. the aggregate underlying value of the Securities held in a Trust; and
3. dividends receivable on the Securities trading ex-dividend as of the
date of computation; and
Page 19
deducting
1. any applicable taxes or governmental charges that need to be paid out
of a Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of a Trust, if any;
4. cash held for distribution to Unit holders of record of a Trust as of
the business day before the evaluation being made; and
5. other liabilities incurred by a Trust; and
dividing
1. the result by the number of outstanding Units of a Trust.
Any remaining deferred sales charge on the Units when you redeem them
will be deducted from your redemption proceeds. In addition, until the
earlier of six months after the Initial Date of Deposit or the end of
the initial offering period, the Redemption Price per Unit will include
estimated organization costs as set forth under "Fee Table."
Removing Securities from a Trust
The portfolios of the Trusts are not managed. However, we may, but are
not required to, direct the Trustee to dispose of a Security in certain
limited circumstances, including situations in which:
- - The issuer of the Security defaults in the payment of a declared
dividend;
- - Any action or proceeding prevents the payment of dividends;
- - There is any legal question or impediment affecting the Security;
- - The issuer of the Security has breached a covenant which would affect
the payment of dividends, the issuer's credit standing, or otherwise
damage the sound investment character of the Security;
- - The issuer has defaulted on the payment of any other of its
outstanding obligations;
- - There has been a public tender offer made for a Security or a merger
or acquisition is announced affecting a Security, and that in our
opinion the sale or tender of the Security is in the best interest of
Unit holders; or
- - The price of the Security has declined to such an extent, or such
other credit factors exist, that in our opinion keeping the Security
would be harmful to a Trust.
Except in the limited instance in which a Trust acquires Replacement
Securities, as described in "The FT Series," a Trust may not acquire any
securities or other property other than the Securities. The Trustee, on
behalf of a Trust, will reject any offer for new or exchanged securities
or property in exchange for a Security, such as those acquired in a
merger or other transaction. If such exchanged securities or property
are nevertheless acquired by a Trust, at our instruction, they will
either be sold or held in such Trust. In making the determination as to
whether to sell or hold the exchanged securities or property we may get
advice from the Portfolio Supervisor. Any proceeds received from the
sale of Securities, exchanged securities or property will be credited to
the Capital Account of a Trust for distribution to Unit holders or to
meet redemption requests. The Trustee may retain and pay us or an
affiliate of ours to act as agent for a Trust to facilitate selling
Securities, exchanged securities or property from a Trust. If we or our
affiliate act in this capacity, we will be held subject to the
restrictions under the Investment Company Act of 1940, as amended.
The Trustee may sell Securities designated by us; or, absent our
direction, at its own discretion, in order to meet redemption requests
or pay expenses. In designating Securities to be sold, we will try to
maintain the proportionate relationship among the Securities. If this is
not possible, the composition and diversification of a Trust may be
changed. To get the best price for a Trust we may have to specify
minimum amounts (generally 100 shares) in which blocks of Securities are
to be sold. We may consider sales of units of unit investment trusts
which we sponsor when we make recommendations to the Trustee as to which
broker/dealers they select to execute a Trust's portfolio transactions,
or when acting as agent for a Trust in acquiring or selling Securities
on behalf of such Trust.
Amending or Terminating the Indenture
Amendments. The Indenture may be amended by us and the Trustee without
your consent:
- - To cure ambiguities;
- - To correct or supplement any defective or inconsistent provision;
- - To make any amendment required by any governmental agency; or
- - To make other changes determined not to be materially adverse to your
best interests (as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trusts will terminate on
the Mandatory Termination Date as stated in the "Summary of Essential
Information" for each Trust. The Trusts may be terminated earlier:
Page 20
- - Upon the consent of 100% of the Unit holders of a Trust;
- - If the value of the Securities owned by a Trust as shown by any
evaluation is less than the lower of $2,000,000 or 20% of the total
value of Securities deposited in such Trust during the initial offering
period ("Discretionary Liquidation Amount"); or
- - In the event that Units of a Trust not yet sold aggregating more than
60% of the Units of such Trust are tendered for redemption by
underwriters, including the Sponsor.
Prior to termination, the Trustee will send written notice to all Unit
holders which will specify how you should tender your certificates, if
any, to the Trustee. If a Trust is terminated due to this last reason,
we will refund your entire transactional sales charge; however,
termination of a Trust before the Mandatory Termination Date for any
other stated reason will result in all remaining unpaid deferred sales
charges on your Units being deducted from your termination proceeds. For
various reasons, a Trust may be reduced below the Discretionary
Liquidation Amount and could therefore be terminated before the
Mandatory Termination Date.
Unless terminated earlier, the Trustee will begin to sell Securities in
connection with the termination of a Trust during the period beginning
nine business days prior to, and no later than, the Mandatory
Termination Date. We will determine the manner and timing of the sale of
Securities. Because the Trustee must sell the Securities within a
relatively short period of time, the sale of Securities as part of the
termination process may result in a lower sales price than might
otherwise be realized if such sale were not required at this time.
If you own at least 1,000 Units of a Trust the Trustee will send you a
form at least 30 days prior to the Mandatory Termination Date which will
enable you to receive an In-Kind Distribution of Securities (reduced by
customary transfer and registration charges and subject to any
additional restrictions imposed on Fee Accounts Units by "wrap fee"
plans) rather than the typical cash distribution. You must notify the
Trustee at least ten business days prior to the Mandatory Termination
Date if you elect this In-Kind Distribution option. If you do not elect
to participate in the In-Kind Distribution option for eligible Unit
holders you will receive a cash distribution from the sale of the
remaining Securities, along with your interest in the Income and Capital
Accounts, within a reasonable time after such Trust is terminated.
Regardless of the distribution involved, the Trustee will deduct from a
Trust any accrued costs, expenses, advances or indemnities provided for
by the Indenture, including estimated compensation of the Trustee and
costs of liquidation and any amounts required as a reserve to pay any
taxes or other governmental charges.
