File No. 333-04579
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to Form S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: THE FIRST TRUST COMBINED
SERIES 265
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of 1001 Warrenville Road
Depositor's Principal Lisle, Illinois 60532
Offices:
D. Name and Complete Address NIKE SECURITIES L.P.
of Agents for Service: Attention: James A. Bowen
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN AND CUTLER
Attention: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
E. Title and Amount of Securities An indefinite number
Being Registered: of units pursuant to Rule
24f-2 promulgated under
the Investment Company
Act of 1940, as amended.
F. Proposed Maximum Offering
Price to the Public of the
Securities being Registered: Indefinite.
G. Amount of Filing Fee $500.00*
(as required by Rule 24f-2):
H. Approximate Date of Proposed
Sale to the Public: As soon as practicable
after the effective date
of the Registration
Statement.
:XXX: Check box if it is proposed that this filing will
become effective on August 6, 1996 at 1:30 p.m.
pursuant to Rule 487.
________________________
*Previously paid
THE FIRST TRUST COMBINED
SERIES 265
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C Under the Securities Act
of 1933
(Form N-8B-2 Items Required by Instruction 1 as to Prospectus on
Form S-6)
Form N-8B-2 Item Number Form S-6 Heading in Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of Trust
(b) Title of securities issued Prospectus Part I -
Front Cover Page
2. Name and address of Depositor Summary of Essential
Information;
Information as to
Sponsor, Trustee and
Evaluator
3. Name and address of Trustee Summary of Essential
Information
Information as to
Sponsor, Trustee and
Evaluator
4. Name and address of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
5. Organization of Trust What is the First
Trust Combined
Series?
6. Execution and termination of What is the First
Trust Agreement Trust Combined
Series?; Other
Information
7. Changes of name *
8. Fiscal year *
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE
TRUST
10. General information regarding What is the First
Trust's securities Trust Combined
Series?; Public
Offering; Rights of
Unit Holders;
Information as to
Sponsor, Trustee and
Evaluator; Other
Information
11. Type of securities comprising Prospectus Front Cover
units Page; What is the
First Trust Combined
Series?; Portfolio
12. Certain information regarding *
periodic payment certificates
13. (a) Load, fees, expenses, etc. Prospectus Front Cover
Page; Special Trust
Information; What is
the First Trust
Combined Series?;
Rights of Unit
Holders; What are the
Expenses and Charges?
(b) Certain information regard- *
ing periodic payment
certificates
(c) Certain percentages Prospectus Front Cover
Page
Summary of Essential
Information; What is
the First Trust
Combined Series?;
Public Offering
(d) Certain other fees, etc. Rights of Unit Holders
payable by holders
(e) Certain profits receivable Public Offering;
by depositor, principal Portfolio
underwriter, trustee or
affiliated persons
(f) Ratio of annual charges to *
income
14. Issuance of Trust's securities Rights of Unit Holders
15. Receipt and handling of payments *
from purchasers
16. Acquisition and disposition of What is the First
underlying securities Trust Combined
Series?; Information
as Sponsor, Trustee
and Evaluator
17. Withdrawal or redemption Public Offering;
Rights of Unit
Holders
18. (a) Receipt and disposition Prospectus Front Cover
of income Page; Rights of Unit
Holders
(b) Reinvestment of Rights of Unit Holders
distributions
(c) Reserves or special funds What is the First
Trust Combined
Series?; Rights of
Unit Holders
(d) Schedule of distributions *
19. Records, accounts and reports Rights of Unit Holders
20. Certain miscellaneous provisions Information as to
of Trust Agreement Sponsor, Trustee and
Evaluator; Other
Information
21. Loans to security holders *
22. Limitations on liability What is the First
Trust Combined
Series?; Information
as to Sponsor,
Trustee and Evaluator
23. Bonding arrangements Contents of
Registration
Statement
24. Other material provisions of *
Trust Agreement.
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF
DEPOSITOR
25. Organization of Depositor Information as to
Sponsor, Trustee and
Evaluator
26. Fees received by Depositor *
27. Business of Depositor Information as to
Sponsor, Trustee and
Evaluator
28. Certain information as to offi- *
cials and affiliated persons
of Depositor
29. Voting securities of Depositor *
30. Person controlling Depositor *
31. Payments by Depositor for *
certain services rendered to
Trust
32. Payments by Depositor for *
certain services rendered
to Trust
33. Remuneration of employees of *
Depositor for certain services
rendered to Trust
34. Remuneration of other persons *
for certain services rendered
to Trust
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of Trust's securi- Public Offering
ties by states
36. Suspension of sales of Trust's *
securities
37. Revocation of authority to *
distribute
38. (a) Method of distribution Public Offering
(b) Underwriting agreements Public Offering
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) NASD membership of princi- Information as to
pal underwriter Sponsor, Trustee and
Evaluator
40. Certain fees received by *
principal underwriter
41. (a) Business of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) Branch offices of principal *
underwriter
(c) Salesmen of principal *
underwriter
42. Ownership of Trust's securities *
by certain persons
43 Certain brokerage commissions *
received by principal under-
writer
44. (a) Method of valuation Prospectus Front Cover
Summary of Essential Page; What is the
Information First Trust
Combined Series?;
Public Offering
(b) Schedule as to offering *
price
(c) Variation in offering Public Offering
price to certain
persons
45. Suspension of redemption rights *
46. (a) Redemption valuation Rights of Unit Holders
(b) Schedule as to redemption *
price
47. Maintenance of position in Public Offering
underlying securities Rights of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Information as to
Trustee Sponsor, Trustee and
Evaluator
49. Fees and expenses of Trustee What is the First
Trust Combined
Series?
50. Trustee's lien What is the First
Trust Combined
Series?
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of Trust's *
securities
VII. POLICY OF REGISTRANT
52. (a) Provisions of Trust agree- Rights of Unit Holders
ment with respect to selec-
tion or elimination of
underlying securities
(b) Transactions involving *
elimination of underlying
securities
(c) Policy regarding substitu- Rights of Unit Holders
tion or elimination of
underlying securities
(d) Fundamental policy not *
otherwise covered
53. Tax status of Trust What is the First
Trust Combined
Series?
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during *
last ten years
55.
56. Certain information regarding *
periodic payment plan certificates
57.
58.
59. Financial statements (Instruc- Opinion of Independent
tions 1(c) to Form S-6) Auditors; Statement of
Net Assets of the
Trusts
* Inapplicable, answer negative or not required.
PENNSYLVANIA INSURED TRUST, SERIES 72
(The First Trust (registered trademark) Combined Series 265)
Prospectus - Part I
THIS PART I OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY THE PART II OF THE PROSPECTUS DATED MAY 16, 1996. BOTH PARTS I AND II
OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Pennsylvania Insured Trust, Series 72 (the "Pennsylvania Insured
Trust"), consists of a portfolio of interest-bearing obligations issued
by or on behalf of the Commonwealth of Pennsylvania or certain states or
United States Territories which, in the opinion of recognized bond
counsel to the issuing authorities, provide income which is exempt from
Federal income tax, Pennsylvania income tax and local tax, as detailed
below.
The objectives of the Trust are conservation of capital and income
exempt from Federal and applicable state and local income taxes. The
objectives are, of course, dependent upon the continuing ability of the
issuers, obligors and/or insurers to meet their respective obligations.
The Pennsylvania Insured Trust consists of seven obligations of issuers
located in Pennsylvania. The Bond issues in the Trust are either general
obligations of governmental entities or are revenue bonds payable from
the income of a specific project or authority. The Bonds in the Trust
are divided by purpose of issue and represent the percentage of
aggregate principal amount of the Bonds as indicated by the following
table:
Number Portfolio
of Issues Purpose of Issue Percentage
_________ ________________ __________
1 General Obligation 16.89%
3 University and School 29.06%
1 Health Care 16.89%
1 Water & Sewer 16.89%
1 Miscellaneous 20.27%
Each of five Bond issues represents 10% or more of the aggregate
principal amount of the Bonds in the Trust or a total of approximately
88%. The largest such issue represents approximately 20%. None of the
Bonds in the Trust are subject to call within five years of the Initial
Date of Deposit, although certain Bonds may be subject to an
extraordinary call.
All of the Bonds included in the Trust are insured. The insurance
guarantees the timely payment of principal and interest of the Bonds,
but does not guarantee the value of the Bonds or the Units. As a result
of the insurance, the Bonds and the Units in the Trust have received a
rating of "AAA" by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("Standard & Poor's"). The percentage of the
aggregate face amount insured by each insurance company is:
Insurance Company Portfolio Percentage
_________________ ____________________
MBIA Insurance Corporation 42.23%
Connie Lee Insurance Company 33.78%
AMBAC Indemnity Corporation 16.89%
Financial Security Assurance, Inc. 7.10%
_________________
100% Insured
UNITS OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK, AND UNITS ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION AND INVOLVE INVESTMENT RISK
INCLUDING LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 6, 1996
Page 1 of 12
SUMMARY OF ESSENTIAL INFORMATION
At the Opening of Business on the Initial Date of Deposit
of the Bonds-August 6, 1996
Sponsor: Nike Securities L.P.
Trustee: The Chase Manhattan Bank
Evaluator: Securities Evaluation Service, Inc.
<TABLE>
<CAPTION>
General Information
<S> <C>
Principal Amount of Bonds in the Trust $2,960,000
Number of Units 2,960
Fractional Undivided Interest in the Trust per Unit 1/2,960
Principal Amount (Par Value) of Bonds per Unit (1) $ 1,000.00
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $2,796,183
Aggregate Offering Price Evaluation per Unit $ 944.66
Sales Charge 4.9% (5.152% of the Aggregate Price Evaluation per Unit) (2) $ 48.67
Public Offering Price per Unit (3) $ 993.33
Sponsor's Initial Repurchase Price per Unit (3) $ 944.66
Redemption Price per Unit (4) $ 939.66
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 53.67
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 5.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date August 9, 1996
Discretionary Liquidation Amount The Trust may be terminated if the value of the Trust is less than 20% of
the aggregate principal amount of the Bonds deposited in such Trust during
the primary offering period.
Mandatory Termination Date December 31, 2045
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are
made as of the close of trading (generally 4:00 p.m. Eastern time) on
the New York Stock Exchange on each day on which it is open.
[FN]
______________
(1) Because certain of the Bonds in the Trust may from time to time under
certain circumstances be sold or redeemed or will be called or will
mature in accordance with their terms, there is no guarantee that the
value of each Unit at the Trust's termination will be equal to the
Principal Amount (Par Value) of Bonds per Unit stated above.
