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: THE FIRST TRUST GNMA
SERIES 96
B. Name of Depositor: FIRST TRUST PORTFOLIOS 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: FIRST TRUST PORTFOLIOS L.P.
Attention: James A. Bowen
Suite 300
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN & CUTLER LLP
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 DECEMBER 27, 2004
The First Trust(R) GNMA, Series 96
The First Trust(R) GNMA, Series 96 is a series of a unit investment
trust, The First Trust(R) GNMA Series. The First Trust(R) GNMA, Series
96 consists of a single portfolio listed above (the "Trust"). The Trust
invests in a portfolio of fixed-rate mortgage-backed securities issued
by the Government National Mortgage Association ("GNMA") ("Securities").
The Trust seeks to provide the potential for monthly distributions of
income.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
OF 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 January __, 2005
Page 1
Table of Contents
Summary of Essential Information 3
Fee Table 4
Report of Independent Registered Public Accounting Firm 5
Statement of Net Assets 6
Schedule of Investments 7
The First Trust(R) GNMA Series 8
Portfolio 8
Estimated Returns and Estimated Average Life 9
Risk Factors 9
Public Offering 10
Distribution of Units 12
The Sponsor's Profits 13
The Secondary Market 14
How We Purchase Units 14
Expenses and Charges 14
Tax Status 15
Retirement Plans 16
Rights of Unit Holders 16
Interest and Principal Distributions 17
Redeeming Your Units 18
Removing Securities from the Trust 18
Amending or Terminating the Indenture 19
Rating of the Units 20
Information on the Sponsor, Trustee and Evaluator 20
Other Information 21
Page 2
Summary of Essential Information
The First Trust(R) GNMA, Series 96
At the Opening of Business on the
Initial Date of Deposit-January __, 2005
Sponsor: First Trust Portfolios L.P.
Trustee: The Bank of New York
Evaluator: Securities Evaluation Services, Inc.
Initial Number of Units
Fractional Undivided Interest in the Trust per Unit 1/
Principal Amount (Par Value) of Securities per Unit (1) $ 10.000
Public Offering Price:
Aggregate Offering Price Evaluation of Securities per Unit (2) $
Maximum Sales Charge of 3.95% of the Public Offering Price per Unit ( % of the net amount
invested, exclusive of the deferred sales charge and creation and development fee) (3) $
Less Deferred Sales Charge per Unit $ (.245)
Less Creation and Development Fee per Unit $ (.050)
Public Offering Price per Unit (4) $
Sponsor's Initial Repurchase Price per Unit (5) $
Redemption Price per Unit (based on aggregate bid side value of Securities less the deferred sales $
charge) (5)
Cash CUSIP Number
Fee Accounts Cash CUSIP Number
Security Code
Ticker Symbol
Estimated Average Life (6) yrs.
Estimated Net Annual Interest Income per Unit (7) $
Estimated Current Return (6) %
Estimated Long-Term Return (6) %
First Settlement Date January __, 2005
Mandatory Termination Date (8) ________, 20__
Interest Distribution Record Date First day of each month, commencing February 1, 2005.
Interest Distribution Date (7) Last day of each month, commencing February 28, 2005.
______________
<FN>
(1) Because the Securities will pay principal during the life of the
Trust and may, in certain circumstances, be sold, redeemed, prepaid or
mature in accordance with their terms, the Unit value at the Mandatory
Termination Date will not be equal to the Principal Amount (Par Value)
of Securities per Unit stated above.
(2) Each Security is valued at its current market offering 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 ("NYSE") (generally 4:00 p.m. Eastern time) on each day on
which it is open (the "Evaluation Time").
(3) The maximum sales charge consists of an initial sales charge, a
deferred sales charge and 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 net interest accrued on the
Units. After this date, a pro rata share of any net interest accrued on
the Units 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
creation and development fee and 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 creation and
development fee and estimated organization costs. See "Redeeming Your
Units."
(6) Estimated Current Return is determined by dividing the Trust's
estimated net annual interest income by the Public Offering Price per
Unit. Estimated Long-Term Return is a measure of the estimated return
over the estimated life of the Trust. Unlike Estimated Current Return,
Estimated Long-Term Return reflects maturities, estimated principal
prepayments, discounts and premiums of the Securities in the Trust. See
"Estimated Returns and Estimated Average Life."
(7) The amount of distributions from the Interest Account will vary from
month to month for various reasons, including changes in the Trust's
fees and expenses, the sale of Securities, principal payments and
prepayments. The estimated initial distribution is $ per Unit.
Commencing March 31, 2005, the Trust's regular monthly distribution will
be paid. Distributions from the Principal Account will be made in
December of each year and also in any month in which the amount
available for distribution equals at least $1.00 per 100 Units. See
"Expenses and Charges" and "Interest and Principal Distributions."
(8) 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 the Trust. See "Public
Offering" and "Expenses and Charges." Although the Trust is a unit
investment trust rather than a mutual fund, this information allows you
to compare fees.
Amount
per Unit
_____
Unit Holder Sales Fees (as a percentage of public offering price)
Maximum Sales Charge
Initial sales charge %(a) $
Deferred sales charge %(b) $.245
Creation and development fee %(c) $.050
_______ _______
Maximum Sales Charge (including creation and development fee) 3.95% $
======= =======
Organization Costs (as a percentage of public offering price)
Estimated organization costs %(d) $.0175
======= =======
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) $
_______ _______
Total % $
======= =======
Example
This example is intended to help you compare the cost of investing in
the Trust with the cost of investing in other investment products. The
example assumes that you invest $10,000 in the Trust 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
Trust's 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 under each
distribution option would be:
1 Year 3 Years 5 Years 10 Years
__________ __________ __________ __________
$ $ $ $
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 sales
charge of 3.95% and the sum of any remaining deferred sales charge and
creation and development fee.
(b) The deferred sales charge is a fixed dollar amount equal to $.245
per Unit which, as a percentage of the Public Offering Price, will vary
over time. The deferred sales charge will be deducted in three monthly
installments commencing July 20, 2005.
(c) The creation and development fee compensates the Sponsor for creating
and developing the Trust. The creation and development fee is a charge
of $.050 per Unit collected at the end of the initial offering period
which is expected to be approximately six months from the Initial Date
of Deposit. If the price you pay for your Units exceeds $ per Unit,
the creation and development fee will be less than %; if the price
you pay for your Units is less than $ per Unit, the creation and
development fee will exceed %.
(d) Estimated organization costs will be deducted from the assets of the
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 include the costs incurred by the Trust for
annually updating the Trust's registration statement. Other operating
expenses do not, however, include brokerage costs and other portfolio
transaction fees. In certain circumstances the Trust may incur
additional expenses not set forth above. See "Expenses and Charges."
</FN>
Page 4
Report of Independent
Registered Public Accounting Firm
The Sponsor, First Trust Portfolios L.P., and Unit Holders
The First Trust(R) GNMA, Series 96
We have audited the accompanying statement of net assets, including the
schedule of investments, of The First Trust(R) GNMA, Series 96 (the
"Trust"), as of the opening of business on January __, 2005 (Initial
Date of Deposit). This statement of net assets is the responsibility of
the Trust's Sponsor. Our responsibility is to express an opinion on this
statement of net assets based on our audit.
We conducted our audit in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of net assets.
Our procedures included confirmation of the irrevocable letter of credit
held by The Bank of New York, the Trustee, and deposited in the Trust
for the purchase of Securities, as shown in the statement of net assets,
as of the opening of business on January __, 2005, by correspondence
with the Trustee. An audit also includes assessing the accounting
principles used and significant estimates made by the Trust's Sponsor,
as well as evaluating the overall presentation of the statement of net
assets. We believe that our audit of the statement of net assets
provides a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the financial position of The First
Trust(R) GNMA, Series 96, at the opening of business on January __, 2005
(Initial Date of Deposit) in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
January __, 2005
Page 5
Statement of Net Assets
The First Trust(R) GNMA, Series 96
At the Opening of Business on the Initial Date of Deposit-January __, 2005
NET ASSETS
Investments in Securities represented by purchase contracts (1)(2) $
Accrued interest on underlying Securities (2)(3)
________
Less liability for reimbursement to Sponsor for organization costs (4) ( )
Less distributions payable (3) ( )
Less liability for deferred sales charge (5) ( )
Less liability for creation and development fee (6) ( )
________
Net assets $
========
Outstanding units
Net asset value per Unit (7) $
ANALYSIS OF NET ASSETS
Cost to investors (8) $
Less maximum sales charge (8) ( )
Less estimated reimbursement to Sponsor for organization costs (4) ( )
________
Net assets $
========
_________________
<FN>
NOTES TO STATEMENT OF NET ASSETS
(1) Aggregate cost of the Securities listed under "Schedule of
Investments" is based on their aggregate underlying value.