Information on the Sponsor, Trustee and Evaluator
The Sponsor.
We, Nike Securities L.P., specialize in the underwriting, trading and
wholesale distribution of unit investment trusts under the "First Trust"
brand name and other securities. An Illinois limited partnership formed
in 1991, we act as Sponsor for successive series of:
- - The First Trust Combined Series
- - FT Series (formerly known as The First Trust Special Situations Trust)
- - The First Trust Insured Corporate Trust
- - The First Trust of Insured Municipal Bonds
- - The First Trust GNMA
First Trust introduced the first insured unit investment trust in 1974.
To date we have deposited more than $35 billion in First Trust unit
investment trusts. Our employees include a team of professionals with
many years of experience in the unit investment trust industry.
We are a member of the National Association of Securities Dealers, Inc.
and Securities Investor Protection Corporation. Our principal offices
are at 1001 Warrenville Road, Lisle, Illinois 60532; telephone number
(630) 241-4141. As of December 31, 2000, the total partners' capital of
Nike Securities L.P. was $21,676,108 (audited).
This information refers only to the Sponsor and not to the Trusts or to
any series of the Trusts or to any other dealer. We are including this
information only to inform you of our financial responsibility and our
ability to carry out our contractual obligations. We will provide more
detailed financial information on request.
Code of Ethics. The Sponsor and the Trusts have adopted a code of ethics
requiring the Sponsor's employees who have access to information on
Trust transactions to report personal securities transactions. The
purpose of the code is to avoid potential conflicts of interest and to
prevent fraud, deception or misconduct with respect to the Trusts.
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
Page 21
York, 10004-2413. If you have questions regarding the Trust, you may
call the Customer Service Help Line at 1-800-682-7520. The Trustee is
supervised 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 has not participated in selecting the Securities; it only
provides administrative services.
Limitations of Liabilities of Sponsor and Trustee.
Neither we nor the Trustee will be liable for taking any action or for
not taking any action in good faith according to the Indenture. We will
also not be accountable for errors in judgment. We will only be liable
for our own willful misfeasance, bad faith, gross negligence (ordinary
negligence in the Trustee's case) or reckless disregard of our
obligations and duties. The Trustee is not liable for any loss or
depreciation when the Securities are sold. If we fail to act under the
Indenture, the Trustee may do so, and the Trustee will not be liable for
any action it takes in good faith under the Indenture.
The Trustee will not be liable for any taxes or other governmental
charges or interest on the Securities which the Trustee may be required
to pay under any present or future law of the United States or of any
other taxing authority with jurisdiction. Also, the Indenture states
other provisions regarding the liability of the Trustee.
If we do not perform any of our duties under the Indenture or are not
able to act or become bankrupt, or if our affairs are taken over by
public authorities, then the Trustee may:
- - Appoint a successor sponsor, paying them a reasonable rate not more
than that stated by the SEC,
- - Terminate the Indenture and liquidate the Trusts, or
- - Continue to act as Trustee without terminating the Indenture.
The Evaluator.
The Evaluator is First Trust Advisors L.P., an Illinois limited
partnership formed in 1991 and an affiliate of the Sponsor. The
Evaluator's address is 1001 Warrenville Road, Lisle, Illinois 60532.
The Trustee, Sponsor and Unit holders may rely on the accuracy of any
evaluation prepared by the Evaluator. The Evaluator will make
determinations in good faith based upon the best available information,
but will not be liable to the Trustee, Sponsor or Unit holders for
errors in judgment.
Other Information
Legal Opinions.
Our counsel is Chapman and Cutler, 111 W. Monroe St., Chicago, Illinois,
60603. They have passed upon the legality of the Units offered hereby
and certain matters relating to federal tax law. Carter, Ledyard &
Milburn acts as the Trustee's counsel, as well as special New York tax
counsel for the Trusts.
Experts.
The Trusts' statements of net assets, including the schedules of
investments, as of the opening of business on the Initial Date of
Deposit included in this prospectus and elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in
the registration statement, and are included in reliance upon the report
of such firm given upon their authority as experts in accounting and
auditing.
Supplemental Information.
If you write or call the Trustee, you will receive free of charge
supplemental information about this Series, which has been filed with
the SEC and to which we have referred throughout. This information
states more specific details concerning the nature, structure and risks
of this product.
Page 22
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Page 23
FIRST TRUST (R)
California Municipal Income Closed-End Portfolio Series
New York Municipal Income Closed-End Portfolio Series
FT 520
Sponsor:
NIKE SECURITIES L.P.
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
24-Hour Pricing Line:
1-800-446-0132
This prospectus contains information relating to the above-mentioned
unit investment trusts, but does not contain all of the information
about this investment company as filed with the Securities and Exchange
Commission in Washington, D.C. under the:
- - Securities Act of 1933 (file no. 333-_____) and
- - Investment Company Act of 1940 (file no. 811-05903)
Information about the Trusts, including their Codes of Ethics, can be
reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington D.C. Information regarding the operation of
the Commission's Public Reference Room may be obtained by calling the
Commission at
1-202-942-8090.
Information about the Trusts is available on the EDGAR Database on the
Commission's Internet site at http://www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0102
e-mail address: publicinfo@sec.gov
April __, 2001
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 24
First Trust (R)
The FT Series
Information Supplement
This Information Supplement provides additional information concerning
the structure, operations and risks of unit investment trusts ("Trusts")
contained in FT 520 not found in the prospectus for the Trusts. This
Information Supplement is not a prospectus and does not include all of
the information that a prospective investor should consider before
investing in a Trust. This Information Supplement should be read in
conjunction with the prospectus for the Trust in which an investor is
considering investing.
This Information Supplement is dated April __, 2001. Capitalized terms
have been defined in the prospectus.