(2) The sales charge is reduced by a discount of $7.50 per Unit for
purchases between $500,000 and $999,999 and $15.00 per Unit for
purchases in excess of $1,000,000. Such reductions for volume purchases
are not applicable to sales made pursuant to a "wrap fee account" or
similar arrangement as discussed in "Public Offering" in Part II of this
Prospectus.
(3) Anyone ordering Units for settlement after the First Settlement Date
will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be added
to the Public Offering Price. After the initial offering period, the
Sponsor's Repurchase Price per Unit will be determined as described
under the caption "Will There Be a Secondary Market?" in Part II of this
Prospectus.
(4) See "How May Units be Redeemed?" in Part II of this Prospectus.
Page 2 of 12
<TABLE>
<CAPTION>
Underwriting
Number
Name Address of Units
____ _______ ________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 1,860
Underwriters
Advest, Inc. 90 State House Square, Hartford, CT 06103 250
Janney Montgomery Scott Inc. 1801 Market Street, 11th Floor,
Philadelphia, PA 19103 250
Gruntal & Co., Incorporated 14 Wall Street, 20th Floor, New York, NY 10005 100
Hefren-Tillotson, Inc. 308 Seventh Avenue, Pittsburgh, PA 15222 100
Legg Mason Wood Walker, Inc. 111 South Calvert Street, Baltimore, MD 21203-1476 100
W.H. Newbold's Son & Co., Inc. 1500 Walnut Street, 15th Floor, Philadelphia, PA 19102 100
Pershing, Division of Donaldson, One Pershing Plaza, Jersey City, NJ 07399 100
Lufkin & Jenrette
Securities Corporation
Wheat First Butcher Singer, Inc. West Tower, 3rd Floor, Riverfront Plaza, 901 East Byrd St., 100
Richmond, VA 23219
_____
2,960
=====
</TABLE>
<TABLE>
<CAPTION>
Special Trust Information
Monthly Semi-Annual
________ ___________
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 53.34 $ 53.34
Estimated Annual Trust Expense per Unit:
Trustee's Fees $ 1.40 $ .95
Evaluator's Fees ($.30 per $1,000 principal amount of Bonds
at the Initial Date of Deposit) $ .30 $ .30
Supervisory and Administrative Fees (1) $ .49 $ .49
Other Expenses $ .40 $ .35
_______ _______
Less: Estimated Annual Expense per Unit $ 2.59 $ 2.09
_______ _______
Estimated Net Annual Interest Income per Unit $ 50.75 $ 51.25
Calculation of Interest Distribution per Unit
Divided by 12 and 2, respectively $ 4.23 $ 25.63
Estimated Daily Rate of Net Interest Accrual per Unit $.140973 $.142362
Initial Distribution - August 31, 1996 (2) $ .85 $ .85
Partial Distribution - December 31, 1996 (2) $ - $ 17.08
Regular Distribution (2) $ 4.23 $ 25.63
(Commencing) 9/30/96 6/30/97
Estimated Current Return Based on Public Offering Price (3) 5.11% 5.16%
Estimated Long-Term Return Based on Public Offering Price (3) 5.18% 5.23%
CUSIP 3371M5 445 452
</TABLE>
[FN]
______________
(1) Supervisory Fees are payable to an affiliate of the Sponsor.
Bookkeeping and Administrative Fees are payable to the Sponsor.
(2) Additional information concerning distributions of interest and
principal can be found in "How are Interest and Principal Distributed?"
in Part II of this Prospectus.
(3) See "What are Estimated Long-Term Return and Estimated Current
Return?" in Part II of this Prospectus for a description of how these
returns are calculated. The above figures are based on estimated per
Unit cash flows. Estimated cash flows will vary with changes in fees and
expenses, with changes in current interest rates, and with the principal
prepayment, redemption, maturity, call, exchange or sale of the
underlying Bonds. The estimated cash flows for this Trust may be
obtained from the Trustee at no charge by calling the Trustee at the
number listed in Part II of this Prospectus.
Page 3 of 12
Pennsylvania Risk Factors
The financial condition of the Commonwealth of Pennsylvania is affected
by various national, economic, social and environmental policies and
conditions. Additionally, Constitutional and statutory limitations
imposed on the Commonwealth and its local governments concerning taxes,
bond indebtedness and other matters may constrain the revenue-generating
capacity of the Commonwealth and its local governments and, therefore,
the ability of the issuers of the Bonds to satisfy their obligations.
The economic vitality of the Commonwealth and its various regions and,
therefore, the ability of the Commonwealth and its local governments to
satisfy the Bonds, are affected by numerous factors. Pennsylvania
historically has been identified as a heavy industry state, although
that reputation has changed recently as the industrial composition of
the Commonwealth diversified when the coal, steel and railroad
industries began to decline. The major sources of growth in Pennsylvania
are in the service sector, including trade, medical and the health
services, education and financial institutions. The Commonwealth's
agricultural industries are also an important component of its economic
structure.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by Standard & Poor's and A1 by Moody's. Further information
concerning Pennsylvania risk factors may be obtained upon written or
telephonic request to the Trustee as described in "Information as to
Sponsor, Trustee and Evaluator-Who is the Trustee?" in Part II of this
Prospectus.
Pennsylvania Tax Status
In rendering its opinion, Saul, Ewing, Remick & Saul has not, for timing
reasons, made an independent review of proceedings related to the
issuance of the Bonds. It has relied on the Sponsor for assurance that
the Bonds have been issued by the Commonwealth of Pennsylvania or by or
on behalf of municipalities or other governmental agencies within the
Commonwealth.
In the opinion of Saul, Ewing, Remick & Saul, Special Counsel to the
Fund for Pennsylvania tax matters, under existing law:
Units evidencing fractional undivided interests in the Pennsylvania
Trust, which are represented by obligations issued by the Commonwealth
of Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision
of the Commonwealth of Pennsylvania or any public authority created by
any such political subdivision, are not taxable under any of the
personal property taxes presently in effect in Pennsylvania;
Distributions of interest income to Unit holders that would not be
taxable if received directly by a Pennsylvania resident are not subject
to personal income tax under the Pennsylvania Tax Reform Code of 1971;
nor will such interest be taxable under the Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals;
A Unit holder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the
redemption or sale of his Units. Units will be taxable under the
Pennsylvania inheritance and estate taxes;
A Unit holder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its
Units. Interest income distributed to Unit holders which are
corporations is not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title insurance
companies and trust companies may be required to take the value of the
Units into account in determining the taxable value of their shares
subject to the Shares tax;
Gains derived by the Fund from the sale, exchange or other disposition
of Bonds may be subject to Pennsylvania personal or corporate income
taxes. Those gains which are distributed by the Fund to Unit holders who
are individuals may be subject to Pennsylvania Personal Income Tax. For
Unit holders which are corporations, the distributed gains may be
subject to Corporate Net Income Tax or Mutual Thrift Institutions Tax.
Gains which are not distributed by the Fund may nevertheless be taxable
to Unit holders if derived by the Fund from the sale, exchange or other
disposition of Bonds issued on or after February 1, 1994. Gains which
are not distributed by the Fund will remain nontaxable to Unit holders
if derived by the Fund from the sale, exchange or other disposition of
Bonds issued prior to February 1, 1994.
Any proceeds paid under insurance policies issued to the Trustee or
obtained by issuers of the Bonds with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Pennsylvania gross income if, and to the same
extent as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations;
Page 4 of 12
The Fund is not taxable as a corporation under Pennsylvania tax laws
applicable to corporations.
Federal and Pennsylvania State Tax-Free Income
The following table shows the approximate marginal taxable yields for
individuals that are equivalent to tax-exempt yields under combined
Federal and state taxes, using published Federal tax rates and state tax
rates scheduled to be in effect in 1996. The table incorporates
increased tax rates for higher-income taxpayers that were included in
the Revenue Reconciliation Act of 1993. For cases in which more than one
state bracket falls within a Federal bracket, the higher state bracket
is combined with the Federal bracket. The combined state and Federal tax
rates shown reflect the fact that state tax payments are currently
deductible for Federal tax purposes. The table illustrates what you
would have to earn on taxable investments to equal the tax-exempt yield
for your income tax bracket. The taxable equivalent yields may be
somewhat higher than the equivalent yields indicated in the following
table for those individuals who have adjusted gross incomes in excess of
$117,950. The table does not reflect the effect of the limitations on
itemized deductions and the deduction for personal exemptions. They were
designed to phase out certain benefits of these deductions for higher
income taxpayers. These limitations, in effect, raise the maximum
marginal Federal tax rate to approximately 44% for taxpayers filing a
joint return and entitled to four personal exemptions and to
approximately 41% for taxpayers filing a single return entitled to only
one personal exemption. These limitations are subject to certain
maximums, which depend on the number of exemptions claimed and the total
amount of the taxpayer's itemized deductions. For example, the
limitation on itemized deductions will not cause a taxpayer to lose more
than 80% of his allowable itemized deductions, with certain exceptions.
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD
Taxable Income ($1,000's) Tax-Exempt Yield
________________________ ________________
<C> <C> <S> <C> <C> <C>
5.00% 5.50% 6.00%
Single Return Joint Return Tax Rate* Taxable Equivalent Yield
_____________ ____________ ________ ________________________
$ 0 - 24.0 $ 0 - 40.1 17.4% 6.05 6.66 7.26
24.0 - 58.2 40.1 - 96.9 30.0 7.14 7.86 8.57
58.2 - 121.3 96.9 - 147.7 32.9 7.45 8.20 8.94
121.3 - 263.8 147.7 - 263.8 37.8 8.04 8.84 9.65
Over 263.8 Over 263.8 41.3 8.52 9.37 10.22
</TABLE>
[FN]
* Please note that the table does not reflect (i) any federal or state
limitations on the amounts of allowable itemized deductions, phase-outs
of personal or dependent exemption credits or other allowable credits,
(ii) any local taxes imposed, or (iii) any taxes other than personal
income taxes. The table assumes that federal taxable income is equal to
state income subject to tax, and in cases where more than one state rate
falls within a federal bracket, the highest state rate corresponding to
the highest income within that federal bracket is used.