(2) An irrevocable letter of credit issued by The Bank of New York, of
which approximately $ will be allocated to the Trust, has been
deposited with the Trustee as collateral, covering the monies necessary
to satisfy the amounts set forth below:
Aggregate Accrued Interest Accrued Interest
Offering Price to Initial to Expected
of Securities Date of Deposit Date of Delivery
__________ _______________ ________________
$ $ $
(3) The Trustee will advance to the Trust the amount of net interest
accrued to the First Settlement Date which will be distributed to the
Sponsor as Unit holder of record.
(4) 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 Trust. These costs have been estimated at $.0175 per
Unit. A payment will be made at the earlier of six months after the
Initial Date of Deposit or the end of the initial offering period to an
account maintained by the Trustee from which the obligation of the
investors to the Sponsor will be satisfied. To the extent that actual
organization costs are greater than the estimated amount, only the
estimated organization costs added to the Public Offering Price will be
reimbursed to the Sponsor and deducted from the assets of the Trust.
(5) Represents the amount of mandatory deferred sales charge
distributions from the Trust ($.245 per Unit), payable to the Sponsor in
three approximately equal monthly installments beginning on July 20,
2005 and on the twentieth day of each month thereafter (or if such day
is not a business day, on the preceding business day) through September
20, 2005. If Unit holders redeem Units before September 20, 2005, they
will have to pay the remaining amount of the deferred sales charge
applicable to such Units when they redeem them.
(6) The creation and development fee ($.050 per Unit) is payable by the
Trust on behalf of Unit holders out of assets of the Trust at the end of
the initial offering period. If Units are redeemed prior to the close of
the initial offering period, the fee will not be deducted from the
proceeds.
(7) Net asset value per Unit is calculated by dividing the Trust's net
assets by the number of Units outstanding. This figure includes
organization costs and the creation and development fee, which will only
be assessed to Units outstanding at the close of the initial offering
period.
(8) The aggregate cost to investors in the Trust includes a maximum
sales charge (comprised of an initial sales charge, a deferred sales
charge and the creation and development fee) computed at the rate of
3.95% of the Public Offering Price per Unit (equivalent to % of the
net amount invested), assuming no reduction of the maximum sales charge
as set forth under "Public Offering."
</FN>
Page 6
Schedule of Investments
The First Trust(R) GNMA, Series 96
At the Opening of Business on the
Initial Date of Deposit-January __, 2005
Government National Mortgage Association,
Modified Pass-Through Mortgage-Backed Securities
Cost of
Aggregate Years of Stated Securities to
Principal (1) Coupon Rate Maturity Trust (2)
_________ ___________ _______________ ____________
$ ___% 20__ - 20__ $
========= ===========
_____________
<FN>
(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. The Sponsor entered into purchase contracts
for the Securities in the Trust on January __, 2005 which will settle on
January __, 2005.
(2) The cost of the Securities to the Trust represents the aggregate
underlying value with respect to the Securities acquired (generally
determined by the offering side evaluation of the Securities at the
Evaluation Time on the business day preceding the Initial Date of
Deposit). The aggregate bid side value of the Securities at the
Evaluation Time on the business day preceding the Initial Date of
Deposit was $ . The valuation of the Securities has been determined by
the Evaluator, certain shareholders of which are officers of the
Sponsor. The cost of the Securities to the Sponsor and the Sponsor's
profit or loss (which is the difference between the cost of the
Securities to the Sponsor and the cost of the Securities to the Trust)
are $ and $ , respectively.
</FN>
Page 7
The First Trust(R) GNMA Series
The First Trust(R) GNMA Series Defined.
We, First Trust Portfolios L.P. (the "Sponsor"), have created several
similar yet separate series of an investment company which we have named
The First Trust(R) GNMA Series. The series to which this prospectus
relates consists of a single portfolio known as The First Trust(R) GNMA,
Series 96.
The 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 First Trust Portfolios L.P., as Sponsor,
The Bank of New York as Trustee, First Trust Advisors L.P. as Portfolio
Supervisor and Securities Evaluation Services, Inc. as Evaluator,
governs the operation of the Trust.
YOU MAY GET MORE SPECIFIC DETAILS CONCERNING THE NATURE, STRUCTURE AND
RISKS OF THIS PRODUCT IN AN "INFORMATION SUPPLEMENT" BY CALLING THE
SPONSOR AT 1-800-621-1675, EXT. 1.
How We Created the Trust.
On the Initial Date of Deposit, we deposited portfolios of GNMA
securities with the Trustee and, in turn, the Trustee delivered
documents to us representing our ownership of the Trust in the form of
units ("Units").
After the Initial Date of Deposit, we may deposit additional Securities
in the Trust, or cash (including a letter of credit or the equivalent)
with instructions to buy more Securities, to create new Units for sale.
If we create additional Units, we will attempt, to the extent
practicable, to maintain the original percentage relationship between
the principal amounts of Ginnie Maes of specified interest rates and
ranges of maturities as set forth in "Schedule of Investments." Precise
duplication may not be possible because fractions of Ginnie Maes may not
be purchased and identical Securities may not be available.
Since the prices of the Securities will fluctuate daily, the ratio of
Securities in the 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
the Trust. If we deposit cash, you and new investors may experience a
dilution of your investment. This is because prices of the Securities
will fluctuate between the time of the cash deposit and the purchase of
the Securities, and because the Trust pays the associated brokerage
fees. To reduce this dilution, the Trust will try to buy the Securities
as close to the Evaluation Time and as close to the evaluation price as
possible. Because the Trust pays the brokerage fees associated with the
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. It is currently anticipated
that the Trustee will purchase these Securities directly from market
makers.
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
Trust to buy Securities. If we or an affiliate of ours act as agent to
the Trust we will be subject to the restrictions under the Investment
Company Act of 1940, as amended.
We cannot guarantee that the Trust will keep its present size and
composition for any length of time. Securities may periodically be
prepaid or sold under certain circumstances, and the proceeds 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 Trust. 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 the Trust fails, unless we can
purchase substitute Securities ("Replacement Securities"), we will
refund to you that portion of the purchase price, accrued interest and
transactional sales charge resulting from the failed contract on the
next Interest Distribution Date. Any Replacement Security the Trust
acquires will be identical to those from the failed contract.
Portfolio
Objectives.
The objective of the Trust is to provide the potential for a high level
of current income through an investment in a portfolio of fixed-rate
mortgage-backed securities representing pools of mortgages on 1- to 4-
family dwellings issued by Ginnie Mae. The Securities, but not the Units
or the Trust, are backed by the full faith and credit of the U.S.
government.
In the more than three decades since Congress created the Government
National Mortgage Association ("GNMA") in an effort to increase the
capital available to home buyers, a transformation of the traditional
Page 8
home mortgage has occurred. Today GNMA is a popular investment security
in the financial and investment community, regarded by many to be a
reliable source of high current income.
The securities in the Trust are created when mortgage lenders "pool"
individual mortgages together. Interest and principal from these pools
are passed through to investors each month with Ginnie Mae guaranteeing
the timely payment of interest and principal. Of course, this guarantee
applies only to the payment of principal and interest on the Securities
held in the Trust and not the Units of the Trust themselves.
Because individual certificates have an original face value of $25,000
and offer no pool diversification, many investors find it difficult to
participate in the income potential and other advantages GNMAs provide.
The First Trust(R) GNMA, Series 96 has been designed to eliminate the
potential drawbacks of investing in individual GNMA certificates by
offering a convenient, affordable, pool diversified GNMA investment.