Table of Contents
Risk Factors 1
Securities 1
Municipal Bonds 2
Healthcare Revenue Bonds 2
Single Family Mortgage Revenue Bonds 2
Multi-Family Mortgage Revenue Bonds 3
Water and Sewerage Revenue Bonds 3
Electric Utility Revenue Bonds 3
Lease Obligation Revenue Bonds 3
Industrial Revenue Bonds 3
Transportation Facility Revenue Bonds 4
Educational Obligation Revenue Bonds 4
Resource Recovery Facility Revenue Bonds 4
Discount Bonds 4
Original Issue Discount Bonds 5
Zero Coupon Bonds 5
Premium Bonds 5
Concentrations
California 5
New York 8
Risk Factors.
Securities. The Securities in the Trusts represent shares of closed-end
mutual funds which invest in tax-exempt municipal bonds. As such, an
investment in Units of the Trusts should be made with an understanding
of the risks of investing in both closed-end fund shares and municipal
bonds.
Closed-end mutual funds' portfolios are managed and their shares are
generally listed on a securities exchange. The net asset value of closed-
end fund shares will fluctuate with changes in the value of the
underlying securities which the closed-end fund owns. In addition, for
various reasons closed-end fund shares frequently trade at a discount
from their net asset value in the secondary market. The amount of such
discount from net asset value is subject to change from time to time in
response to various factors. Closed-end funds' articles of incorporation
may contain certain anti-takeover provisions that may have the effect of
inhibiting a fund's possible conversion to open-end status and limiting
the ability of other persons to acquire control of a fund. In certain
circumstances, these provisions might also inhibit the ability of
stockholders (including the Trusts) to sell their shares at a premium
over prevailing market prices. This characteristic is a risk separate
and distinct from the risk that a fund's net asset value will decrease.
In particular, this characteristic would increase the loss or reduce the
return on the sale of those closed-end fund shares which were purchased
by a Trust at a premium. In the unlikely event that a closed-end fund
converts to open-end status at a time when its shares are trading at a
premium there would be an immediate loss in value to the Trust since
shares of open-end funds trade at net asset value. Certain closed-end
funds may have in place or may put in place in the future plans pursuant
to which the fund may repurchase its own shares in the marketplace.
Typically, these plans are put in place in an attempt by a fund's board
of directors to reduce a discount on its share price. To the extent such
Page 1
a plan was implemented and shares owned by a Trust are repurchased by a
fund, the Trust's position in that fund would be reduced and the cash
would be distributed.
The Trusts are prohibited from subscribing to a rights offering for
shares of any of the closed-end funds in which they invest. In the event
of a rights offering for additional shares of a fund, Unit holders
should expect that their Trust will, at the completion of the offer, own
a smaller proportional interest in such fund that would otherwise be the
case. It is not possible to determine the extent of this dilution in
share ownership without knowing what proportion of the shares in a
rights offering will be subscribed. This may be particularly serious
when the subscription price per share for the offer is less than the
fund's net asset value per share. Assuming that all rights are exercised
and there is no change in the net asset value per share, the aggregate
net asset value of each shareholder's shares of common stock should
decrease as a result of the offer. If a fund's subscription price per
share is below that fund's net asset value per share at the expiration
of the offer, shareholders would experience an immediate dilution of the
aggregate net asset value of their shares of common stock as a result of
the offer, which could be substantial.
Closed-end funds may utilize leveraging in their portfolios. Leveraging
can be expected to cause increased price volatility for those fund's
shares, and as a result, increased volatility for the price of the Units
of a Trust. There can be no assurance that a leveraging strategy will be
successful during any period in which it is employed.
The following is a discussion of certain of the risks associated with
specific types of bonds.
Municipal Bonds.
Certain of the bonds held by the Securities in the Trusts may be general
obligations of a governmental entity that are backed by the taxing power
of such entity. Other bonds in the funds may be revenue bonds payable
from the income of a specific project or authority and are not supported
by the issuer's power to levy taxes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for
the payment of principal and interest. Revenue bonds, on the other hand,
are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. There are, of course,
variations in the security of the different bonds in the funds, both
within a particular classification and between classifications,
depending on numerous factors. A description of certain types of revenue
bonds follows.
Healthcare Revenue Bonds. Certain of the bonds may be healthcare revenue
bonds. Ratings of bonds issued for healthcare facilities are sometimes
based on feasibility studies that contain projections of occupancy
levels, revenues and expenses. A facility's gross receipts and net
income available for debt service may be affected by future events and
conditions including among other things, demand for services, the
ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with
other hospitals, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation, the cost and possible unavailability of
malpractice insurance and the termination or restriction of governmental
financial assistance, including that associated with Medicare, Medicaid
and other similar third party payor programs. Pursuant to recent Federal
legislation, Medicare reimbursements are currently calculated on a
prospective basis utilizing a single nationwide schedule of rates. Prior
to such legislation Medicare reimbursements were based on the actual
costs incurred by the health facility. The current legislation may
adversely affect reimbursements to hospitals and other facilities for
services provided under the Medicare program.
Single Family Mortgage Revenue Bonds. Certain of the bonds may be single
family mortgage revenue bonds, which are issued for the purpose of
acquiring from originating financial institutions notes secured by
mortgages on residences located within the issuer's boundaries and owned
by persons of low or moderate income. Mortgage loans are generally
partially or completely prepaid prior to their final maturities as a
result of events such as sale of the mortgaged premises, default,
condemnation or casualty loss. Because these bonds are subject to
extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will
probably be redeemed prior to their scheduled maturities or even prior
to their ordinary call dates. The redemption price of such issues may be
more or less than the offering price of such bonds. Extraordinary
mandatory redemption without premium could also result from the failure
of the originating financial institutions to make mortgage loans in
sufficient amounts within a specified time period or, in some cases,
from the sale by the bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other
sources becoming competitive with the interest rates on the mortgage
loans funded with the proceeds of the single family mortgage revenue
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single family
mortgage revenue bonds issued after December 31, 1980 were issued under
Section 103A of the Internal Revenue Code, which Section contains
certain ongoing requirements relating to the use of the proceeds of such
bonds in order for the interest on such bonds to retain its tax-exempt
status. In each case, the issuer of the bonds has covenanted to comply
with applicable ongoing requirements and bond counsel to such issuer has
issued an opinion that the interest on the bonds is exempt from Federal
income tax under existing laws and regulations. There can be no
Page 2
assurances that the ongoing requirements will be met. The failure to
meet these requirements could cause the interest on the bonds to become
taxable, possibly retroactively from the date of issuance.