Page 5 of 12
Pennsylvania Insured Trust, Series 72
Portfolio
Units Rated "AAA"* at the Opening of Business
On the Initial Date of Deposit of the Bonds-August 6, 1996
<TABLE>
<CAPTION>
Aggregate Issue Represented by Sponsor's Redemption Cost to
Principal Contracts to Purchase Bonds (1) Rating (2) Provisions (3) the Trust
_________ _______________________________ __________ ______________ __________
<S> <C> <C> <C> <C>
$ 500,000 Central Greene School District (Greene County, AAA 2006 @ 100 $ 476,505
Pennsylvania), General Obligation, Series A of 2019 @ 100 S.F.
1996 (AMBAC Insured), 5.35%, Due 02/15/2026
500,000 Delaware County Authority (Pennsylvania), College AAA 2005 @ 100 487,720
Revenue, Series of 1995 (Neumann College) 2019 @ 100 S.F.
(Connie Lee Insured), 5.625%, Due 10/01/2025
500,000 + Lycoming County (Pennsylvania) Authority, Hospital AAA 2005 @102 476,610
Revenue (Divine Providence Hospital of the Sisters 2016 @ 100 S.F.
of Christian Charity Obligated Group), 1995 Series
(Connie Lee Insured), 5.50%, Due 11/15/2022
210,000 Northeastern Pennsylvania Hospital and Education AAA 2004 @ 102 208,016
Authority, University Revenue, Series of 1993 2012 @ 100 S.F.
(Wilkes University) (FSA Insured), 5.625%,
Due 10/01/2018
600,000 + Pennsylvania Intergovernmental Cooperation AAA 2003 @ 100 539,766
Authority, Special Tax Revenue Refunding (City of 2014 @ 100 S.F.
Philadelphia Funding Program), Series of 1993A
MBIA Insured), 5.00%, Due 06/15/2022
150,000 Pennsylvania Higher Educational Facilities AAA 2006 @ 100 149,986
Authority (Commonwealth of Pennsylvania), Revenue, 2022 @ 100 S.F.
State System of Higher Education, Series N (MBIA
Insured), 5.80%, Due 06/15/2024
500,000 + City of Philadelphia, Pennsylvania, Water and AAA 2003 @ 100 457,580
Wastewater Revenue, Series 1993 (MBIA Insured),
5.00%, Due 06/15/2017
__________ __________
$2,960,000 $2,796,183
========== ==========
</TABLE>
[FN]
______________
* Units are rated "AAA" as a result of insurance. Such rating, as
issued by Standard & Poor's, will be in effect for a period of thirteen
months from the Initial Date of Deposit and will, unless renewed,
terminate at the end of the period. See "Why and How are the Insured
Trusts Insured?"
+ These Bonds were issued at an original issue discount on the
following dates and at the following percentages of their original
principal amount:
<TABLE>
<CAPTION>
Date %
_____ _____
<S> <C> <C>
Lycoming County (Pennsylvania) Authority, Hospital Revenue 11/15/95 94.630%
Pennsylvania Intergovernmental Cooperation Authority 8/15/93 92.126%
City of Philadelphia, Pennsylvania, Water and Wastewater Revenue 8/01/93 90.440%
</TABLE>
For industry concentrations of the Bonds in the Trust, see page 1.
See "Notes to Portfolio" on page 7.
Page 6 of 12
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from July 29, 1996 to August 5, 1996. All contracts to purchase
Bonds are expected to be settled on or prior to August 9, 1996 unless
otherwise indicated.
Other information regarding the Bonds in the Trust on the Initial Date
of Deposit is as follows:
<TABLE>
<CAPTION>
Aggregate Annual Annual
Offering Cost of Profit or Insurance Interest
Price of Bonds to (Loss) to Bid Price Cost to Income
Trust Bonds Sponsor Sponsor of Bonds Trust to Trust
_____ _________ ________ _________ _________ _________ ________
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Insured Trust,
Series 72 $2,796,183 $2,772,172 $24,011 $2,781,383 $ - $157,888
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor
reflects underwriting profits or losses received or incurred by the
Sponsor through its participation in underwriting syndicates but such
amounts reflect the cost of insurance obtained by the Sponsor prior to
the Initial Date of Deposit for individual Bonds, portfolio hedging
transaction costs and hedging gains and losses. The Offering and Bid
Prices of Bonds were determined by Securities Evaluation Service, Inc.,
certain shareholders of which are officers of the Sponsor.
(2) All ratings are by Standard & Poor's unless otherwise indicated.
Such ratings were obtained from a municipal bond information reporting
service. The "AAA" rating on each Bond is a result of insurance.
Insurance, however, does not cover certain market risks associated with
fixed income securities such as accelerated payments of principal,
mandatory redemptions prior to maturity or interest rate risks. See "Why
and How are the Insured Trusts Insured?" in Part II of this Prospectus
and "Description of Bond Ratings" in the Information Supplement.
(3) There is shown under this heading the year in which each issue of
Bonds initially is redeemable and the redemption price for that year or,
if currently redeemable, the redemption price in effect on the Initial
Date of Deposit. Issues of Bonds are redeemable at declining prices (but
not below par value) in subsequent years except for original issue
discount Bonds which are redeemable at prices based on the issue price
plus the amount of original issue discount accreted to the redemption
date plus, if applicable, some premium, the amount of which will decline
in subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of Bonds. In addition, certain Bonds in the
portfolio may be redeemed in whole or in part other than by operation of
the stated redemption or sinking fund provisions under certain unusual
or extraordinary circumstances specified in the instruments setting
forth the terms and provisions of such Bonds. See "What are Certain
General Matters Relating to the Trusts?-Risk Factors" in Part II of this
Prospectus for a discussion of Bond redemptions and a description of
certain of such unusual or extraordinary circumstances under which Bonds
may be redeemed. Distributions will generally be reduced by the amount
of the income which would otherwise have been paid with respect to
redeemed Bonds and there will be distributed to Unit holders the
principal amount and any premium received on such redemption (except to
the extent the proceeds of the redeemed Bonds are used to pay for Unit
redemptions). The estimated current return and the estimated long-term
return in this event may be affected by such redemptions. For the
Federal and state tax effect on Unit holders of such redemptions and
resultant distributions, see "Rights of Unit Holders-What is the Federal
Tax Status of Unit Holders?" in Part II of this Prospectus and
"Pennsylvania Tax Status."
Page 7 of 12
Pennsylvania Insured Trust, Series 72
Statement of Net Assets
(The First Trust Combined Series 265)
At the Opening of Business on the Initial Date of Deposit
August 6, 1996
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $2,796,183
Accrued interest on underlying bonds (2)(3)(4) 43,960
__________
2,840,143
Less distributions payable (4) 43,960
__________
Net assets $2,796,183
==========
Outstanding units 2,960
ANALYSIS OF NET ASSETS
Cost to investors (5) $2,940,256
Less gross underwriting commissions (5) 144,073
__________
Net assets $2,796,183
==========
</TABLE>
(1) The aggregate offering price of the bonds for the Trust at the
opening of business on the Initial Date of Deposit and the cost to the
Trust are the same. The offering price is determined by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
bonds, an irrevocable letter of credit has been deposited in the Trust
as collateral. The amount of available letter of credit and the amount
expected to be utilized as collateral for the Trust is shown below. The
amount expected to be utilized is (a) the cost to the Trust of the
principal amount of the bonds to be purchased, (b) accrued interest on
those bonds to the Initial Date of Deposit, and (c) accrued interest on
those bonds from the Initial Date of Deposit to the expected dates of
delivery of the bonds.
<TABLE>
<CAPTION>
Accrued
Aggregate Accrued Interest to
Letter of Credit Offering Interest to Expected
To be Price of Date of Dates of
Trust Available Utilized Bonds Deposit Delivery
_____ _________ ________ ________ ___________ ___________
<S> <C> <C> <C> <C> <C>
Pennsylvania Insured Trust,
Series 72 $2,900,000 $2,840,282 $2,796,183 $43,960 $139
</TABLE>
(3) Insurance coverage providing for the scheduled payment of principal
and interest on all Bonds deposited in the Trust and delivered to the
Trustee has been obtained directly by the Bond issuer, the underwriters,
the Sponsor or others prior to the Initial Date of Deposit.
(4) The Trustee will advance to the Trust the amount of net interest
accrued to August 9, 1996, the First Settlement Date, for distribution
to the Sponsor as the Unit holder of record.
(5) The aggregate cost to investors and the aggregate gross underwriting
commissions of 4.9% are computed assuming no reduction of sales charge
for quantity purchases.
Page 8 of 12
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
The First Trust Combined Series 265
Pennsylvania Insured Trust, Series 72
We have audited the accompanying statement of net assets, including the
portfolio, of Pennsylvania Insured Trust, Series 72 ("the Trust"),
included in The First Trust Combined Series 265, as of the opening of
business on August 6, 1996. 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 generally accepted auditing
standards. 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 letter of
credit held by the Trustee and deposited in the Trust on August 6, 1996.
An audit also includes assessing the accounting principles used and
significant estimates made by the Sponsor, as well as evaluating the
overall presentation of the 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 Pennsylvania
Insured Trust, Series 72, included in The First Trust Combined Series
265, at the opening of business on August 6, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 6, 1996
Page 9 of 12
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Page 10 of 12
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Page 11 of 12
FIRST TRUST (registered trademark)
PENNSYLVANIA INSURED TRUST
Series 72
Prospectus
Part I
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-414
Trustee:
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART ONE MUST BE
ACCOMPANIED BY PART TWO.
August 6, 1996
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 12 of 12
THE FIRST TRUST COMBINED SERIES
Prospectus Part II
Dated May 16, 1996
THIS PART II OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY PART I. BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
FURTHER DETAIL REGARDING CERTAIN OF THE INFORMATION PROVIDED IN THE
PROSPECTUS IN THE FORM OF AN "INFORMATION SUPPLEMENT" MAY BE OBTAINED
WITHIN FIVE BUSINESS DAYS BY CALLING THE TRUSTEE AT 1-800-682-7520.
IN THE OPINION OF COUNSEL, INTEREST INCOME TO THE TRUSTS AND TO UNIT
HOLDERS, WITH CERTAIN EXCEPTIONS, IS EXEMPT UNDER EXISTING LAW FROM ALL
FEDERAL INCOME TAXES. IN ADDITION, THE INTEREST INCOME TO THE TRUSTS IS,
IN THE OPINION OF SPECIAL COUNSEL, EXEMPT TO THE EXTENT INDICATED FROM
STATE AND LOCAL TAXES WHEN HELD BY RESIDENTS OF THE STATE IN WHICH THE
ISSUERS OF THE BONDS IN SUCH TRUST ARE LOCATED. CAPITAL GAINS, IF ANY,
ARE SUBJECT TO TAX.