"AAAf" Rating. As a result of the underlying securities being backed by
the full faith and credit of the U.S. government, Standard & Poor's
Corporation has given Units of the Trust a "AAAf" rating - their highest
unit investment trust rating available.
Of course, as with any similar investment, there can be no guarantee
that the objective of the Trust will be achieved. See "Risk Factors" for
a discussion of the risks of investing in the Trust.
Estimated Returns and
Estimated Average Life
The Current and Long-Term Returns set forth in the "Summary of Essential
Information" are estimates and are designed to be comparative rather
than predictive. We cannot predict your actual return, which will vary
with Unit price, how long you hold your investment and with changes in
the portfolio, interest income and expenses. In addition, neither rate
reflects the true return you will receive, which will be lower, because
neither includes the effect of certain delays in distributions.
Estimated Current Return equals the estimated annual interest income to
be received from the Securities less estimated annual Trust expenses,
divided by the Public Offering Price per Unit (which includes the
initial sales charge). Estimated Long-Term Return is a measure of the
estimated return over the Estimated Average Life of the Trust and is
calculated using a formula which (1) factors in the market values,
yields (which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of the Securities, and
(2) takes into account a compounding factor, the sales charge and
expenses. Unlike Estimated Current Return, Estimated Long-Term Return
reflects maturities, estimated principal prepayments, discounts and
premiums of the Securities in the Trust. We will provide you with
estimated cash flows for your Trust at no charge upon your request.
In order to calculate Estimated Average Life of the Trust, an estimated
prepayment rate for the remaining term of the Trust's mortgage pool must
be determined. Each of the primary market makers in Ginnie Mae
Securities use sophisticated computer models to determine the estimated
prepayment rate. These computer models take into account a number of
factors and assumptions including: actual prepayment data reported by
GNMA for recent periods on a particular pool, the impact of aging on the
prepayment of mortgage pools, the current interest rate environment, the
coupon, the housing environment, historical trends on GNMA securities as
a group, geographical factors and general economic trends. In
determining the Estimated Average Life of the Securities in the Trust,
we have relied upon the median of the estimated prepayment rates
determined by primary market makers. We cannot be certain that this
estimate will prove accurate or whether the estimated prepayment rates
determined by other primary market makers would have provided a better
estimate. Any difference between the estimate we use and the actual
prepayment rate will affect the Estimated Long-Term Return of the Trust.
Risk Factors
Price Volatility. The Trust invests in mortgage-backed securities. The
value of these Securities will decline with increases in interest rates,
not only because increases in rates generally decrease values, but also
because increased rates may indicate an economic slowdown. The value of
the Securities will also fluctuate with changes in the general condition
of the mortgage-backed securities market, changes in inflation rates or
when political or economic events affecting Ginnie Mae occur.
Because the Trust is not managed, the Trustee will not sell Securities
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 the Trust will be positive over any period of time or
that you won't lose money. Units of the Trust are not deposits of any
bank and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Page 9
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in mortgage loans made by banks and other financial
institutions to finance purchases of homes. The individual mortgage
loans are "pooled" together for sale to investors. As the underlying
mortgage loans are paid off, investors receive principal and interest
payments.
Fixed-rate mortgage-backed securities represent a pool of mortgage loans
which pay a fixed rate of interest over the life of the loan. The value
of fixed-rate mortgage-backed securities generally decreases when
interest rates rise.
Guarantees. The Securities, but not the Units or the Trust, are
guaranteed as to the timely payment of principal and interest by Ginnie
Mae. Ginnie Mae Securities are supported by the full faith and credit of
the U.S. government. You should note that the guaranty does not apply to
the market prices and yields of the Securities, which will vary with
changes in interest rates and other market conditions.
Interest Income. Since the Trust can only distribute what it receives,
interest distributions will decrease as principal payments and
prepayments occur. The current historically low interest rate
environment has led to an unprecedented number of mortgage refinancings.
To the extent current refinance patterns continue, investors in the
Trust will likely experience an early return of principal which will
effect monthly distributions of income.
Legislation/Litigation. From time to time, various legislative
initiatives are proposed in the United States which may have a negative
impact on mortgage-backed securities or their issuers. In addition,
litigation regarding Ginnie Mae or the mortgage-backed securities market
may negatively impact the value of these Securities. We cannot predict
what impact any pending or proposed legislation or pending or threatened
litigation will have on the value of the Securities.
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 Interest and Principal Accounts;
- - Accrued interest on the Securities; and
- - The maximum sales charge (which combines an initial upfront sales
charge, a deferred sales charge and the creation and development fee).
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, changes in the
value of the Interest and/or Principal Accounts and with the accrual of
net interest on the Units.
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 the
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 the Trust's statement of net assets,
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 the Trust. Securities will be sold to reimburse the Sponsor
for the 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 shorter time period than the life of the Trust). 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
the Trust's organization costs, the Trustee will sell additional
Securities to allow the Trust to fully reimburse the Sponsor. In that
event, the net asset value per Unit 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 in "Notes to Statement 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 the Trust. When Securities are
sold to reimburse the Sponsor for organization costs, the Trustee will
sell such Securities, to the extent practicable, which will maintain the
same proportionate relationship among the Securities as existed prior to
such sale.
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Accrued Interest.
Accrued interest represents unpaid interest on a Security from the last
day it paid interest. Interest on the Securities is paid monthly,
although the Trust accrues such interest daily. Because the Trust always
has an amount of interest earned but not yet collected, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. You will receive the amount,
if any, of accrued interest you paid for on the next distribution date.
In addition, if you sell or redeem your Units you will be entitled to
receive your proportionate share of the accrued interest from the
purchaser of your Units.
Minimum Purchase.
The minimum amount you can purchase of the Trust is $1,000 worth of
Units ($500 if you are purchasing Units for your Individual Retirement
Account or any other qualified retirement plan).
Maximum Sales Charge.
The maximum sales charge is comprised of a transactional sales charge
and a creation and development fee.
Transactional Sales Charge.
The transactional sales charge you will pay has both an initial and a
deferred component.
Initial Sales Charge. The initial sales charge, which you will pay at
the time of purchase, is equal to the difference between the maximum
sales charge of 3.95% of the Public Offering Price and the sum of the
maximum remaining deferred sales charge and creation and development fee
(initially $.295 per Unit). This initial sales charge is initially equal
to approximately % of the Public Offering Price, but will vary
depending on the purchase price of your Units and as deferred sales
charge and creation and development fee payments are made. When the
Public Offering Price per Unit exceeds $ per Unit, the initial sales
charge will exceed % of the Public Offering Price. After the initial
offering period, the initial sales charge will be reduced by the amount
of the creation and development fee.
Monthly Deferred Sales Charge. In addition, three monthly deferred sales
charge payments of approximately $.0817 per Unit will be deducted from
the Trust's assets on approximately the twentieth day of each month from
July 20, 2005 through September 20, 2005. If you buy Units at a price of
less than $ 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 % 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 3.45% of the Public Offering Price
(equivalent to % of the net amount invested).
Creation and Development Fee.
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 creation and
development fee is a charge of $.050 per Unit collected at the end of
the initial offering period. If you buy Units at a price of less than
$10.00 per Unit, the dollar amount of the creation and development fee
will not change, but the creation and development fee on a percentage
basis will be more than % of the Public Offering Price.
Discounts for Certain Persons.
If you invest at least $50,000 (except if you are purchasing for "Fee
Accounts" as described below), the maximum sales charge is reduced, as
follows:
Your maximum Dealer
If you invest sales charge concession
(in thousands):* will be: will be:
______________ ____________ ___________
$50 but less than $100 3.70% 2.90%
$100 but less than $250 3.45% 2.65%
$250 but less than $500 3.10% 2.35%
$500 but less than $1,000 2.95% 2.25%
$1,000 or more 2.45% 1.80%
* 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 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 Trust with any other same day purchases of other trusts for which
we are Principal Underwriter and are currently in the initial offering
period. 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 sales charge 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 sales charge.