Multi-Family Mortgage Revenue Bonds. Certain of the bonds may be
obligations of issuers whose revenues are primarily derived from
mortgage loans to housing projects for low to moderate income families.
The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income, increases in
taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial
ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies and social and economic
trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent
levels and income limitations imposed under Federal and state programs.
Like single family mortgage revenue bonds, multi-family mortgage revenue
bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of
other events. Certain issuers of single or multi-family housing bonds
have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In one situation the
New York City Housing Development Corporation, in reliance on its
interpretation of certain language in the indenture under which one of
its bond issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur prior
to 1992.
Water and Sewerage Revenue Bonds. Certain of the bonds may be
obligations of issuers whose revenues are derived from the sale of water
and/or sewerage services. Water and sewerage bonds are generally payable
from user fees. Problems faced by such issuers include the ability to
obtain timely and adequate rate increases, population decline resulting
in decreased user fees, the difficulty of financing large construction
programs, the limitations on operations and increased costs and delays
attributable to environmental considerations, the increasing difficulty
of obtaining or discovering new supplies of fresh water, the effect of
conservation programs and the impact of "no-growth" zoning ordinances.
All of such issuers have been experiencing certain of these problems in
varying degrees.
Electric Utility Revenue Bonds. Certain of the bonds may be obligations
of issuers whose revenues are primarily derived from the sale of
electric energy. Utilities are generally subject to extensive regulation
by state utility commissions which, among other things, establish the
rates which may be charged and the appropriate rate of return on an
approved asset base. The problems faced by such issuers include the
difficulty in obtaining approval for timely and adequate rate increases
from the governing public utility commission, the difficulty in
financing large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations,
increased competition, recent reductions in estimates of future demand
for electricity in certain areas of the country, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining
fuel at reasonable prices and the effect of energy conservation. All of
such issuers have been experiencing certain of these problems in varying
degrees. In addition, Federal, state and municipal governmental
authorities may from time to time review existing and impose additional
regulations governing the licensing, construction and operation of
nuclear power plants, which may adversely affect the ability of the
issuers of such bonds to make payments of principal and/or interest on
such bonds.
Lease Obligation Revenue Bonds. Certain of the bonds may be lease
obligations issued for the most part by governmental authorities that
have no taxing power or other means of directly raising revenues.
Rather, the governmental authorities are financing vehicles created
solely for the construction of buildings (schools, administrative
offices, convention centers and prisons, for example) or the purchase of
equipment (police cars and computer systems, for example) that will be
used by a state or local government (the "lessee"). Thus, these
obligations are subject to the ability and willingness of the lessee
government to meet its lease rental payments which include debt service
on the obligations. Lease obligations are subject, in almost all cases,
to the annual appropriation risk, i.e., the lessee government is not
legally obligated to budget and appropriate for the rental payments
beyond the current fiscal year. These obligations are also subject to
construction and abatement risk in many states-rental obligations cease
in the event that delays in building, damage, destruction or
condemnation of the project prevents its use by the lessee. In these
cases, insurance provisions designed to alleviate this risk become
important credit factors. In the event of default by the lessee
government, there may be significant legal and/or practical difficulties
involved in the re-letting or sale of the project. Some of these issues,
particularly those for equipment purchase, contain the so-called
"substitution safeguard," which bars the lessee government, in the event
it defaults on its rental payments, from the purchase or use of similar
equipment for a certain period of time. This safeguard is designed to
insure that the lessee government will appropriate, even though it is
not legally obligated to do so, but its legality remains untested in
most, if not all, states.
Industrial Revenue Bonds. Certain of the bonds may be industrial revenue
bonds ("IRBs"), including pollution control revenue bonds, which are tax-
exempt securities issued by states, municipalities, public authorities
Page 3
or similar entities to finance the cost of acquiring, constructing or
improving various industrial projects. These projects are usually
operated by corporate entities. Issuers are obligated only to pay
amounts due on the IRBs to the extent that funds are available from the
unexpended proceeds of the IRBs or receipts or revenues of the issuer
under an arrangement between the issuer and the corporate operator of a
project. The arrangement may be in the form of a lease, installment sale
agreement, conditional sale agreement or loan agreement, but in each
case the payments to the issuer are designed to be sufficient to meet
the payments of amounts due on the IRBs. Regardless of the structure,
payment of IRBs is solely dependent upon the creditworthiness of the
corporate operator of the project or corporate guarantor. Corporate
operators or guarantors may be affected by many factors which may have
an adverse impact on the credit quality of the particular company or
industry. These include cyclicality of revenues and earnings, regulatory
and environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, extensive competition and financial
deterioration resulting from a complete restructuring pursuant to a
leveraged buy-out, takeover or otherwise. Such a restructuring may
result in the operator of a project becoming highly leveraged which may
impact on such operator's creditworthiness, which in turn would have an
adverse impact on the rating and/or market value of such bonds. Further,
the possibility of such a restructuring may have an adverse impact on
the market for and consequently the value of such bonds, even though no
actual takeover or other action is ever contemplated or affected. The
IRBs in a fund may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or, with respect to
original issue discount bonds, at issue price plus the amount of
original issue discount accreted to the redemption date plus, if
applicable, a premium. The Sponsor cannot predict the causes or
likelihood of the redemption of IRBs or other bonds in the funds prior
to the stated maturity of such bonds.