What is the First Trust Combined Series?
The First Trust Combined Series is one of a series of investment
companies created by the Sponsor, all of which are generally similar but
each of which is separate and is designated by a different series
number. This Series consists of underlying separate unit investment
trusts set forth in each Part I of this Prospectus (such Trusts being
collectively referred to herein as the "Fund"). This Series was created
under the laws of the State of New York pursuant to a Trust Agreement
(the "Indenture"), dated the Initial Date of Deposit, with Nike
Securities L.P., as Sponsor, The Chase Manhattan Bank (National
Association), as Trustee, Securities Evaluation Service, Inc., as
Evaluator and First Trust Advisors L.P., as Portfolio Supervisor. On the
Initial Date of Deposit, the Sponsor deposited with the Trustee interest-
bearing obligations, including delivery statements relating to contracts
for the purchase of certain such obligations and an irrevocable letter
of credit issued by a financial institution in the amount required for
such purchases (the "Bonds"). The Trustee thereafter credited the
account of the Sponsor for Units of each Trust representing the entire
ownership of the Fund which Units are being offered hereby. The various
trusts are collectively referred to herein as the "Trusts" while all
Trusts that are not designated as "The First Trust Advantage" are
sometimes collectively referred to herein as the "Insured Trusts" and a
Trust with the name designation of "The First Trust of Insured Municipal
Bonds, Discount Trust" or "The First Trust Advantage: Discount Trust" is
sometimes referred to herein as a "Discount Trust."
The objectives of the Fund are Federal tax-exempt income and state and
local tax-exempt income and conservation of capital through investment
in portfolios of interest-bearing obligations issued by or on behalf of
the state for which such Trust is named (collectively, the "State
Trusts"), and counties, municipalities, authorities and political
subdivisions thereof, territories or municipalities of the United
States, or authorities or political subdivisions thereof, the interest
on which obligations is, in the opinion of recognized bond counsel to
the issuing governmental authorities, exempt from all Federal income tax
and, where applicable, state and local taxes under existing law although
interest on certain Bonds in certain Trusts as indicated in Part I of
this Prospectus will be a preference item for purposes of the
Alternative Minimum Tax. Insurance guaranteeing the scheduled payment of
all principal and interest on Bonds in the Trusts with the name
designation of "The First Trust of Insured Municipal Bonds," "The First
Trust of Insured Municipal Bonds-Intermediate" or "The First Trust of
Insured Municipal Bonds-Multi-State" (the "Insured Trusts") has
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
been obtained by such Trusts from Financial Guaranty Insurance Company
("FGIC") and/or AMBAC Indemnity Corporation ("AMBAC") or was obtained
directly by the Bond issuer, the underwriters, the Sponsor or others
prior to the Initial Date of Deposit from FGIC, AMBAC or other insurers
(the "Preinsured Boonds"). NO PORTFOLIO INSURANC POLICY HAS BEEN
OBTAINED BY THE TRUSTS WITH THE NAME DESIGNATION OF "THE FIRST TRUST
ADVANTAGE" (THE "ADVANTAGE TRUSTS"). The portfolio insurance obtained
by the Insured Trusts is effective only while the Bonds thus insured are
held in such Trusts, while insurance on Preinsured Bonds is effective so
long as such Bonds are outstanding. See "Why and How are the Insured
Trusts Insured?"
On the Initial Date of Deposit, the Sponsor established a percentage
relationship between the amounts of Bonds in each Trust's portfolio.
From time to time following the Initial Date of Deposit, the Sponsor,
pursuant to the Indenture, may deposit additional Bonds in a Trust and
Units may be continuously offered for sale to the public by means of
this Prospectus, resulting in a potential increase in the outstanding
number of Units of a Trust. Any deposit of additional Bonds will
duplicate, as nearly as is practicable, the original proportionate
relationship and not the actual proportionate relationship on the
subsequent date of deposit. The actual proportionate relationship may
differ from the original proportionate relationship due to the sale,
redemption or liquidation of any of the Bonds deposited in a Trust on
the Initial Date of Deposit, or any subsequent date of deposit. See "How
May Bonds be Removed from the Fund?" Since the prices of the underlying
Bonds will fluctuate daily, the ratio, on a market value basis, will
also change daily. The portion of Bonds represented by each Unit will
not change as a result of the deposit of additional Bonds in a Trust.
On the Initial Date of Deposit, each Unit of a Trust represented the
undivided fractional interest in the Bonds deposited in a Trust set
forth under "Summary of Essential Information" appearing in each Part I
of this Prospectus. To the extent that Units of a Trust are redeemed,
the aggregate value of the Bonds in a Trust will be reduced and the
undivided fractional interest represented by each outstanding Unit of a
Trust will increase, although the actual interest in such Trust
represented by such fraction will remain substantially unchanged. Units
will remain outstanding until redeemed upon tender to the Trustee by any
Unit holder, which may include the Sponsor, or until the termination of
the Trust Agreement. However, if additional Units are issued by a Trust
in connection with the deposit of additional Bonds by the Sponsor, the
aggregate value of the Bonds in a Trust will be increased by amounts
allocable to additional Units, and the fractional undivided interest
represented by each Unit of a Trust will be decreased proportionately.
See "How May Units be Redeemed?" Each Trust has a Mandatory Termination
Date as set forth under "Summary of Essential Information" appearing in
each Part I of this Prospectus.
Risk Factors. An investment in the Trusts should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer or an insurer to pay the principal
of or interest on a bond when due, volatile interest rates, early call
provisions, and changes to the tax status of the Bonds. There is, of
course, no guarantee that the Trusts' objectives will be achieved. See
"What are Certain General Matters Relating to the Trusts?-Risk Factors."
What are Certain General Matters Relating to the Trusts?
In selecting Bonds, the following facts, among others, were considered:
(i) the Standard & Poor's rating or Fitch Investors Service, Inc.'s
rating of the Bonds was in no case less than "BBB" in the case of an
Insured Trust and "A-" in the case of an Advantage Trust, or the Moody's
rating of the Bonds was in no case less than "Baa" in the case of an
Insured Trust and "A" in the case of an Advantage Trust, including
provisional or conditional ratings, respectively, or, if not rated, the
Bonds had, in the opinion of the Sponsor, credit characteristics
sufficiently similar to the credit characteristics of interest-bearing
tax-exempt obligations that were so rated as to be acceptable for
acquisition by the Fund (see "Description of Bond Ratings"); (ii) the
prices of the Bonds relative to other bonds of comparable quality and
maturity; (iii) with respect to the Insured Trusts, the availability and
cost of insurance of the principal and interest on the Bonds and (iv)
the diversification of Bonds as to purpose of issue and location of
issuer. Subsequent to the Initial Date of Deposit, a Bond may cease to
be rated or its rating may be reduced below the minimum required as of
the Initial Date of Deposit. Neither event requires elimination of such
Bond from the portfolio, but may be considered in the Sponsor's
determination as to whether or not to direct the Trustee to dispose of
Page 2
the Bond. See "Rights of Unit Holders-How May Bonds be Removed from the
Fund?" For additional risks specific to the individual State Trusts see
"Risk Factors" appearing in Part I for each State Trust.
Risk Factors
The following paragraphs briefly discuss certain circumstances which
may adversely affect the ability of issuers of Bonds held in the
portfolio of a Trust to make payment of principal and interest thereon,
and which also therefore may adversely affect the ratings of such Bonds.
With respect to the Insured Trusts, however, because of the insurance on
the Bonds, such changes should not adversely affect either (i) an
Insured Trust's receipt of principal and interest on any individual
Bonds, or (ii) the Units' triple-A rating. For economic risks specific
to the individual State Trusts, see each Part I of this Prospectus and
the Information Supplement to this Prospectus. Certain of the Trusts may
contain some of the following types of Bonds:
Discount Bonds are Bonds which have been acquired at a market discount
from par value at maturity. The coupon interest rates on the discount
bonds at the time they were purchased and deposited in the Trusts were
lower than the current market interest rates for newly issued bonds of
comparable rating and type. The market discount on previously issued
bonds will increase when interest rates for newly issued comparable
bonds increase and decrease when such interest rates fall, other things
being equal. A discount bond held to maturity will have a larger portion
of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond
newly issued at current market rates. See "What is the Federal Tax
Status of Unit Holders?"
Original Issue Discount Bonds are Bonds which are originally issued at
a price which represents a discount from the Bonds' stated redemption
price at maturity. Under current law, the original issue discount is
deemed to accrue on a daily basis and the accrued portion is treated as
tax-exempt interest income for Federal income tax purposes. On sale or
redemption, any gain realized in excess of the earned portion of
original issue discount will be taxable as capital gain unless the gain
is attributable to market discount in which case the accretion of market
discount is taxable as ordinary income. See "What is the Federal Tax
Status of Unit Holders?" The current value of an original issue discount
bond reflects the present value of its stated redemption price at
maturity. The market value tends to increase in greater increments as
the Bonds approach maturity.
Zero Coupon Bonds represent a certain type of original issue discount
bonds which do not provide for the payment of any current interest and
generally provide for payment at maturity at face value unless sooner
sold or redeemed. Zero Coupon Bonds may be subject to greater price
volatility than conventional bonds. Zero Coupon Bond features include
(1) not paying interest on a semi-annual basis and (2) providing for the
reinvestment of the bond's semi-annual earnings at the bond's stated
yield to maturity. While Zero Coupon Bonds are frequently marketed on
the basis that their fixed rate of return minimizes reinvestment risk,
this benefit can be negated in large part by weak call protection.
Premium Bonds are Bonds which have been acquired at a market premium
from par value at maturity. The coupon interest rates on the premium
bonds at the time they were purchased and deposited in the Trusts were
higher than the current market interest rates for newly issued bonds of
comparable rating and type. The current returns of such bonds are
initially higher than the current returns of comparable bonds issued at
currently prevailing interest rates because premium bonds tend to
decrease in market value as they approach maturity when the face amount
becomes payable. Because part of the purchase price is thus returned not
at maturity but through current income payments, early redemption of a
premium bond at par or early prepayments of principal will result in a
reduction in yield. Redemptions are more likely to occur at times when
the Bonds have an offering side valuation which represents a premium
over par, or for original issue discount Bonds, a premium over the
accreted value. To the extent that the Bonds were deposited in the Fund
at a price higher than the price at which they are redeemed, this will
represent a loss of capital when compared to the original Public
Offering Price of the Units. The Trust may be required to sell Zero
Coupon Bonds prior to maturity (at their current market price which is
likely to be less than their par value) in order to pay expenses of the
Trust or in case the Trust is terminated. See "Rights of Unit Holders:
How May Bonds be Removed from the Fund?" and "Other Information: How May
the Indenture be Amended or Terminated?"