You may use termination proceeds from other unit investment trusts with
a similar strategy as the Trust or your redemption or termination
proceeds from any unit investment trust we sponsor to purchase Units of
the Trust during the initial offering period at the Public Offering
Price less 1.00% (for purchases of $1,000,000 or more, the maximum sales
charge will be limited to 2.45% of the Public Offering Price). Please
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note that if you purchase Units of the Trust in this manner using
redemption proceeds from trusts which assess the amount of any remaining
deferred sales charge at redemption, you should be aware that any
deferred sales charge remaining on these units will be deducted from
those redemption proceeds. In order to be eligible for this reduced
sales charge program, the termination or redemption proceeds used to
purchase Units must be derived from a transaction that occurred within
30 days of your Unit purchase. In addition, this program will only be
available for investors that utilize the same broker/dealer (or a
different broker/dealer with appropriate notification) for both the Unit
purchase and the transaction resulting in the receipt of the termination
or redemption proceeds used for the Unit purchase. You may be required
to provide appropriate documentation or other information to your
broker/dealer to evidence your eligibility for this reduced sales charge
program.
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 in the primary market. Certain Fee
Accounts Unit holders may be assessed transaction or other account fees
on the purchase and/or redemption of such Units by their broker/dealer
or other processing organizations for providing certain transaction or
account activities. Fee Accounts Units are not available for purchase in
the secondary market. 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 Trust.
Employees, officers and directors (and immediate family members) of the
Sponsor, our related companies and dealers 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
the 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 sales charge you must pay is less than the applicable
maximum deferred sales charge, including Fee Accounts, you will be
credited the difference between your maximum sales charge and the
maximum deferred sales charge at the time you buy your 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.
The Value of the Securities.
The Evaluator will determine the aggregate underlying value of the
Securities in the Trust as of the Evaluation Time on each business day
and will adjust the Public Offering Price of the Units according to this
evaluation. 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 the Trust will be
determined by the Evaluator as follows:
a) On the basis of current market offering prices for the Securities
obtained from dealers or brokers who customarily deal in securities
comparable to those held by the Trust;
b) If such prices are not available for any of the Securities, on the
basis of current market offering prices of comparable securities;
c) By appraising the value of the Securities on the offering side of the
market; or
d) 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 offering prices. The offering price
of the Securities may be expected to be greater than the bid price by
approximately 1-3% of the aggregate principal amount of such Securities.
There is a period of a few days (usually five business days), beginning
on the first day of each month, during which the total amount of
payments (including prepayments, if any) of principal for the preceding
month of the various mortgages underlying each Security will not yet
have been reported by the issuer to Ginnie Mae. During this period, the
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precise principal amount of the Securities will not be known. For
purposes of determining the aggregate underlying value of the Securities
and the accrued interest on the Units during this period, the Evaluator
will base its valuation and calculations upon the average monthly
principal distribution for the preceding three-month period. We don't
expect the differences in such principal amounts from month to month to
be material. We will, however, adopt procedures to minimize the impact
of such differences when necessary.
Distribution of Units
We intend to qualify Units of the Trust for sale in a number of states.
All Units will be sold at the then current Public Offering Price.
Dealer Concessions.
Dealers and other selling agents can purchase Units at prices which
represent a concession or agency commission of 3.00% of the Public
Offering Price per Unit (or 65% of the maximum transactional sales
charge for secondary market sales), subject to the reduced concession
applicable to volume purchases as set forth in "Public Offering-
Discounts for Certain Persons." However, for Units subject to a
transactional sales charge which are purchased using redemption or
termination proceeds, this amount will be reduced to 2.00% of the sales
price of these Units (1.65% for purchases of $1,000,000 or more).
Eligible dealer firms and other selling agents who sell Units of the
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 Additional
(in millions): Concession:
_________________ ___________
$1 but less than $5 0.10%
$5 or more 0.15%
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 volume sales levels
are met. Eligible dealer firms and other selling agents include clearing
firms that place orders with First Trust and provide First Trust with
information with respect to the representatives who initiated such
transactions. Eligible dealer firms and other selling agents will not
include firms that solely provide clearing services to other
broker/dealer firms or firms who place orders through clearing firms
that are eligible dealers. Prudential Investment Management Services LLC
("PIMS") will receive a concession on Units purchased using termination,
redemption or exchange proceeds from trusts formerly sponsored by PIMS
equal to $2.00 per $1,000 invested. Dealers and other selling agents
who, during any consecutive 12-month period, sell at least $100 million,
$250 million or $500 million worth of primary market units of unit
investment trusts sponsored by us will receive a concession of $1,000,
$2,500 or $5,000, respectively, 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.
Other Compensation and Benefits to Broker/Dealers.
The Sponsor, at its own expense and out of its own profits, currently
provides additional compensation and benefits to broker/dealers who sell
shares of Units of this Trust and other First Trust products. This
compensation is intended to result in additional sales of First Trust
products and/or compensate broker/dealers and financial advisors for
past sales. The Sponsor makes these payments for marketing, promotional
or related expenses, including, but not limited to, expenses of
entertaining retail customers and financial advisers, advertising,
sponsorship of events or seminars, obtaining shelf space in
broker/dealer firms and similar activities designed to promote the sale
of the Sponsor's products. These arrangements will not change the price
you pay for your Units.
Advertising and Investment Comparisons.
Advertising materials regarding the Trust may discuss several topics,
including: developing a long-term financial plan; working with your
financial professional; the nature and risks of various investment
strategies and unit investment trusts that could help you reach your
financial goals; the importance of discipline; how the Trust operates;
how securities are selected; various unit investment trust features such
as convenience and costs; and options available for certain types of
unit investment trusts. These materials may include descriptions of the
principal businesses of the companies represented in the Trust, research
analysis of why they were selected and information relating to the
qualifications of the persons or entities providing the research
analysis. In addition, they may include research opinions on the economy
and industry sectors included and a list of investment products
generally appropriate for pursuing those recommendations.
Page 13
From time to time we may compare the estimated returns of the Trust
(which may show performance net of the expenses and charges the 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 investments such as the securities 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 the Trust differ from other
comparative investments. You should not assume that these performance
comparisons will be representative of the Trust's future performance. We
may also, from time to time, use advertising which classifies trusts or
portfolio securities 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 less any reduction as stated in
"Public Offering." We will also receive the amount of any collected
creation and development fee. Also, any difference between our cost to
purchase the Securities and the price at which we sell them to the Trust
is considered a profit or loss (see Note 2 of "Schedule 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 them will be a
profit or loss to us.
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 Trust's registration
statement. 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 Trust are listed under "Fee Table."
If actual expenses exceed the estimate, the Trust will bear the excess,
other than for excess annual audit costs. The Trustee will pay operating
expenses of the Trust from the Interest Account if funds are available,
and then from the Principal Account. The Interest and Principal Accounts
are noninterest-bearing to Unit holders, so the Trustee may earn
interest on these funds, thus benefiting from their use.
First Trust Advisors L.P., an affiliate of ours, acts as Portfolio
Supervisor and will be compensated for providing portfolio supervisory
services as well as bookkeeping and other administrative services to the
Trust. In providing portfolio supervisory services, the Portfolio
Supervisor may purchase research services from a number of sources,
which may include dealers of the Trust. As Sponsor, we will receive
brokerage fees when the Trust uses us (or our affiliates) as agent in
selling Securities. Legal and regulatory filing fees and expenses
associated with updating the Trust's registration statement yearly are
also chargeable to the Trust.
The fees payable to First Trust Advisors L.P., the Evaluator and the
Trustee are based on the largest aggregate number of Units of the 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
Page 14
or our affiliates for providing services to all unit investment trusts
be more than the actual cost of providing such service in such year.
As Sponsor, we will receive a fee from the Trust for creating and
developing the Trust, including determining the 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 a charge of
$.050 per Unit outstanding at the end of the initial offering period.
The Trustee will deduct this amount from the Trust's assets as of the
close of the initial offering period. We do not use this fee to pay
distribution expenses or as compensation for sales efforts. This fee
will not be deducted from your proceeds if you sell or redeem your Units
before the end of the initial offering period.
In addition to the Trust's operating expenses, and the fees described
above, the Trust may also incur the following charges:
- - All legal and annual auditing expenses of the Trustee according to
its responsibilities under the Indenture;
- - The expenses and costs incurred by the Trustee to protect the Trust
and the rights and interests of the Unit holders;
- - 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 the Trust;
- - Payment for any loss, liability or expenses we incurred without
negligence, bad faith or willful misconduct in acting as Sponsor of the
Trust; and/or
- - All taxes and other government charges imposed upon the Securities or
any part of the Trust.