Transportation Facility Revenue Bonds. Certain of the bonds may be
obligations which are payable from and secured by revenues derived from
the ownership and operation of facilities such as airports, bridges,
turnpikes, port authorities, convention centers and arenas. The major
portion of an airport's gross operating income is generally derived from
fees received from signatory airlines pursuant to use agreements which
consist of annual payments for leases, occupancy of certain terminal
space and service fees. Airport operating income may therefore be
affected by the ability of the airlines to meet their obligations under
the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing
severe financial difficulties. The Sponsor cannot predict what effect
these industry conditions may have on airport revenues which are
dependent for payment on the financial condition of the airlines and
their usage of the particular airport facility. Similarly, payment on
bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges
and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost of
maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Educational Obligation Revenue Bonds. Certain of the bonds may be
obligations of issuers which are, or which govern the operation of,
schools, colleges and universities and whose revenues are derived mainly
from ad valorem taxes, or for higher education systems, from tuition,
dormitory revenues, grants and endowments. General problems relating to
school bonds include litigation contesting the state constitutionality
of financing public education in part from ad valorem taxes, thereby
creating a disparity in educational funds available to schools in
wealthy areas and schools in poor areas. Litigation or legislation on
this issue may affect the sources of funds available for the payment of
school bonds in the funds. General problems relating to college and
university obligations would include the prospect of a declining
percentage of the population consisting of "college" age individuals,
possible inability to raise tuitions and fees sufficiently to cover
increased operating costs, the uncertainty of continued receipt of
Federal grants and state funding and new government legislation or
regulations which may adversely affect the revenues or costs of such
issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Resource Recovery Facility Revenue Bonds. Certain of the bonds may be
obligations which are payable from and secured by revenues derived from
the operation of resource recovery facilities. Resource recovery
facilities are designed to process solid waste, generate steam and
convert steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of certain
circumstances, including but not limited to: destruction or condemnation
of a project; contracts relating to a project becoming void,
unenforceable or impossible to perform; changes in the economic
availability of raw materials, operating supplies or facilities
necessary for the operation of a project or technological or other
unavoidable changes adversely affecting the operation of a project;
administrative or judicial actions which render contracts relating to
the projects void, unenforceable or impossible to perform; or impose
unreasonable burdens or excessive liabilities. The Sponsor cannot
predict the causes or likelihood of the redemption of resource recovery
bonds in the funds prior to the stated maturity of the Bonds.
Discount Bonds. Certain of the bonds may have been acquired at a market
discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in the
Page 4
funds 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 market 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 taxable income and capital gain and less in the
form of tax-exempt 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.
Original Issue Discount Bonds. Certain of the bonds may be original
issue discount 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 tax-exempt interest income for
Federal income tax purposes. On sale or redemption, any gain realized
that is in excess of the earned portion of original issue discount will
be taxable as capital gain unless the gain is attributable to market
discount in which case the accretion of market discount is taxable as
ordinary income. The current value of an original issue 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.
Zero Coupon Bonds. Certain of the original issue discount bonds may be
zero coupon bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital appreciation bonds, capital accumulator bonds,
compound interest bonds and money discount maturity payment bonds). Zero
coupon bonds do not provide for the payment of any current interest and
generally provide for payment at maturity at face value unless sooner
sold or redeemed. Zero coupon bonds may be subject to more price
volatility than conventional bonds. While some types of zero coupon
bonds, such as multipliers and capital appreciation bonds, define par as
the initial offering price rather than the maturity value, they share
the basic zero coupon bond features of (1) not paying interest on a semi-
annual basis and (2) providing for the reinvestment of the bond's semi-
annual earnings at the bond's stated yield to maturity. While zero
coupon bonds are frequently marketed on the basis that their fixed rate
of return minimizes reinvestment risk, this benefit can be negated in
large part by weak call protection, i.e., a bond's provision for
redemption at only a modest premium over the accreted value of the bond.
Premium Bonds. Certain of the bonds 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 by the fund 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 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.
Concentrations.
California.
Economic Outlook. Despite signs of a softening national economy, a
dot.com stock slide and a troubled energy market, California
outperformed the nation throughout the year. Personal income rose more
than 11%, also the largest gain in 16 years, and far above the nation's
6.5% increase. On average, nonfarm employment in California grew by
nearly 37,000 jobs each month in 2000. Industry employment grew by 3.1%
or 443,100 jobs in December 2000 compared to 2.7% in December 1999. All
major industry sectors, except for the small mining sector, expanded
over the year with services adding approximately 198,400 jobs, business
services adding approximately 95, 100 jobs and government adding
approximately 73,100. California is also the nation's leading provider
of computer services, including software and the Internet. Throughout
2000, California's annual average unemployment rate was 4.9%, beating
the 1999 rate of 5.2%.
Page 5
The first results from Census 2000, released in December 2000, estimated
California's population at 33,871,648.
The state continues to benefit from strong economic growth in much of
Asia and Mexico and solid gains in Europe as well. Through the first
nine months of 2000, California-made exports increased more than 21%
over comparable 1999 shipments. It appears that still-rising foreign
demand is serving to cushion the effects of the U.S. slowdown. However,
despite that cushioning effect, California should expect a slowing of
job growth in the year ahead. On an annual average basis, job growth is
forecast at 2.8%, although gains on a year-end 2000-2001 comparison may
be closer to 2%.
Apart from the possibility of a national downturn, a significant risk to
the California outlook comes from the energy sector. The current
electric power situation results from a complex set of circumstances
arising from a steep rise in demand though the Western United States,
sharply higher natural gas prices exacerbated in California by the break
in a key pipeline in the summer of 2000, and a dysfunctional wholesale
electricity market in which prices have soared to levels several times
the actual cost of the least efficient, most expensive production in the
region.