Page 3
General Obligation Bonds are general obligations of a governmental
entity that are backed by the taxing power of such entity. All other
Bonds in the Trusts are revenue bonds payable from the income of a
specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds, on the other hand, are payable
only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. There are, of course, variations in
the security of the different Bonds, both within a particular
classification and between classifications, depending on numerous
factors.
Healthcare Revenue Bonds are obligations of issuers whose revenues are
primarily derived from services provided by hospitals or other health
care facilities, including nursing homes. A health care issuer's ability
to make debt service payments on these obligations is dependent on
various factors, including occupancy levels of the facility, demand,
government regulations, wages of employees, overhead expenses,
competition from other similar providers, malpractice insurance costs
and the degree of governmental financial assistance, including Medicare
and Medicaid and other similar third-party payer programs.
Housing Revenue Bonds are obligations of issuers whose revenues are
primarily derived from mortgage loans on single family residences or
housing projects for low to moderate income families. Housing Revenue
Bonds are generally payable at any time and therefore their average life
will ordinarily be less than their stated maturities. The ability of
such issuers to make debt service payments on these obligations is
dependent on various factors, including occupancy levels, rental income,
mortgage default rates, taxes, operating expenses, governmental
regulations and the appropriation of subsidies.
Water and Sewerage Revenue Bonds are obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services.
Such Bonds are generally payable from user fees. Problems faced by such
issuers include the ability to obtain timely and adequate rate
increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering
new supplies of fresh water, the effect of conservation programs and the
impact of "no-growth" zoning ordinances.
Electric Utility Revenue Bonds are obligations of issuers whose
revenues are primarily derived from the sale of electric energy.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be
charged and the appropriate rate of return. The problems faced by such
issuers include the difficulty in obtaining approval for timely and
adequate rate increases from the governing public utility commission,
the difficulty in financing large construction programs, increased
Federal, state and municipal government regulations, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of
future demand for electricity in certain areas of the country, the
difficulty in obtaining fuel at reasonable prices and the effect of
energy conservation.
Lease Obligation Revenue Bonds are obligations issued primarily by
governmental authorities that have no taxing power or other means of
directly raising revenues. Rather, the governmental authorities are
financing vehicles created solely for the construction of buildings
(i.e., schools, administrative offices, convention centers and prisons)
or the purchase of equipment (i.e., police cars and computer systems)
that will be used by a state or local government (the "lessee"). These
obligations are subject to the ability and willingness of the lessee
government to meet its lease rental payments which include debt service
on the obligations. Lease obligations are subject, in almost all cases,
to annual appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments beyond the
current fiscal year, or construction and abatement risk-rental
obligations cease in the event that delays in building, damage,
destruction or condemnation of the project prevents its use by the lessee.
Industrial Revenue Bonds ("IRBs") are tax-exempt securities issued by
states, municipalities, public authorities or similar entities to
finance the cost of acquiring, constructing or improving various
industrial projects. Debt service payments on IRBs is dependent upon
various factors, including the creditworthiness of the corporate
operator of the project and, if applicable, corporate guarantor,
revenues generated from the project, expenses associated with the
project and regulatory and environmental restrictions.
Transportation Facility Revenue Bonds are obligations payable from and
secured by revenues derived from the ownership and operation of
Page 4
facilities such as airports, bridges, turnpikes, port authorities,
convention centers and arenas. The ability of issuers to make debt
service payments on airport obligations is dependent on the capability
of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other
factors, many airlines may have difficulty meeting their obligations
under these use agreements. Similarly, payment on Bonds related to other
facilities is dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues
due to such factors as increased cost of maintenance, decreased use of a
facility, lower cost of alternative modes of transportation, scarcity of
fuel and reduction or loss of rents.
Educational Obligation Revenue Bonds are obligations of issuers which
govern the operation of, schools, colleges and universities and whose
revenues are derived mainly from ad valorem taxes, or for higher
education systems, from tuition, dormitory revenues, grants and
endowments. General problems relating to school bonds include litigation
contesting the state constitutionality of financing public education in
part from ad valorem taxes. General problems relating to college and
university obligations include the prospect of a declining percentage of
"college" age individuals, possible inability to raise tuitions and fees
sufficiently to cover increased operating costs, the uncertainty of
continued receipt of Federal grants and state funding and new government
legislation or regulations which may adversely affect the revenues or
costs of such issuers.
Resource Recovery Facility Revenue Bonds are obligations which are
payable from and secured by revenues derived from the operation of
facilities designed to process solid waste, generate steam and convert
steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of certain
circumstances, including but not limited to: destruction or condemnation
of a project; contracts relating to a project becoming void,
unenforceable or impossible to perform; changes in the economic
availability of raw materials, operating supplies or facilities
necessary for the operation of a project or technological or other
unavoidable changes adversely affecting the operation of a project;
administrative or judicial actions which render contracts relating to
the projects void, unenforceable or impossible to perform; or impose
unreasonable burdens or excessive liabilities.
Bonds of Issuers Located in the Commonwealth of Puerto Rico. Certain
Trusts may contain Bonds of issuers located in the Commonwealth of
Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore, the
economy is largely dependent for its development upon U.S. policies and
programs that are being reviewed and may be eliminated.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source of semi-
finished manufactured articles on which further manufacturing operations
are performed in Puerto Rico. Since World War II the economic importance
of agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled
sugar monopoly remains an important economic factor and is largely
dependent upon Federal maintenance of sugar prices, the discontinuation
of which could severely affect Puerto Rico sugar production. The level
of tourism is affected by various factors including the strength of the
U.S. dollar. During periods when the dollar is strong, tourism in
foreign countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
Internal Revenue Code provides for a credit against Federal income taxes
for U.S. companies operating on the island if certain requirements are
met. The Omnibus Budget Reconciliation Act of 1993 imposes limits on
such credit, effective for tax years beginning after 1993. In addition,
from time to time proposals are introduced in Congress which, if enacted
into law, would eliminate some or all of the benefits of Section 936.
Although no assessment can be made at this time of the precise effect of
such limitation, it is expected that the limitation of Section 936
credits would have a negative impact on Puerto Rico's economy.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and
does not purport to be a complete or exhaustive description of all
Page 5
adverse conditions to which the issuers of the Bonds are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
of the issuers of Bonds, could affect or could have an adverse impact on
the financial condition of Puerto Rico and various agencies and
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Investors should be aware that many of the Bonds in the Trusts are
subject to continuing requirements such as the actual use of Bond
proceeds or manner of operation of the project financed from Bond
proceeds that may affect the exemption of interest on such Bonds from
Federal income taxation. Although at the time of issuance of each of the
Bonds in the Trusts an opinion of bond counsel was rendered as to the
exemption of interest on such obligations from Federal income taxation,
there can be no assurance that the respective issuers or other obligors
on such obligations will fulfill the various continuing requirements
established upon issuance of the Bonds. A failure to comply with such
requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from
the date of issuance of such Bonds, thereby reducing the value of the
Bonds and subjecting Unit holders to unanticipated tax liabilities.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions,
special or extraordinary redemption provisions or otherwise. See
"Portfolio" in each Part I of this Prospectus for the earliest scheduled
call date and the initial redemption price for each Bond. A bond subject
to optional call is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A bond subject to sinking
fund redemption is one which is subject to partial call from time to
time at par or, in the case of a zero coupon bond, at the accreted value
from a fund accumulated for the scheduled retirement of a portion of an
issue prior to maturity. Special or extraordinary redemption provisions
may provide for redemption at par (or for original issue discount bonds
at issue price plus the amount of original issue discount accreted to
redemption date plus, if applicable, some premium) of all or a portion
of an issue upon the occurrence of certain circumstances specified in a
Bond's "Official Statement." The exercise of redemption or call
provisions will (except to the extent the proceeds of the called Bonds
are used to pay for Unit redemptions) result in the distribution of
principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the long-term return and the
current return on Units of each Trust. Redemption pursuant to call
provisions is more likely to occur, and redemption pursuant to sinking
fund provisions may occur, when the Bonds have an offering side
valuation which represents a premium over par or for original issue
discount bonds a premium over the accreted value. Unit holders may
recognize capital gain or loss upon any redemption or call.
The contracts to purchase Bonds delivered to the Trustee represent an
obligation by issuers or dealers to deliver Bonds to the Sponsor for
deposit in each Trust. Contracts are typically settled and the Bonds
delivered within a few business days subsequent to the Initial Date of
Deposit. The percentage of the aggregate principal amount of the Bonds
of each Trust relating to "when, as and if issued" Bonds or other Bonds
with delivery dates after the date of settlement for a purchase made on
the Initial Date of Deposit, if any, is indicated in "Portfolio"
appearing in each Part I of this Prospectus. Interest on "when, as and
if issued" and delayed delivery Bonds begins accruing to the benefit of
Unit holders on their dates of delivery. Because "when, as and if
issued" Bonds have not yet been issued, as of the Initial Date of
Deposit each Trust is subject to the risk that the issuers thereof might
decide not to proceed with the offering of such Bonds or that the
delivery of such Bonds or the delayed delivery Bonds may be delayed. If
such Bonds, or replacement bonds described below, are not acquired by a
Trust or if their delivery is delayed, the Estimated Long-Term Return
and the Estimated Current Return (if applicable) shown in "Special Trust
Information" appearing in each Part I of this Prospectus for that Trust
may be reduced.