The above expenses and the Trustee's annual fee are secured by a lien on
the Trust. We cannot guarantee that the interest received will be
sufficient to meet any or all expenses of the Trust. If there is not
enough cash in the Interest or Principal Accounts, 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 Trust will be audited annually, so long as we are making a secondary
market for Units. We will bear the costs of these annual audits to the
extent the cost exceeds $0.0050 per Unit. Otherwise, the Trust will pay
for the audit. You may request a copy of the audited financial statement
from the Trustee.
Tax Status
This section summarizes some of the main U.S. federal income tax
consequences of owning Units of the Trust. This section is current as of
the date of this prospectus. Tax laws and interpretations change
frequently, and this summary does not describe all of the tax
consequences to all taxpayers. For example, this summary generally does
not describe your situation if you are a corporation, a non-U.S. person,
a broker/dealer, or other investor with special circumstances. In
addition, this section does not describe your state, local 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.
Trust Status.
The Trust intends to qualify as a "regulated investment company" under
the federal tax laws. If the Trust qualifies as a regulated investment
company and distributes its income as required by the tax law, the Trust
generally will not pay federal income taxes.
Distributions.
Trust distributions are generally taxable. At the end of each year, you
will receive a tax statement that separates Trust distributions into two
categories, ordinary income distributions and capital gains dividends.
Ordinary income distributions are generally taxed at your ordinary tax
rate. Generally, you will treat all capital gains dividends as long-term
capital gain regardless of how long you have owned your Units. To
determine your actual tax liability for your capital gains dividends,
you must calculate your total net capital gain or loss for the tax year
after considering all of your other taxable transactions, as described
below. In addition, the Trust may make distributions that represent a
return of capital for tax purposes and thus will generally not be
taxable to you. The tax status of dividends from the Trust is not
affected by whether you reinvest your dividends in additional Units or
receive them in cash. The income from the Trust that you must take into
account for federal income tax purposes is not reduced by amounts used
to pay a deferred sales charge, if any. The tax laws may require you to
treat distributions made to you in January as if you had received them
on December 31 of the previous year.
Dividends Received Deduction.
A corporation that owns Units generally will not be entitled to the
Page 15
dividends received deduction with respect to dividends received from the
Trust, because the dividends received deduction is generally not
available for distributions from regulated investment companies.
If You Sell or Redeem Units.
If you sell or redeem your Units, you will generally recognize a taxable
gain or loss. To determine the amount of this gain or loss, you must
subtract your tax basis in your Units from what you receive in the
transaction. Your tax basis in your Units is generally equal to the cost
of your Units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your
Units.
Taxation of Capital Gains and Losses.
Under the "Jobs and Growth Tax Relief Reconciliation Act of 2003" (the
"Tax Act"), if you are an individual, the maximum marginal federal tax
rate for net capital gain is generally 15% (generally 5% for certain
taxpayers in the 10% and 15% tax brackets). These capital gains rates
are generally effective for taxable years beginning before January 1,
2009. However, special effective date provisions are set forth in the
Tax Act. For periods not covered by the Tax Act, if you are an
individual, the maximum marginal federal tax rate for net capital gains
is generally 20% (10% for certain taxpayers in the 10% and 15% tax
brackets). The 20% rate is reduced to 18% and the 10% rate is reduced to
8% for long-term gains from most property acquired after December 31,
2000, 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
exclude the date you purchase your Units to determine your holding
period. However, if you receive a capital gain dividend from your Trust
and sell your Unit at a loss after holding it for six months or less,
the loss will be recharacterized as long-term capital loss to the extent
of the capital gain dividend received. In the case of capital gain
dividends, the determination of which portion of the capital gain
dividend, if any, that may be treated as long-term gain from property
held for more than five years eligible for the 18% (or 8%) tax rate will
be made based on regulations prescribed by the United States Treasury.
The tax rates for capital gains realized from assets held for one year
or less are generally the same as for ordinary income. In addition, the
Internal Revenue Code treats certain capital gains as ordinary income in
special situations.
Deductibility of Trust Expenses.
Expenses incurred and deducted by the Trust will generally not be
treated as income taxable to you. In some cases, however, you may be
required to treat your portion of these Trust expenses as income. In
these cases you may be able to take a deduction for these expenses.
However, certain miscellaneous itemized deductions, such as investment
expenses, may be deducted by individuals only to the extent all of these
deductions exceed 2% of the individual's adjusted gross income.
Foreign Investors.
If you are a foreign investor (i.e., an investor other than a U.S.
citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax
treaties, distributions from the Trust will be characterized as
dividends for Federal income tax purposes (other than dividends which
the Trust designates as capital gain dividends) and will be subject to
U.S. income taxes, including withholding taxes. However, distributions
received by a foreign investor from the Trust that are designated by the
Trust as capital gain dividends may not be subject to U.S. federal
income taxes, including withholding taxes, provided that the Trust makes
certain elections and certain other conditions are met. Foreign
investors should consult their tax advisors with respect to U.S. tax
consequences of ownership of Units.
Retirement Plans
You may purchase Units of the Trust 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 consult
your attorney or tax advisor. 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
Page 16
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
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
your 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 interest (if any)
distributed. After the end of each calendar year, the Trustee will
provide you:
- - The amount of interest received by your Trust less deductions for
payment of applicable taxes, fees and Trust expenses, redemption of
Units and the balance remaining on the last business day of the calendar
year;
- - The amount of principal on the Securities and the net proceeds
received therefrom less deduction for payment of applicable taxes, fees
and Trust expenses, redemption of Units and the balance remaining on the
last business day of the calendar year;
- - The Securities held and the number of Units outstanding on the last
business day of the calendar year;
- - The Redemption Price per Unit on the last business day of the
calendar year; and
- - The amounts actually distributed during the calendar year from the
Interest and Principal Accounts, separately stated.
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.
Interest and Principal Distributions
You will begin receiving distributions on your Units only after you
become a Record Owner. The Trustee will credit any interest received on
the Securities to the Interest Account. All other receipts, such as
return of capital, are credited to the Principal Account of the Trust.
After deducting the amount of accrued interest the Trustee advanced to
us as Unit holder of record as of the First Settlement Date, the Trustee
will distribute any interest in the Interest Account on or near the
Interest Distribution Dates to Unit holders of record on the preceding
Interest Distribution Record Date. See "Summary of Essential
Information." No interest distribution will be paid if accrued expenses
of the Trust exceed amounts in the Interest Account on the Interest
Distribution Dates. Distribution amounts will vary with changes in the
Trust's fees and expenses, in interest received, with principal payments
and prepayments and with the sale of Securities. The Trustee will
distribute amounts in the Principal 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 holder of record on the first day of
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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 Principal Account
to pay the deferred sales charge. If not, the Trustee may sell
Securities to meet the shortfall. Within a reasonable time after the
Trust is terminated you will receive the pro rata share of the money
from the sale of the Securities.
The Trustee may establish reserves (the "Reserve Account") within the
Trust to cover anticipated state and local taxes or any governmental
charges to be paid out of the Trust.
Universal Distribution Option. You may elect to have your principal and
interest distributions automatically distributed to any other investment
vehicle of which you have an existing account. If you elect this option,
the Trustee will notify you of each distribution made pursuant to this
option. You may elect to terminate your participation at any time by
notifying the Trustee in writing.
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 to 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 interest will be withdrawn
from the Interest Account if funds are available for that purpose, or
from the Principal Account. All other amounts paid on redemption will be
taken from the Principal 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 "Interest and Principal
Distributions."
The Trustee may sell Securities to make funds available for redemption.