Revenues and Expenditures. California's exceptional economic performance
over the past year, coupled with accumulated gains in the stock market,
led to another year of robust revenue growth in fiscal year 2000-01 that
is expected to moderate somewhat in 2001-02. Since enactment of the 2000
Budget Act, the General Fund revenue forecast for the past and current-
year period has increased by $3.8 billion. In addition, General Fund
revenues in 2001-02 are expected to be up $2.54 billion reaching almost
$80 billion. General Fund collections are expected to increase 6.9% on a
year-over-year basis in 2000-01, bringing revenues to $76.9 billion.
This past year's growth in part reflects the fact that 1999-2000 was the
first year in which California received revenue from tobacco company
litigation. The revenue forecast for 2000-01 reflects continuing growth,
but at a more modest rate than in the recent past. Overall General Fund
revenues and transfers represent 82% of total revenues. The remaining
18% are special funds dedicated to specific programs.
Limitation on Taxes. Certain California municipal obligations may be
obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The
taxing powers of California local governments and districts are limited
by Article XIIIA of the California Constitution, enacted by the voters
in 1978 and commonly known as "Proposition 13." Briefly, Article XIIIA
limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to
the rate of inflation, not to exceed 2% per year or decline in value,
except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes
above the 1% limit to pay debt service on voter-approved bonded
indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain
adjustments. This system has resulted in widely varying amounts of tax
on similarly situated properties. Several lawsuits have been filed
challenging the acquisition-based assessment system of Proposition 13
and on June 18, 1992, the U.S. Supreme Court announced a decision
upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of
any governmental unit to give two-thirds approval to levy any "special
tax." Court decisions, however, allowed non-voter approved levy of
"general taxes" which were not dedicated to a specific use. In response
to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability
of local entities to raise or levy general taxes, except by receiving
majority local voter approval. Significant elements of this initiative,
"Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
Appropriations Limits. California and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the
California Constitution, enacted by the voters in 1979 and significantly
amended by Propositions 98 and 111 in 1988 and 1990, respectively.
Article XIIIB prohibits the State or any covered local government from
spending "appropriations subject to limitation" in excess of the
appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes," which consist of tax
revenues, and certain other funds, including proceeds from regulatory
licenses, user charges or other fees, to the extent that such proceeds
exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is
imposed on appropriations of funds which are not "proceeds of taxes,"
such as reasonable user charges or fees, and certain other non-tax
funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior
to January 1, 1979 or subsequently authorized by the voters, (2)
appropriations arising from certain emergencies declared by the
Governor, (3) appropriations for certain capital outlay projects, (4)
Page 6
appropriations by the State of post-1989 increases in gasoline taxes and
vehicle weight fees, and (5) appropriations made in certain cases of
emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized in 1990 by Proposition 111 to follow more
closely growth in California's economy.
"Excess" revenues are measured over a two-year cycle. With respect to
local governments, excess revenues must be returned by a revision of tax
rates or fee schedules within the two subsequent fiscal years. The
appropriations limit for a local government may be overridden by
referendum under certain conditions for up to four years at a time. With
respect to the State, 50% of any excess revenues is to be distributed to
K-12 school districts and community college districts (collectively, "K-
14 districts") and the other 50% is to be refunded to taxpayers. With
more liberal annual adjustment factors since 1988, and depressed
revenues since 1990 because of the recession, few governments, including
the State, are currently operating near their spending limits, but this
condition may change over time. Local governments may by voter approval
exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations
or changes in population and cost of living, and the probability of
continuing legal challenges, it is not currently possible to determine
fully the impact of Article XIIIA or Article XIIIB on California
Municipal Obligations or the ability of California or local governments
to pay debt service on such California Municipal Obligations. It is not
presently possible to predict the outcome of any pending litigation with
respect to the ultimate scope, impact or constitutionality of either
Article XIIIA or Article XIIIB, or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay
debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Obligations of the State of California. Under the California
Constitution, debt service on outstanding general obligation bonds is
the second charge to the General Fund after support of the public school
system and public institutions of higher education. The State had
approximately $19.3 billion aggregate principal amount of non-self
liquidating general obligation bonds outstanding and approximately $7.1
billion of unissued non-self liquidating general obligation bonds as of
January 1, 2001. On February 27, 2001, $982 million in general
obligation bonds were sold. Fitch, Moody's Investors Service, and
Standard & Poor's rated the bonds AA, Aa2 and AA respectively.
Other Issuers of California Municipal Obligations. There are a number of
state agencies, instrumentalities and political subdivisions of the
State that issue Municipal Obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and
the credit quality of the securities issued by them may vary
considerably from the credit quality of the obligations backed by the
full faith and credit of the State.
The State of California has no obligation with respect to any
obligations or securities of the County or any of the other
participating entities, although under existing legal precedents, the
State may be obligated to ensure that school districts have sufficient
funds to operate.
Bond Ratings. Citing California's strong and diverse economy and
increased fiscal conservatism, Moody's Investors Service raised the
state's general obligation bond rating from Aa3 to Aa2 in September
2000. Also in September, Standard and Poor's raised their rating from AA-
to AA citing a substantially improved general fund balance, new history
of conservative fiscal budgeting, and unexpected economic growth leading
to better than budgeted financial results. The bonds are also rated AA
by Fitch. There can be no assurance that such ratings will be maintained
in the future. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and
that there is no obligation on the part of the State to make payment on
such local obligations in the event of default.
Legal Proceedings. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided
against the State, may require the State to make significant future
expenditures or may substantially impair revenues.
Other Considerations. Substantially all of California is within an
active geologic region subject to major seismic activity. Northern
California, in 1989, and southern California, in 1994, experienced major
earthquakes causing billions of dollars in damages. Any California
Municipal Obligation in a California Trust could be affected by an
interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained
earthquake insurance coverage at reasonable rates; (ii) an insurer to
Page 7
perform on its contracts of insurance in the event of widespread losses;
or (iii) the Federal or State government to appropriate sufficient funds
within their respective budget limitations.