Page 6
In the event of a failure to deliver any Bond that has been purchased
for a Trust under a contract, including those Bonds purchased on a
"when, as and if issued" basis ("Failed Bonds"), the Sponsor is
authorized under the Indenture to direct the Trustee to acquire other
specified bonds ("New Bonds") to make up the original corpus of such
Trust. The New Bonds must be purchased within twenty days after delivery
of the notice of the failed contract and the purchase price (exclusive
of accrued interest) may not exceed the amount of funds reserved for the
purchase of the Failed Bonds. The New Bonds (i) must satisfy the
criteria previously described for Bonds originally included in the
Trust, (ii) must have a fixed maturity date of at least ten years or, in
the case of a shorter term Trust, within the range of maturities of the
Bonds initially deposited in such Trust, but not exceeding the maturity
date of the Failed Bonds, (iii) must be purchased at a price that
results in a yield to maturity and in a current return, in each case as
of the Initial Date of Deposit, at least equal to that of the Failed
Bonds, (iv) shall not be "when, as and if issued" bonds, (v) with
respect to an Insured Trust, at the time of acquisition must be insured
under either the insurance policy obtained by such Insured Trust or an
insurance policy obtained by the Bond issuer, the underwriters, the
Sponsor or others and (vi) shall have the benefit of exemption from
Federal and state taxation on interest to an equal or greater extent
than the Failed Bonds they replace. Whenever a New Bond has been
acquired for a Trust, the Trustee shall, within five days thereafter,
notify all Unit holders of such Trust of the acquisition of the New Bond
and shall, on the next monthly distribution date which is more than 30
days thereafter, make a pro rata distribution of the amount, if any, by
which the cost to such Trust of the Failed Bond exceeded the cost of the
New Bond plus accrued interest. Once the original corpus of a Trust is
acquired, the Trustee will have no power to vary the investment of such
Trust, i.e., the Trustee will have no managerial power to take advantage
of market variations to improve a Unit holder's investment.
If New Bonds are not acquired in the event of a failed contract, the
Sponsor shall refund the sales charge attributable to such failed
contract to all Unit holders of the affected Trust, and the principal
and accrued interest (at the coupon rate of the relevant Bond to the
date the Sponsor is notified of the failure) attributable to such failed
contract shall be distributed not more than thirty days after the
determination of such failure or at such earlier time as the Trustee in
its sole discretion deems to be in the interest of the Unit holders of
the affected Trust. The portion of such interest paid to a Unit holder
which accrued after the expected date of settlement for purchase of his
Units will be paid by the Sponsor and accordingly will not be treated as
tax-exempt income.
To the best knowledge of the Sponsor, there is no litigation pending as
of the Initial Date of Deposit in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the
Trusts. At any time after the Initial Date of Deposit, litigation may be
initiated on a variety of grounds with respect to Bonds in a Trust. Such
litigation may affect the validity of such Bonds or the tax-free nature
of the interest thereon. While the outcome of litigation of such nature
can never be entirely predicted, the Fund has received opinions of bond
counsel to the issuing authority of each Bond on the date of issuance to
the effect that such Bonds have been validly issued and that the
interest thereon is exempt from Federal income taxes and state and local
taxes, except that interest income of certain Bonds in certain Trusts
may be included as an item of tax preference in calculating the
Alternative Minimum Tax applicable to both individuals and corporations.
In addition, other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
What are Estimated Long-Term Return and Estimated Current Return?
At the opening of business on the Initial Date of Deposit, the
Estimated Current Return (if applicable) and the Estimated Long-Term
Return under the monthly and semi-annual distribution plans are as set
forth in "Special Trust Information" appearing in Part I of this
Prospectus for each Trust. Estimated Current Return is computed by
dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Any change in either amount will result in a change in
the Estimated Current Return. For each Trust, the Public Offering Price
will vary in accordance with fluctuations in the prices of the
underlying Bonds and the Net Annual Interest Income per Unit will change
as Bonds are redeemed, paid, sold or exchanged in certain refundings or
as the expenses of each Trust change. Therefore, there is no assurance
that the Estimated Current Return (if applicable) appearing in Part I of
this Prospectus will be realized in the future. Estimated Long-Term
Return is calculated using a formula which (1) takes into consideration
Page 7
and determines and factors in the relative weightings of the market
values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Bonds in the Trust and (2) takes into account a compounding factor and
the expenses and sales charge associated with each Unit of a Trust.
Since the market values and estimated retirements of the Bonds and the
expenses of the Trust will change, there is no assurance that the
Estimated Long-Term Return indicated in Part I of this Prospectus will
be realized in the future. Estimated Current Return and Estimated Long-
Term Return are expected to differ because the calculation of Estimated
Long-Term Return reflects the estimated date and amount of principal
returned while Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price as of the Initial Date
of Deposit. Neither rate reflects the true return to Unit holders, which
is lower, because neither includes the effect of certain delays in
distributions to Unit holders.
In order to acquire certain of the Bonds contracted for by the Sponsor
for deposit in a Trust, it may be necessary to pay on the settlement
dates for delivery of such Bonds amounts covering accrued interest on
such Bonds which exceed the amounts furnished by the Sponsor. The
Trustee has agreed to pay for any amounts necessary to cover any such
excess and will be reimbursed therefor, without interest, when funds
become available from interest payments on the particular Bonds with
respect to which such payments have been made. Also, since interest on
the Bonds in a Trust does not begin accruing as tax-exempt interest
income to the benefit of Unit holders until their respective dates of
delivery, the Trustee will, in order to obtain for the Unit holders the
estimated net annual interest income during the first year of each
Trust's operations as is indicated in the "Special Trust Information"
appearing in each Part I of this Prospectus, reduce its fee and, to the
extent necessary, pay expenses of each Trust in an amount equal to the
amount of interest that would have so accrued on such Bonds between the
settlement date of units purchased on the Initial Date of Deposit and
such dates of delivery.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust.
How is Accrued Interest Treated?
Accrued interest is the accumulation of unpaid interest on a bond from
the last day on which interest thereon was paid. Interest on Bonds
generally is paid semi-annually, although the Trust accrues such
interest daily. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason,
with respect to sales settling subsequent to the First Settlement Date,
the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement. Unit
holders will receive on the next distribution date of the Trust the
amount, if any, of accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would
otherwise have to be paid in addition to the Public Offering Price in
the sale of Units to the public, the Trustee will advance the amount of
accrued interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unit Holders-How are Interest and
Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of
interest actually received by the Trust and distributed to Unit holders.
Therefore, there will always remain an item of accrued interest that is
added to the value of the Units. If a Unit holder sells or redeems all
or a portion of his Units, he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest
Account for distributions to Unit holders and since such Account is non-
interest-bearing to Unit holders, the Trustee benefits thereby.
Page 8
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to the Trusts, for which the Sponsor will be reimbursed in
amounts as set forth under "Special Trust Information" in each Part I of
this Prospectus, the Sponsor will not receive any fees in connection
with its activities relating to the Trusts. Such bookkeeping and
administrative charges may be increased without approval of the Unit
holders by amounts not exceeding proportionate increases under the
category "All Services Less Rent of Shelter" in the Consumer Price Index
published by the United States Department of Labor. First Trust Advisors
L.P., an affiliate of the Sponsor, will receive an annual supervisory
fee, which is not to exceed the amount set forth under "Special Trust
Information" in each Part I of this Prospectus, for providing portfolio
supervisory services for the Trust. Such fee is based on the number of
Units outstanding in each Trust on January 1 of each year except for
Trusts which were established subsequent to the last January 1, in which
case the fee will be based on the number of Units outstanding in such
Trusts as of the respective Dates of Deposit. While the bookkeeping and
administrative charges and the supervisory services fees may exceed the
actual costs of providing such services for this Fund, at no time will
the total amount received for such services rendered to unit investment
trusts of which Nike Securities L.P. is the Sponsor in any calendar year
exceed the aggregate cost to the Sponsor or First Trust Advisors L.P. of
supplying such services in such year.
For each valuation of the Bonds in a Trust after the initial public
offering period, the Evaluator will receive a fee as indicated in the
"Special Trust Information" in each Part I of this Prospectus. The
Trustee pays certain expenses of the Trusts for which it is reimbursed
by the Trust or Trusts. The Trustee will receive for its ordinary
recurring services to a Trust a fee as indicated in the "Special Trust
Information" appearing in each Part I of this Prospectus. For a
discussion of the services performed by the Trustee pursuant to its
obligations under the Indenture, reference is made to the material set
forth under "Rights of Unit Holders." Bankers Trust Company issued the
irrevocable letter of credit for the Fund and provides a line of credit
which the Sponsor may utilize to acquire securities (which may include
certain of the Bonds deposited in the Fund). The Trustee's and
Evaluator's fees are payable monthly on or before each Distribution Date
from the Interest Account of each Trust to the extent funds are
available and then from the Principal Account of such Trust. Since the
Trustee has the use of the funds being held in the Principal and
Interest Accounts for future distributions, payment of expenses and
redemptions and since such Accounts are non-interest-bearing to Unit
holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to the Fund is expected to result from the
use of these funds. Both fees may be increased without approval of the
Unit holders by amounts not exceeding proportionate increases under the
category "All Services Less Rent of Shelter" in the Consumer Price Index
published by the United States Department of Labor.
The aggregate cost of the portfolio insurance obtained by an Insured
Trust is indicated in Note 1 of "Notes to Portfolio" appearing in each
Part I of this Prospectus. The portfolio insurance continues so long as
such Trust retains the Bonds thus insured. Premiums are payable monthly
in advance by the Trustee on behalf of such Trust. The Trustee will
advance the initial premium for the portfolio insurance obtained by an
Insured Trust and will recover its advancement without interest or other
costs to such Trust from interest received on Bonds in such Trust. As
Bonds in the portfolio are redeemed by their respective issuers or are
sold by the Trustee, the amount of premium will be reduced in respect of
those Bonds no longer owned by and held in the Trust which were insured
by insurance obtained by such Trust. Preinsured Bonds in an Insured
Trust are not insured by such Trust. The premium payable for Permanent
Insurance will be paid solely from the proceeds of the sale of such Bond
in the event the Trustee exercises the right to obtain Permanent
Insurance on a Bond. The premiums for such Permanent Insurance with
respect to each Bond will decline over the life of the Bond. An
Advantage Trust is not insured; accordingly, there are no premiums for
insurance payable by such Trust.