If Securities are sold, the size and diversification of the 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 Interest and Principal Accounts not designated to
purchase Securities;
2. the aggregate value of the Securities held in the Trust; and
3. accrued interest on the Securities.
deducting
1. any applicable taxes or governmental charges that need to be paid out
of the Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of the Trust, if any;
4. cash held for distribution to Unit holders of record of the Trust as
of the business day before the evaluation being made; and
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5. other liabilities incurred by the Trust; and
dividing
1. the result by the number of outstanding Units of the 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 the Trust
The portfolio of the Trust is 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 has defaulted in the payment of principal
or interest on the Securities;
- - Any action or proceeding seeking to restrain or enjoin the payment of
principal or interest on the Securities has been instituted;
- - The issuer of the Security has breached a covenant which would affect
the payment of principal or interest on the Security, 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;
- - The sale of Securities is necessary or advisable in order to maintain
the qualification of the Trust as a "regulated investment company" in
the case of a Trust which has elected to qualify as such;
- - Such factors arise which, in our opinion, adversely affect the tax or
exchange control status of the Securities or the Trust; 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 the Trust.
If a Security defaults in the payment of principal or interest and no
provision for payment is made, the Trustee must notify us of this fact
within 30 days. If we fail to instruct the Trustee whether to sell or
hold the Security within 30 days of our being notified, the Trustee may,
in its discretion, sell any defaulted Securities and will not be liable
for any depreciation or loss incurred thereby.
Except in the limited instance in which the Trust acquires Replacement
Securities, as described in "The First Trust(R) GNMA Series," the Trust
may not acquire any securities or other property other than the
Securities. The Trustee, on behalf of the Trust, will reject any offer
for new or exchanged securities or property in exchange for a Security,
except that we may instruct the Trustee to accept such an offer or to
take any other action with respect thereto as we may deem proper if the
issuer is in default with respect to such Securities or in our written
opinion the issuer will likely default in respect to such Securities in
the foreseeable future. Any obligations received in exchange or
substitution will be held by the Trustee subject to the terms and
conditions in the Indenture to the same extent as Securities originally
deposited in the Trust. We may get advice from the Portfolio Supervisor
before reaching a decision regarding the receipt of new or exchanged
securities or property. The Trustee may retain and pay us or an
affiliate of ours to act as agent for the Trust to facilitate selling
Securities, exchanged securities or property from the 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. We will maintain a list with the Trustee of which
Securities should be sold. We may consider sales of units of unit
investment trusts which we sponsor in making recommendations to the
Trustee on the selection of broker/dealers to execute the Trust's
portfolio transactions, or when acting as agent for the Trust in
acquiring or selling Securities on behalf of the 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 Trust will terminate upon
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the redemption, sale or other disposition of the last Security held, but
in no case later than the Mandatory Termination Date. The Trust may be
terminated earlier:
- - Upon the consent of 100% of the Unit holders;
- - If the value of the Securities owned by the Trust as shown by any
evaluation is less than the lower of $2,000,000 or 40% of the aggregate
principal amount of Securities deposited in the Trust during the initial
offering period (the "Discretionary Liquidation Amount"); or
- - In the event that Units of the Trust not yet sold aggregating more
than 60% of the Units of the Trust are tendered for redemption by
underwriters, including the Sponsor.
Prior to termination the Trustee will send written notice to registered
account holders which will specify how certificates, if any, should be
tendered to the Trustee. If the Trust is terminated due to this last
reason, we will refund your entire transactional sales charge; however,
termination of the Trust before the Mandatory Termination Date for any
other reason will result in all remaining unpaid deferred sales charges
on your Units being deducted from your termination proceeds. For various
reasons, the 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 the 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.
You will receive a cash distribution from the sale of the remaining
Securities, along with your interest in the Interest and Principal
Accounts, within a reasonable time after the Trust is terminated.
Regardless of the distribution involved, the Trustee will deduct from
the 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.
Rating of the Units
The Units of the Trust are rated "AAAf" by Standard & Poor's Advisor
Services, a division of The McGraw-Hill Companies ("Standard & Poor's").
The credit quality rating reflects the Trust's protection against losses
from credit defaults and the credit quality of the Trust's eligible
investments and counterparties. Standard & Poor's credit quality rating
scale ranges from triple-`Af' (extremely strong protection against
losses from credit defaults) to triple-`Cf' (extremely vulnerable to
losses from credit defaults). Trusts rated triple-`Af' provide extremely
strong protection against losses from credit defaults. This is the
highest rating assigned by Standard & Poor's. This rating should not be
construed as an approval of the offering of the Units by Standard &
Poor's or as a guarantee of the market value of the Trust or the Units.
Standard & Poor's has indicated that this rating is not a "market"
rating nor a recommendation to buy, hold or sell Units nor does it take
into account the extent to which expenses of the Trust or sales of
Securities from the Trust for less than their purchase price will reduce
payment to Unit holders of the interest and principal required to be
paid on such Securities. Standard & Poor's has not consented to, and
will not consent to, being named an "expert" under U.S. securities laws,
including without limitation, Section 7 of the U.S. Securities Act of
1933. Standard & Poor's has been compensated for its services in rating
Units of the Trust.
Information on the Sponsor, Trustee and Evaluator
The Sponsor.
We, First Trust Portfolios 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 $48 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
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are at 1001 Warrenville Road, Lisle, Illinois 60532; telephone number
(630) 241-4141. As of December 31, 2003, the total consolidated
partners' capital of First Trust Portfolios L.P. and subsidiary was
$20,540,034 (audited).
This information refers only to us and not to the Trust or to any series
of the Trust 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 Trust 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 Trust
The Trustee.
The Trustee is The Bank of New York, a trust company organized under the
laws of New York. The Bank of New York has its unit investment trust
division offices at 101 Barclay Street, New York, New York 10286,
telephone (800) 813-3074. If you have questions regarding your account
or your Trust, please contact the Trustee at its unit investment trust
division offices or your financial adviser. The Sponsor does not have
access to individual account information. The Bank of New York is
subject to supervision and examination by the Superintendent of Banks of
the State of New York and the Board of Governors of the Federal Reserve
System, and its deposits are insured by the Federal Deposit Insurance
Corporation to the extent permitted by law.
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 Trust, or
- - Continue to act as Trustee without terminating the Indenture.
The Evaluator.
The Evaluator is Securities Evaluation Services, Inc. The Evaluator's
address is 531 East Roosevelt Road, Suite 200, Wheaton, Illinois 60187.
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 LLP, 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. Emmet, Marvin &
Martin, LLP acts as the Trustee's counsel, as well as special New York
tax counsel for the Trust.
Experts.
The Trust's statement of net assets, including the schedule of
investments, as of the opening of business on the Initial Date of
Deposit included in this prospectus, has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated
in their report appearing herein, and is 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 Sponsor, 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.
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First Trust(R)
The First Trust(R) GNMA, Series 96
Sponsor:
FIRST TRUST PORTFOLIOS L.P.
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
1-800-813-3074
24-Hour Pricing Line:
1-800-784-1069
This prospectus contains information relating to The First Trust(R)
GNMA, Series 96, 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. 811-3969)
Information about the Trust, including its Code 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 Trust 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
January __, 2005
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 24
First Trust(R)
The First Trust(R) GNMA Series
Information Supplement
This Information Supplement provides additional information concerning
the structure, operations and risks of the unit investment trust
contained in The First Trust(R) GNMA, Series 96 not found in the
prospectus for the Trust. This Information Supplement is not a
prospectus and does not include all of the information you should
consider before investing in the Trust. This Information Supplement
should be read in conjunction with the prospectus for the Trust in which
you are considering investing.
This Information Supplement is dated January __, 2005. Capitalized terms
have been defined in the prospectus.
Table of Contents
Risk Factors 1
Risk Factors
An investment in Units of the Trust should be made with an understanding
of the risks which an investment in fixed rate long-term debt
obligations may entail, including the risk that the value of the
underlying Securities and hence of the Units will decline with increases
in interest rates. The value of the underlying Securities will fluctuate
inversely with changes in interest rates. In addition, the potential for
appreciation of the underlying Securities, which might otherwise be
expected to occur as a result of a decline in interest rates, may be
limited or negated by increased principal prepayments in respect of the
underlying mortgages. For example, the high inflation during certain
periods, together with the fiscal measures adopted to attempt to deal
with it, has resulted in wide fluctuations in interest rates and, thus,
in the value of fixed rate long-term debt obligations generally. The
Sponsor cannot predict whether such fluctuations will continue in the
future or whether the reinvestment of principal will mitigate the impact
of these fluctuations.