Each California Trust is susceptible to political, economic or
regulatory factors affecting issuers of California municipal obligations
(the "California Municipal Obligations"). These include the possible
adverse effects of certain California constitutional amendments,
legislative measures, voter initiatives and other matters that are
described. The information provided is only a brief summary of the
complex factors affecting the financial situation in California (the
"State") and is derived from sources that are generally available to
investors and are believed to be accurate. No independent verification
has been made of the accuracy or completeness of any of the following
information. It is based in part on information obtained from various
State and local agencies in California or contained in Official
Statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental
finances generally, will not adversely affect the market value of
California Municipal Obligations held in the portfolio of a Trust or the
ability of particular obligors to make timely payments of debt service
on (or relating to) those obligations.
New York.
Generally. The State of New York has historically been one of the
wealthiest states in the nation. For the past few decades, however, the
state economy has grown more slowly than that of the nation as a whole,
gradually eroding the state's relative economic affluence.
Notwithstanding, during the last few years, New York has shown signs of
economic resurgence. The state's economic base is deep, diverse, and
wealthy, and its reliance on the financial services section continues to
drive its prosperity. Record gains on Wall Street had a strong positive
impact on the State's economy in the 1990s. While Wall Street represents
only 2% of statewide employment, it accounted for 41% of the gain in
real earnings from 1992 to 1998. However, a serious Wall Street setback
could jeopardize state revenue collections, and through a powerful
multiplier effect, could dampen consumption, housing spending and
ultimately, job growth in other sectors. The U.S. Census Bureau projects
that New York's year 2000 population will be 18,146,000, an increase of
0.9% from the 1990 census count, compared to a national growth rate that
is expected to exceed 10%. The State's unemployment rate has improved to
4.3% as of June 2000, virtually the same as the national unemployment
rate, although New York City continues to experience higher
unemployment. It is estimated that personal income in New York totaled
approximately $636 billion in 2000.
Revenues and Expenditures. Although New York has enjoyed recent years of
budget surpluses due to unanticipated revenues generated by a strong
economy, the State's long-term financial condition is uncertain. Multi-
year tax cuts and increased spending programs have been included as part
of budgets in the last several years; they have been structured with
little up-front costs but significant impacts in future years. Enacted
tax cuts are a significant factor contributing to projected gaps in the
next two years. The 2000-01 budget included a multi-year tax cut package
of $1.2 billion when fully effective, the bulk of which will be
implemented by 2004-05.
During the past decade, New York has consistently faced projected budget
gaps in future years. This structural imbalance-the condition of
spending growth being greater than underlying revenue growth-is the most
prominent manifestation of New York's uncertain financial condition.
Since the end of 1994, the State has benefited from one of the strongest
booms in financial markets in history, yet budget makers have responded
by making tax cut and spending commitments that cannot be funded by
existing revenue sources. It is largely the result of revenue growth
from a strong economy that recent budgets have been balanced.
The General Fund is the main operating fund of the State and has
incurred operating surpluses in seven of the last ten years and in each
of the last five years. In 2000, the General Fund operating surplus was
approximately $2.3 billion. Governmental funds account for most of the
State's operations including the General Fund, Federal programs, debt
service and capital construction. The General Fund's accumulated surplus
was approximately $3.93 billion as of March 31, 2000.
For fiscal year 2000, New York's total state revenues were approximately
$73.9 billion. Despite New York's increased revenues in recent years,
the amount of the State's true "Rainy Day" reserves set aside for use in
times of economic downturn remains well below the national average.
Although "Rainy Day" reserves have increased slightly in 1999 and 2000,
they still remain below 1.5% of total revenues.
State spending totaled $73.6 billion in 2000, an increase of $2.6
billion (3.6%) from the prior year. State spending has been partially
paid for by borrowing $10.8 billion since 1996, including $2.2 billion
in 2000. The 2000-01 budget provides for total State spending of $77.9
billion, an increase of 6.2% over 1999-2000 spending, which is more than
Page 8
twice the rate of inflation.
Debt can impact government operations both currently and in the long
term. New York had an estimated total of $36.4 billion in debt in 2000.
Based on the most recent available data (1999) New York State continues
to be ranked fourth highest nationally in debt per person with more debt
outstanding than any other State, equaling almost one-fifth of the debt
outstanding for all state governments combined.
The enacted 2000-01 State Budget included the Debt Reform Act of 2000.
That enacted legislation resulted in the following statutory changes in
relation to the future issuance of State-supported debt: future debt
issued and outstanding will be capped at 4% of personal income after a
10-year phase in period; future debt service is capped at 5% of total
governmental funds receipts, phased in over a 13-year period; and future
debt can only be used for capital purposes and must be repaid in no more
than 30 years.
Many uncertainties exist in forecasts of both the national and state
economies and there can be no assurance that the state economy will
perform at a level sufficient to meet the state's projections of
receipts and disbursements.
In August, 1998, Moody's Investors Service, Inc. lowered its rating for
State of New York general obligation bonds from A1 to A2, its lowest
state rating (Louisiana is the only other state to receive this rating).
Standard & Poor's Ratings Services gives the state an AA rating. Fitch
IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
state's general obligation bonds as A+.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations
issued by local New York issuers may be unrelated to the
creditworthiness of obligations issued by the State of New York, and
that there is no obligation on the part of the State to make payment on
such local obligations in the event of default.
New York City. Even though the City had budget surpluses each year from
1981, budget gaps of nearly $2 billion are projected for the 2001, 2002,
and 2003 fiscal years. New York City faces fiscal pressures from: aging
public facilities that need repair or replacement; welfare and medical
costs; expiring labor contracts; and a high and increasing debt burden.