Expenses incurred in establishing the Trusts, including costs of
preparing the registration statement, the trust indenture and other
closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of each Trust portfolio, legal
fees, the initial fees and expenses of the Trustee and any other out-of-
pocket expenses, may be paid by the and if paid, will be amortized over a
Page 9
period not to exceed five years from the Initial Date of Deposit. See
"Special Trust Information" appearing in each Part I of this Prospectus for
the amount of such costs, if any, to be borne by such Trusts. The following
additional charges are or may be incurred by a Trust: all expenses (including
legal and annual auditing expenses) of the Trustee incurred by or in
connection with its responsibilities under the Indenture, except in the
event of negligence, bad faith or willful misconduct on its part; the
expenses and costs of any action undertaken by the Trustee to protect the
Trust and the rights and interests of the Unit holders; fees of the Trustee
for any extraordinary services performed under the Indenture; indemnification
of the Trustee for any loss, liability or expense incurred by it without
negligence, bad faith or willful misconduct on its part, arising out of
or in connection with its acceptance or administration of the Trust;
indemnification of the Sponsor for any loss, liability or expense
incurred without gross negligence, bad faith or willful misconduct in
acting as Depositor of the Trust; all taxes and other government charges
imposed upon the Bonds or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsor
contemplated); and expenditures incurred in contacting Unit holders upon
termination of the Trust. The above expenses and the Trustee's annual
fee, when paid or owing to the Trustee, are secured by a lien on the
Trust. In addition, the Trustee is empowered to sell Bonds of a Trust in
order to make funds available to pay all these amounts if funds are not
otherwise available in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required, the
Indenture requires that the accounts of each Trust shall be audited on
an annual basis at the expense of the Trust by independent auditors
selected by the Sponsor. So long as the Sponsor is making a secondary
market for Units, the Sponsor shall bear the cost of such annual audits
to the extent such cost exceeds $.50 per Unit. Unit holders of a Trust
covered by an audit may obtain a copy of the audited financial
statements from the Trustee upon request.
Why and How are the Insured Trusts Insured?
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS. THE
BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED BY
INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as to the
scheduled payment of interest and principal by policies obtained by each
Insured Trust from FGIC or AMBAC, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from one of the insurers listed below or other insurers (the
"Preinsured Bonds"). The claims-paying ability of each of these insurers
was rated AAA by Standard & Poor's or another nationally recognized
rating organization at the time the insured Bonds were purchased for the
Trust. The insurance policy obtained by each Insured Trust is
noncancellable and will continue in force for such Trust so long as such
Trust is in existence and the Bonds described in the policy continue to
be held by such Trust (see "Portfolio" in Part I of the Prospectus for
each Insured Trust). Nonpayment of premiums on the policy obtained by
each Insured Trust will not result in the cancellation of insurance, but
will permit FGIC and/or AMBAC to take action against the Trustee to
recover premium payments due it. Premium rates for each issue of Bonds
protected by the policy obtained by each Insured Trust are fixed for the
life of such Trust. The premium for any Preinsured Bonds has been paid
in advance by the Bond issuer, the underwriters, the Sponsor or others
and any such policy or policies are noncancellable and will continue in
force so long as the Bonds so insured are outstanding and the insurer
and/or insurers thereof remain in business. If the provider of an
original issuance insurance policy is unable to meet its obligations
under such policy, or if the rating assigned to the claims-paying
ability of such insurer deteriorates, FGIC and/or AMBAC has no
obligation to insure any issue adversely affected by either of the above
described events. A monthly premium is paid by each Insured Trust for
the insurance obtained by such Trust, which is payable from the interest
income received by such Trust. In the case of Preinsured Bonds, no
premiums for insurance are paid by the Insured Trust. Further
information concerning the individual insurers can be found in the
Information Supplement to this Prospectus.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
Page 10
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
The following summary information relating to the listed insurance
companies has been obtained from publicly available information:
<TABLE>
<CAPTION>
Financial Information
as of December 31, 1994
(in millions of dollars)
_______________________
Date Admitted Policyholders
Name Established Assets Surplus
________________________________ ____________ ________ _____________
<S> <C> <C> <C>
AMBAC Indemnity Corporation 1970 $2,145 $ 782
Capital Guaranty Insurance Company 1986 304 168
Capital Markets Assurance Corporation 1987 199 140
Connie Lee Insurance Company 1987 194 106
Financial Guaranty Insurance Company 1984 2,131 894
Financial Security Assurance, Inc. 1984 804 344
MBIA Insurance Corporation 1986 3,401 1,110
</TABLE>
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust 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 each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. There is
no guarantee that the "AAA" investment rating with respect to the Units
of an Insured Trust will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is
to obtain a higher yield on the Bonds in the portfolio of such Trust
than would be available if all the Bonds in such portfolio had the
Standard & Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa"
rating(s) and at the same time to have the protection of insurance of
scheduled payment of interest and principal on the Bonds. There is, of
course, no certainty that this result will be achieved. Bonds in a Trust
for which insurance has been obtained by the Bond issuer, the
underwriters, the Sponsor or others (all of which were rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's Investors Service, Inc.) may
or may not have a higher yield than uninsured bonds rated "AAA" by
Standard & Poor's or "Aaa" by Moody's Investors Service, Inc. In
selecting Bonds for the portfolio of each Insured Trust, the Sponsor has
applied the criteria herein before described.
Page 11
Chapman and Cutler, Counsel for the Sponsor, has given an opinion (with
respect to insured Bonds) to the effect that the payment of insurance
proceeds representing maturing interest on defaulted municipal
obligations paid by an insurer would be excludable from Federal gross
income if, and to the same extent as, such interest would have been so
excludable if paid by the issuer of the defaulted obligations provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the obligations, rather than the insurer,
will pay debt service on the obligations. See "What is the Federal Tax
Status of Unit Holders?"
PUBLIC OFFERING
How is the Public Offering Price Determined?
Units are offered at the Public Offering Price. During the initial
offering period, such price is determined by adding to the Evaluator's
determination of the aggregate offering price of the Bonds in each
Trust, an amount as indicated in the following table. During the initial
offering period, the Sponsor's Repurchase Price is equal to the
Evaluator's determination of the aggregate offering price of the Bonds
in a Trust. A National Trust consists of The First Trust of Insured
Municipal Bonds. A State Trust consists of The First Trust of Insured
Municipal Bonds-Multi-State and/or The First Trust Advantage other than
an Intermediate, Long Intermediate, Short Intermediate or Discount
Trust. An Intermediate, Long Intermediate, Short Intermediate or
Discount Trust consists of trusts so designated.
Initial Offering Period (1)
Sales Charge
___________________________
Percentage Percentage
of Public of Net
Offering Amount
Series of the Fund Price Invested
______________________________ ________ _________
National Trusts and State Trusts 4.9% 5.152%
Long Intermediate Trust 4.4 4.603
Intermediate Trust 3.9 4.058
Short Intermediate Trust 3.0 3.093
__________________
(1) The Public Offering Price includes a proportionate share of interest
accrued but unpaid on the Bonds after the First Settlement Date to the
date of settlement. See "General Trust Information-How is Accrued
Interest Treated?"
The applicable sales charge is reduced by a discount as indicated in
"Summary of Essential Information" in each Part 1 of this Prospectus
(except for sales made pursuant to a "wrap fee account" or similar
arrangements as set forth below) for volume purchases.
The Public Offering Price of Units for secondary market purchases will
be determined by adding to the Evaluator's determination of the
aggregate bid price of the Bonds in a Trust, the appropriate sales
charge determined in accordance with the schedule set forth in the
Information Supplement to this Prospectus, based upon the number of
years remaining to the maturity of each Bond in the portfolio of the
Trust, adjusting the total to reflect the amount of any cash held in or
advanced to the principal account of the Trust and dividing the result
by the number of Units of such Trust then outstanding. The minimum sales
charge on Units will be 3% of the Public Offering Price (equivalent to
3.093% of the net amount invested). For purposes of computation, Bonds
will be deemed to mature on their expressed maturity dates unless: (a)
the Bonds have been called for redemption or funds or securities have
been placed in escrow to redeem them on an earlier call date, in which
case such call date will be deemed to be the date upon which they
mature; or (b) such Bonds are subject to a "mandatory tender," in which
case such mandatory tender will be deemed to be the date upon which they
mature. The offering price of Bonds in the Trust may be expected to be
greater than the bid price of such Bonds by approximately 1-2% of the
aggregate principal amount of such Bonds.
An investor may aggregate purchases of Units of two or more consecutive
series of a particular State, National, Discount, Intermediate, Long
Intermediate or Short Intermediate Trust for purposes of calculating the
discount for volume purchases listed above. The purchaser must inform
the Underwriter or dealer of any such combined purchase prior to the
sale in order to obtain the indicated discount. In addition, with
Page 12
respect to the employees, officers and directors (including their
immediate family members, defined as spouses, children, grandchildren,
parents, grandparents, mothers-in-law, fathers-in-law, sons-in-law and
daughters-in-law, and trustees, custodians or fiduciaries for the
benefit of such persons) of the Sponsor and the Underwriters and their
subsidiaries, the sales charge is reduced by 2.0% of the Public Offering
Price for purchases of Units during the primary and secondary public
offering periods.
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer except that with respect to purchases of
Units of $500,000 or more, the Sponsor will reimburse the selling
Underwriter or dealer in an amount equal to $2.50 per Unit (in the case
of a Discount Trust, .25% of the Public Offering Price). The reduced
sales charge structure will apply on all purchases of Units in a Trust
by the same person on any one day from any one Underwriter or dealer
and, for purposes of calculating the applicable sales charge, purchases
of Units in the Fund will be aggregated with concurrent purchases by the
same person from such Underwriter or dealer of Units in any series of
tax-exempt unit investment trusts sponsored by Nike Securities L.P.
Additionally, Units purchased in the name of the spouse of a purchaser
or in the name of a child of such purchaser will be deemed, for the
purpose of calculating the applicable sales charge, to be additional
purchases by the purchaser. The reduced sales charges will also be
applicable to a trustee or other fiduciary purchasing securities for a
single trust estate or single fiduciary account.
Units may be purchased in the primary or secondary market at the Public
Offering Price less the concession the Sponsor typically allows to
dealers and other selling agents for purchases (see "Public Offering-How
are Units Distributed?") by investors who purchase Units through
registered investment advisers, certified financial planners and
registered broker-dealers who in each case either charge periodic fees
for financial planning, investment advisory or asset management
services, or provide such services in connection with the establishment
of an investment account for which a comprehensive "wrap fee" charge is
imposed.
On the Initial Date of Deposit, the Public Offering Price is as
indicated in the "Summary of Essential Information" appearing in each
Part I of this Prospectus. The Public Offering Price during the initial
offering period will vary from day-to-day due to fluctuations in the
amount of interest accrued but unpaid on Bonds in each Trust of the Fund
and/or fluctuations in the prices of the underlying Bonds.