The portfolio of the Trust consists of Ginnie Maes (or contracts to
purchase Ginnie Maes) fully guaranteed as to payments of principal and
interest by GNMA. Each group of Ginnie Maes described herein as having a
specified range of maturities includes individual mortgage-backed
securities which have varying ranges of maturities within each range set
forth in "Schedule of Investments." Current market conditions accord
little or no difference in price among individual Ginnie Mae securities
with the same coupon within certain ranges of stated maturity dates on
the basis of the difference in the maturity dates of each Ginnie Mae. A
purchase of Ginnie Maes with the same coupon rate and maturity date
within such range will be considered an acquisition of the same security
for deposits. In the future, however, the difference in maturity ranges
could affect market value of the individual Ginnie Maes. At such time,
any additional purchases by the Trust will take into account the
maturities of the individual securities. The mortgages underlying the
Ginnie Maes in the Trust have an original stated maturity of up to 30
years.
The Trust may contain Securities which were acquired at a market
discount. Such Securities trade at less than par value because the
interest coupons thereon are lower than interest coupons on comparable
debt securities being issued at currently prevailing interest rates. If
such interest rates for newly issued and otherwise comparable securities
increase, the market discount of previously issued securities will
become greater, and if such interest rates for newly issued comparable
securities decline, the market discount of previously issued securities
will be reduced, other things being equal. Investors should also note
that the value of Ginnie Maes purchased at a market discount will
increase in value faster than Ginnie Maes purchased at a market premium
if interest rates decrease. Conversely, if interest rates increase, the
value of Ginnie Maes purchased at a market discount will decrease faster
than Ginnie Maes purchased at a premium. In addition, if interest rates
rise, the prepayment risk of higher yielding, premium Ginnie Maes and
the prepayment benefit for lower yielding, discount Ginnie Maes will be
reduced. 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 Securities.
The Trust may contain Securities which were acquired at a market
premium. Such Securities trade at more than par value because the
interest coupons thereon are higher than interest coupons on comparable
debt securities being issued at currently prevailing interest rates. If
such interest rates for newly issued and otherwise comparable securities
decrease, the market premium of previously issued securities will be
increased, and if such interest rates for newly issued comparable
securities increase, the market premium of previously issued securities
will be reduced, other things being equal. The current returns of
securities trading at a market premium are initially higher than the
current returns of comparably rated debt securities of a similar type
issued at currently prevailing interest rates because premium securities
tend to decrease in market value as they approach maturity when the face
Page 1
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 security at par or early prepayments of
principal will result in a reduction in yield. Prepayments of principal
on securities purchased at a market premium are more likely than
prepayments on securities purchased at par or at a market discount and
the level of prepayments will generally increase if interest rates
decline. Market premium attributable to interest changes does not
indicate market confidence in the issue.
The mortgages underlying a Ginnie Mae may be prepaid at any time without
penalty. A lower or higher current return on Units may occur depending
on (i) whether the price at which the respective Ginnie Maes were
acquired by the Trust is lower or higher than par and (ii) whether
principal is distributed to Unit holders. During periods of declining
interest rates, prepayments of Ginnie Maes may occur with increasing
frequency because, among other reasons, mortgagors may be able to
refinance their outstanding mortgages at lower interest rates. In such a
case, principal will be distributed to Unit holders who most likely will
not be able to reinvest such principal distributions in other securities
with a comparable yield.
Description of Securities. The Ginnie Maes included in the Trust are
backed by the indebtedness secured by underlying mortgage pools of up to
30 year mortgages on 1- to 4-family dwellings. The pool of mortgages
which is to underlie a particular new issue of Ginnie Maes is assembled
by the proposed issuer of such Ginnie Maes. The issuer is typically a
mortgage banking firm, and in every instance must be a mortgagee
approved by and in good standing with the Federal Housing Administration
("FHA"). In addition, GNMA imposes its own criteria on the eligibility
of issuers, including a net worth requirement.
The mortgages which are to comprise a new Ginnie Mae pool may have been
originated by the issuer itself in its capacity as a mortgage lender or
may be acquired by the issuer from a third party, such as another
mortgage banker, a banking institution, the Veterans Administration
("VA") (which in certain instances acts as a direct lender and thus
originates its own mortgages) or one of several other governmental
agencies. All mortgages in any given pool will be insured under the
National Housing Act, as amended ("FHA-insured"), or Title V of the
Housing Act of 1949 ("FMHA Insured") or guaranteed under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of
Title 38, U.S.C. ("VA-guaranteed"). Such mortgages will have a date for
the first scheduled monthly payment of principal that is not more than
one year prior to the date on which GNMA issues its guaranty commitment
as described below, will have comparable interest rates and maturity
dates, and will meet additional criteria of GNMA. All mortgages in the
pools backing the Ginnie Maes contained in the Trust are mortgages on 1-
to 4-family dwellings (having a stated maturity of up to 30 years for
Securities in the Trust but an estimated average life of considerably
less as set forth in "Summary of Essential Information"). In general,
the mortgages in these pools provide for equal monthly payments over the
life of the mortgage (aside from prepayments) designed to repay the
principal of the mortgage over such period, together with interest at
the fixed rate on the unpaid balance.
To obtain GNMA approval of a new pool of mortgages, the issuer will file
with GNMA an application containing information concerning itself,
describing generally the pooled mortgages, and requesting that GNMA
approve the issue and issue its commitment (subject to GNMA's
satisfaction with the mortgage documents and other relevant
documentation) to guarantee the timely payment of principal of and
interest on the Ginnie Maes to be issued by the issuer. If the
application is in order, GNMA will issue its commitment and will assign
a GNMA pool number to the pool. Upon completion of the required
documentation (including detailed information as to the underlying
mortgages, a custodial agreement with a Federal or state regulated
financial institution satisfactory to GNMA pursuant to which the
underlying mortgages will be held in safekeeping, and a detailed
guaranty agreement between GNMA and the issuer), the issuance of the
Ginnie Maes is permitted. When the Ginnie Maes are issued, GNMA will
endorse its guarantee thereon. The aggregate principal amount of Ginnie
Maes issued will be equal to the then aggregate unpaid principal
balances of the pooled mortgages. The interest rate borne by the Ginnie
Maes is currently fixed at 1/2 of 1% below the interest rate of the
pooled 1- to 4-family mortgages, the differential being applied to the
payment of servicing and custodial charges as well as GNMA's guaranty fee.
Ginnie Mae IIs consist of jumbo pools of mortgages from more than one
issuer. By allowing pools to consist of multiple issuers, it allows for
larger and more geographically diverse pools. Unlike Ginnie Mae Is,
which have a minimum pool size of $1 million, Ginnie Mae IIs have a
minimum pool size of $7 million. In addition, the interest rates on the
mortgages within the Ginnie Mae II pools will vary unlike the mortgages
within pools in Ginnie Mae Is which all have the same rate. The rates on
the mortgages will vary from 1/2 of 1% to 1.50% above the coupon rate on
the GNMA bond, which is allowed for servicing and custodial fees as well
as the GNMA's guaranty fee. The major advantage of Ginnie Mae IIs lies
in the fact that a central paying agent sends one check to the holder on
the required payment date. This greatly simplifies the current procedure
of collecting distributions from each issuer of a Ginnie Mae, since such
distributions are often received late.
All of the Ginnie Maes in the Trust, including the Ginnie Mae IIs, are
of the "fully modified pass-through" type, i.e., they provide for timely
monthly payments to the registered holders thereof (including the Trust)
of their pro rata share of the scheduled principal payments on the
underlying mortgages, whether or not collected by the issuers,
including, on a pro rata basis, any prepayments of principal of such
mortgages received and interest (net of the servicing and other charges
Page 2
described above) on the aggregate unpaid principal balance of such
Ginnie Maes, whether or not the interest on the underlying mortgages has
been collected by the issuers.
The Ginnie Maes in the Trust are guaranteed as to timely payment of
principal and interest by GNMA. Funds received by the issuers on account
of the mortgages backing the Ginnie Maes in the Trust are intended to be
sufficient to make the required payments of principal of and interest on
such Ginnie Maes but, if such funds are insufficient for that purpose,
the guaranty agreements between the issuers and GNMA require the issuers
to make advances sufficient for such payments. If the issuers fail to
make such payments, GNMA will do so.