The City requires substantial state aid, and its fiscal strength depends
heavily on the securities industry. Its general obligation bonds are
rated A by Standard & Poor's and A2 by Moody's. The City proposes $25.3
billion of financing over fiscal 1999-2003 and is fast approaching its
constitutional limits on debt issuance.
Given the foregoing factors, there can be no assurance that the City
will continue to maintain a balanced budget, or that it can maintain a
balanced budget without additional tax or other revenue increases or
reductions in City services, which could adversely affect the City's
economic base.
Litigation. The City and State of New York are also defendants in a
significant number of lawsuits. Such litigation includes, but is not
limited to, actions commenced and claims asserted against the City
arising out of alleged constitutional violations, torts, breaches of
contracts, and other violations of law and condemnation proceedings.
While the ultimate outcome and fiscal impact, if any, on the proceedings
and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's and
State's ability to carry out their financial plans.
Each New York Trust is susceptible to political, economic or regulatory
factors affecting issuers of New York municipal obligations (the "New
York Municipal Obligations"). These include the possible adverse effects
of certain New York constitutional amendments, legislative measures,
voter initiatives and other matters that are described. The information
provided is only a brief summary of the complex factors affecting the
financial situation in New York and is derived from sources that are
generally available to investors and are believed to be accurate. No
independent verification has been made of the accuracy or completeness
of any of the following information. It is based in part on information
obtained from various State and local agencies in New York or contained
in Official Statements for various New York Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental
finances generally, will not adversely affect the market value of New
York Municipal Obligations held in the portfolio of a Trust or the
ability of particular obligors to make timely payments of debt service
on (or relating to) those obligations.
Page9
MEMORANDUM
Re: FT 520
The only difference of consequence (except as described
below) between FT 493, which is the current fund, and FT 520, the
filing of which this memorandum accompanies, is the change in the
series number. The list of securities comprising the Fund, the
evaluation, record and distribution dates and other changes
pertaining specifically to the new series, such as size and
number of Units in the Fund and the statement of condition of the
new Fund, will be filed by amendment.
1940 ACT
FORMS N-8A AND N-8B-2
These forms were not filed, as the Form N-8A and Form N-8B-2
filed in respect of Templeton Growth and Treasury Trust, Series 1
and subsequent series (File No. 811-05903) related also to the
subsequent series of the Fund.
1933 ACT
PROSPECTUS
The only significant changes in the Prospectus from the
Series 493 Prospectuses relate to the series number and size and
the date and various items of information which will be derived
from and apply specifically to the securities deposited in the
Fund.
CONTENTS OF REGISTRATION STATEMENT
ITEM A Bonding Arrangements of Depositor:
Nike Securities L.P. is covered by a Broker's Fidelity
Bond, in the total amount of $1,000,000, the insurer
being National Union Fire Insurance Company of
Pittsburgh.
ITEM B This Registration Statement on Form S-6 comprises the
following papers and documents:
The facing sheet
The Prospectus
The signatures
Exhibits
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, FT 520 has duly caused the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Village of Lisle and State of Illinois on
March 28, 2001.
FT 520
(Registrant)
By: NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE* DATE
David J. Allen Sole Director of
Nike Securities March 28, 2001
Corporation, 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., the Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with Amendment No. 1 to form S-6 of The First Trust Combined
Series 258 (File No. 33-63483) and the same is hereby
incorporated by this reference.
S-2
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as Exhibits
3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF DELOITTE & TOUCHE LLP
The consent of Deloitte & Touche LLP to the use of its name
and to the reference to such firm in the Prospectus included in
this Registration Statement will be filed by amendment.
CONSENT OF FIRST TRUST ADVISORS L.P.
The consent of First Trust Advisors L.P. to the use of its
name in the Prospectus included in the Registration Statement is
filed as Exhibit 4.1 to the Registration Statement.
S-3
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Special Situations Trust, Series 22 and
certain subsequent Series, effective November 20, 1991
among Nike Securities L.P., as Depositor, United States
Trust Company of New York as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and Nike
Financial Advisory Services L.P. as Portfolio Supervisor
(incorporated by reference to Amendment No. 1 to Form S-6
[File No. 33-43693] filed on behalf of The First Trust
Special Situations Trust, Series 22).
1.1.1* Form of Trust Agreement for FT 520 among Nike Securities
L.P., as Depositor, The Chase Manhattan Bank, as Trustee
and First Trust Advisors L.P., as Evaluator and Portfolio
Supervisor.
1.2 Copy of Certificate of Limited Partnership of Nike
Securities L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership
Agreement of Nike Securities L.P. (incorporated by
reference to Amendment No. 1 to Form S-6 [File No.
33-42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.4 Copy of Articles of Incorporation of Nike Securities
Corporation, the general partner of Nike Securities L.P.,
Depositor (incorporated by reference to Amendment No. 1
to Form S-6 [File No. 33-42683] filed on behalf of The
First Trust Special Situations Trust, Series 18).
1.5 Copy of By-Laws of Nike Securities Corporation, the
general partner of Nike Securities L.P., Depositor
(incorporated by reference to Amendment No. 1 to Form S-6
[File No. 33-42683] filed on behalf of The First Trust
Special Situations Trust, Series 18).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by reference).
2.2 Copy of Code of Ethics (incorporated by reference to
Amendment No. 1 to form S-6 [File No. 333-31176] filed on behalf
of FT 415).
3.1* Opinion of counsel as to legality of Securities being
registered.
S-4
3.2* Opinion of counsel as to Federal income tax status of
Securities being registered.
3.3* Opinion of counsel as to New York income tax status of
Securities being registered.
3.4* Opinion of counsel as to advancement of funds by Trustee.
4.1* Consent of First Trust Advisors L.P.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Director listed on page
S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No.
33-63483] filed on behalf of The First Trust Combined
Series 258).
___________________________________
* To be filed by amendment.
S-5