GNMA is authorized by Section 306(g) of Title III of the National
Housing Act to guarantee the timely payment of and interest on
securities which are based on or backed by a trust or pool composed of
mortgages insured by FHA, the Farmers' Home Administration ("FMHA") or
guaranteed by the VA. Section 306(g) provides further that the full
faith and credit of the United States is pledged to the payment of all
amounts which may be required to be paid under any guaranty under such
subsection. An opinion of an Assistant Attorney General of the United
States, dated December 9, 1969, states that such guaranties "constitute
general obligations of the United States backed by its full faith and
credit."* GNMA is empowered to borrow from the United States Treasury to
the extent necessary to make any payments of principal and interest
required under such guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages and,
except to the extent of funds received by the issuers on account of such
mortgages, Ginnie Maes do not constitute a liability of nor evidence any
recourse against such issuers, but recourse thereon is solely against
GNMA. Holders of Ginnie Maes (such as the Trust) have no security
interest in or lien on the underlying mortgages.
The GNMA guaranties referred to herein relate only to payment of
principal of and interest on the Ginnie Maes in the Trust and not to the
Units offered hereby.
Monthly payments of principal will be made, and additional prepayments
of principal may be made, to the Trust in respect of the mortgages
underlying the Ginnie Maes in the Trust. All of the mortgages in the
pools relating to the Ginnie Maes in the Trust are subject to prepayment
without any significant premium or penalty at the option of the
mortgagors. While the mortgages on 1- to 4-family dwellings underlying
the Ginnie Maes have a stated maturity of up to 30 years for the Trust,
it has been the experience of the mortgage industry that the average
life of comparable mortgages, owing to prepayments, refinancings and
payments from foreclosures, is considerably less.
In the mid-1970's, published yield tables for Ginnie Maes utilized a 12-
year average life assumption for Ginnie Mae pools of 26-30 year
mortgages on 1- to 4-family dwellings. This assumption was derived from
the FHA experience relating to prepayments on such mortgages during the
period from the mid-1950's to the mid-1970s. This 12-year average life
assumption was calculated in respect of a period during which mortgage
lending rates were fairly stable. THE ASSUMPTION IS NO LONGER AN
ACCURATE MEASURE OF THE AVERAGE LIFE OF GINNIE MAES OR THEIR UNDERLYING
SINGLE FAMILY MORTGAGE POOLS. RECENTLY IT HAS BEEN OBSERVED THAT
MORTGAGES ISSUED AT HIGH INTEREST RATES HAVE EXPERIENCED ACCELERATED
PREPAYMENT RATES WHICH WOULD INDICATE A SIGNIFICANTLY SHORTER AVERAGE
LIFE THAN 12 YEARS. TODAY, RESEARCH ANALYSTS USE COMPLEX FORMULAE TO
SCRUTINIZE THE PREPAYMENTS OF MORTGAGE POOLS IN AN ATTEMPT TO PREDICT
MORE ACCURATELY THE AVERAGE LIFE OF GINNIE MAES.
A number of factors, including homeowner's mobility, change in family
size and mortgage market interest rates will affect the average life of
the Ginnie Maes in the Trust. For example, Ginnie Maes issued during a
period of high interest rates will be backed by a pool of mortgage loans
bearing similarly high rates. In general, during a period of declining
interest rates, new mortgage loans with interest rates lower than those
charged during periods of high rates will become available. To the
extent a homeowner has an outstanding mortgage with a high rate, he may
refinance his mortgage at a lower interest rate or he may rapidly repay
his old mortgage. Should this happen, a Ginnie Mae issued with a high
interest rate may experience a rapid prepayment of principal as the
underlying mortgage loans prepay in whole or in part. Accordingly, there
can be no assurance that the prepayment levels which will be actually
realized will conform to the estimates or experience of the FHA, other
mortgage lenders, dealers or market makers or other Ginnie Mae
investors. It is not possible to meaningfully predict prepayment levels
regarding the Ginnie Maes in the Trust. The termination of the Trust
might be accelerated as a result of prepayments made as described herein.
* Any statement in this prospectus that a particular security is backed
by the full faith and credit of the United States is based upon the
opinion of an Assistant Attorney General of the United States and should
be so construed.
Page 3
MEMORANDUM
RE: THE FIRST TRUST GNMA SERIES 96
The only difference of consequence (except as described
below) between The First Trust GNMA Reinvestment Income Trust,
Series 95, which is the current fund, and The First Trust GNMA
Series 96, 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 Trust and the
statement of condition of the new Trust, 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 The First Trust GNMA Fund, Series 1 (File No.
811-3969) related also to the subsequent series of the Trust.
1933 ACT
PROSPECTUS
The only significant changes in the Prospectus from the
Series 95 prospectus 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 Trust.
CONTENTS OF REGISTRATION STATEMENT
Item A. Bonding Arrangements of Depositor:
First Trust Portfolios, L.P. is covered by a Brokers
Fidelity Bond, in the total amount of $2,000,000, 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, The First Trust GNMA Series 96, has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Lisle
and State of Illinois on December 27, 2004.
THE FIRST TRUST GNMA SERIES 96
(Registrant)
By: FIRST TRUST PORTFOLIOS, L.P.
(Depositor)
By: Jason T. Henry
Senior Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE* DATE
Judith M. Van Kampen Director )
of The Charger )
Corporation, the ) December 27, 2004
General Partner of )
First Trust )
Portfolios, L.P. )
Karla M. Van Kampen-Pierre Director )
of The Charger )
Corporation, the ) Jason T. Henry
General Partner of ) Attorney-in-Fact**
First Trust )
Portfolios, L.P. )
David G. Wisen Director )
of The Charger )
Corporation, the )
General Partner of )
First Trust )
Portfolios, L.P. )
* The title of the person named herein represents his
or her capacity in and relationship to First Trust
Portfolios, L.P., Depositor.
** An executed copy of the related power of attorney
was filed with the Securities and Exchange Commission in
connection with the Amendment No. 1 to Form S-6 of FT 597
(File No. 333-76518) and the same is hereby incorporated
herein by this reference.
S-3
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 and 3.3 of the Registration Statement.
CONSENT OF SECURITIES EVALUATION SERVICE, INC.
The consent of Securities Evaluation Service, Inc. to the
use of its name in the Prospectus included in this Registration
Statement will be filed as Exhibit 4.1 to the Registration
Statement.
CONSENT OF STANDARD & POOR'S RATINGS GROUP, A DIVISION OF MCGRAW-
HILL, INC.
The consent of Standard & Poor's Ratings Group, A Division
of McGraw-Hill, Inc. to the use of its name in the Prospectus
included in this Registration Statement will be filed as Exhibit
4.2 to 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.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust GNMA, Series 62 and subsequent Series
effective December 19, 1991 among First Trust Portfolios,
L.P., as Depositor, The Bank of New York as Trustee,
Securities Evaluation Service, Inc., as Evaluator, and
First Trust Advisors L.P. as Portfolio Supervisor
(incorporated by reference to Amendment No. 1 to Form S-6
[File No. 33-44532] filed on behalf of The First Trust
GNMA, Series 62).
1.1.1*Form of Trust Agreement for Series 96 among First Trust
Portfolios, L.P., as Depositor, The Bank of New York, as
Trustee, Securities Evaluation Service, Inc., as
Evaluator, and First Trust Advisors L.P., as Portfolio
Supervisor.
1.2 Copy of Certificate of Limited Partnership of First Trust
Portfolios, 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 First Trust Portfolios, 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 The Charger
Corporation, the general partner of First Trust
Portfolios, 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 The Charger Corporation, the general
partner of First Trust Portfolios, 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).
1.6 Underwriter Agreement (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-43289] filed on
behalf of The First Trust Combined Series 145).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by reference).
S-5
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.
3.3* Opinion of counsel as to New York income tax status of
securities being registered.
4.1* Consent of Securities Evaluation Service, Inc.
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 Directors listed on page
S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No.
333-76518] filed on behalf of FT 597).
________________________
* To be filed by amendment.
S-6