The aggregate price of the Bonds in each Trust is determined by the
evaluator (the "Evaluator"), on the basis of bid prices or offering
prices as is appropriate, (1) on the basis of current market prices for
the Bonds obtained from dealers or brokers who customarily deal in bonds
comparable to those held by the Trust; (2) if such prices are not
available for any of the Bonds, on the basis of current market prices
for comparable bonds; (3) by determining the value of the Bonds by
appraisal; or (4) by any combination of the above. Unless Bonds are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default, the Evaluator will not
attribute any value to the insurance obtained by an Insured Trust. On
the other hand, the value of insurance obtained by the issuer of Bonds
in a Trust is reflected and included in the market value of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds") and
which are covered by insurance obtained by an Insured Trust, the value
of the insurance guaranteeing interest and principal payments. The value
of the insurance will be equal to the difference between (i) the market
value of Defaulted Bonds assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance) and (ii) the market value of such
Defaulted Bonds not covered by Permanent Insurance. In addition, the
Evaluator will consider the ability of FGIC and/or AMBAC to meet its
commitments under the Insured Trust's insurance policy, including the
commitments to issue Permanent Insurance. It is the position of the
Sponsor that this is a fair method of valuing the Bonds and the
insurance obtained by an Insured Trust and reflects a proper valuation
method in accordance with the provisions of the Investment Company Act
of 1940.
During the initial public offering period, a determination of the
aggregate price of the Bonds in a Trust is made by the Evaluator on an
offering price basis, as of the close of trading on the New York Stock
Exchange on each day on which it is open, effective for all sales made
subsequent to the last preceding determination. For purposes of such
determinations, the close of trading on the New York Stock Exchange is
4:00 p.m. Eastern Time. For secondary market purposes, the Evaluator
will be requested to make such a determination, on a bid price basis, as
Page 13
of the close of trading on the New York Stock Exchange on each day on
which it is open, effective for all sales, purchases or redemptions made
subsequent to the last preceding determination.
Although payment is normally made three days following the order for
purchase (the date of settlement), payment may be made prior thereto. A
person will become owner of Units on the date of settlement provided
payment has been received. Cash, if any, made available to the Sponsor
prior to the date of settlement for the purchase of Units may be used in
the Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934.
Delivery of Certificates representing Units so ordered will be made
three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
During the initial offering period, until the primary distribution of
the Units offered by this Prospectus is completed, Units will be offered
to the public at the Public Offering Price, computed as described above,
by the Underwriters, including the Sponsor (see "What are the
Underwriting Concessions?") and through dealers and other selling
agents. The initial offering period may be up to approximately 360 days.
During this period, the Sponsor may deposit additional Bonds in each
Trust and create additional Units. Upon completion of the initial
offering, Units repurchased in the secondary market (see "Public
Offering-Will There be a Secondary Market?") may be offered by this
Prospectus at the secondary market public offering price determined in
the manner described above.
It is the intention of the Sponsor to qualify Units of the Fund for
sale in a number of states. Sales initially will be made to dealers and
other selling agents at prices which represent a concession or agency
commission of $31 per Unit for a National Trust and State Trusts, $27
per Unit for a Long Intermediate Trust, $24 per Unit for an Intermediate
Trust and $18 per Unit for a Short Intermediate Trust. However, resales
of Units of a Trust by such dealers and other selling agents to the
public will be made at the Public Offering Price described in the
Prospectus. The Sponsor reserves the right to change the amount of the
concession or agency commission from time to time. Certain commercial
banks are making Units of the Trusts available to their customers on an
agency basis. A portion of the sales charge paid by these customers is
retained by or remitted to the banks in the amounts indicated above.
Under the Glass-Steagall Act, banks are prohibited from underwriting
Units; however, the Glass-Steagall Act does permit certain agency
transactions and the banking regulators have not indicated that these
particular agency transactions are not permitted under such Act. In
Texas and in certain other states, any banks making Units available must
be registered as broker/dealers under state law. Any broker/dealer or
bank will receive additional concessions for purchases made from the
Sponsor on the Initial Date of Deposit resulting in total concessions as
contained in the following table:
<TABLE>
<CAPTION>
Total Concession per Unit (1)
______________________________
100-249 250-499 500-999 1,000 or More
Units Units Units Units
Series of the Fund Purchased Purchased Purchased Purchased
____________________________ _________ _________ _________ _____________
<S> <C> <C> <C> <C>
National Trust and State Trust $34.00 $35.00 $37.00 $38.00
Long Intermediate Trust $30.00 $31.00 $32.00 $33.00
Intermediate Trust $25.00 $26.00 $27.00 $28.00
Short Intermediate Trust $20.00 $21.00 $22.00 $22.00
</TABLE>
________________
(1) The applicable concession will be allotted to broker/dealers or banks
who purchase Units from the Sponsor only on the Initial Date of Deposit
of a given Trust. However, on purchases subsequent to the broker/dealers
will be entitled to the same concession received, based on the number of
Units they purchased on the Initial Date of Deposit.
What are the Sponsor's Profits?
The Underwriters of each Trust, including the Sponsor, will receive a
gross sales commission equal to 4.9% of the Public Offering Price of the
Units for a National Trust and State Trusts (5.152% of the net amount
invested), 4.4% of the Public Offering Price of the Units for a Long
Page 14
Intermediate Trust (4.603% of the net amount invested), 3.9% of the
Public Offering Price of the Units for an Intermediate Trust (4.058% of
the net amount invested) and 3.0% of the Public Offering Price of the
Units for a Short Intermediate Trust (3.093% of the net amount
invested), less any reduced sales charge for quantity purchases as
described under "Public Offering-How is the Public Offering Price
Determined?" See "What are the Underwriting Concessions?" for
information regarding the receipt of the excess gross sales commissions
by the Sponsor from the other Underwriters and additional concessions
available to Underwriters, dealers and other selling agents. In
addition, the Sponsor and the other Underwriters of each Trust may be
considered to have realized a profit or the Sponsor may be considered to
have sustained a loss, as the case may be for each Trust, in the amount
of any difference between the cost of the Bonds to each Trust (which is
based on the Evaluator's determination of the aggregate offering price
of the underlying Bonds of such Trust on the Initial Date of Deposit as
well as subsequent deposits) and the cost of such Bonds of such Trust to
the Sponsor (including the cost of insurance obtained by the Sponsor
prior to the Initial Date of Deposit for individual Bonds). See "What
are the Underwriting Concessions?" and Note 1 of "Notes to Portfolio"
appearing in each Part I of this Prospectus. Such profits or losses may
be realized or sustained by the Sponsor and the other Underwriters with
respect to Bonds which were acquired by the Sponsor from underwriting
syndicates of which it and the other Underwriters were members. During
the initial offering period, the Underwriters also may realize profits
or sustain losses from the sale of Units to other Underwriters or as a
result of fluctuations after the Initial Date of Deposit or subsequent
dates of deposit in the offering prices of the Bonds and hence in the
Public Offering Price received by the Underwriters.
The Sponsor has not participated as sole underwriter or manager or
member of underwriting syndicates from which any of the Bonds in the
Fund were acquired. An underwriter or underwriting syndicate purchases
bonds from the issuer on a negotiated or competitive bid basis as
principal with the motive of marketing such bonds to investors at a
profit.
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in each Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in each Trust and includes a
sales charge of 5.8% for a National or Discount Trust, 5.8% for a State
Trust, 4.7% for an Intermediate or Long Intermediate Trust and 3.7% for
a Short Intermediate Trust) or redeemed. The secondary market public
offering price of Units may be greater or less than the cost of such
Units to the Sponsor.
What are the Underwriting Concessions?
The Agreement Among Underwriters provides that a public offering of the
Units of each Trust will be made at the Public Offering Price described
in the Prospectus. Units may also be sold to or through dealers and
other selling agents during the initial offering period and in the
secondary market at prices representing a concession or agency
commission as described in "Public Offering-How are Units Distributed?"
The Sponsor will receive from the Underwriters the excess over the
gross sales commission contained in the following table:
<TABLE>
<CAPTION>
Underwriting Concession per Unit
_________________________________
100-249 250-499* 500-999* 1,000 or More*
Units Units Units Units
Series of the Fund Underwritten Underwritten Underwritten Underwritten
____________________________ _____________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
National Trust and State Trust $36.00 $37.00 $38.00 $39.00
Long Intermediate Trust $31.00 $32.00 $33.00 $34.00
Intermediate Trust $27.00 $28.00 $28.00 $29.00
Short Intermediate Trust $20.00 $22.00 $22.00 $22.00
</TABLE>
______________
* Underwriters at this level will participate in any acquisition
profits.
In addition to any other benefits that the Underwriters may realize
from the sale of the Units of a Trust, the Agreement Among Underwriters
provides that the Sponsor will share with the other Underwriters 50% of
the net gain, if any, represented by the difference between the
Page 15
Sponsor's cost of the Bonds in connection with their acquisition
(including the cost of insurance obtained by the Sponsor prior to the
Initial Date of Deposit for individual Bonds and including the effects
of portfolio hedging gains and losses and portfolio hedging transaction
costs) and the Aggregate Offering Price thereof on the Initial Date of
Deposit, less a charge for acquiring the Bonds in the portfolio and for
the Sponsor maintaining a secondary market for the Units. Furthermore,
any underwriter that sells a total of 1,000 Units or more of any
National Trust will receive an additional $2.00 per Unit sold. See
"Public Offering-What are the Sponsor's Profits?" and Note 1 of "Notes
to Portfolio" in each Part I of this Prospectus. McLaughlin, Piven,
Vogel Securities, Inc. ("MPV") and Nike Securities L.P. have an
agreement under which MPV will receive from Nike Securities L.P.
reimbursement for certain costs and further compensation, in addition to
that described above, based on the number of Units it underwrites or
otherwise sells and on the total Units of Nike Securities L.P. products
sold.
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Fund may receive nominal awards from the
Sponsor for each of their registered representatives who have sold a
minimum number of UIT Units during a specified time period. In addition,
at various times the Sponsor may implement other programs under which
the sales force of an Underwriter or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor
will reallow to any such Underwriter or dealer that sponsors sales
contests or recognition programs conforming to criteria established by
the Sponsor, or participates in sales programs sponsored by the Sponsor,
an amount not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to
qualifying Underwriters or dealers for certain services or activities
which are primarily intended to result in sales of Units of the Trusts.
Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trusts. These programs will not change the price
Unit holders pay for their Units or the amount that the Trusts will
receive from the Units sold.
Will There be a Secondary Market?
After the initial offering period, although it is not obligated to do
so, the Sponsor intends to maintain a market for the Units and
continuously to offer to purchase Units at prices, subject to change at
any time, based upon the aggregate bid price of the Bonds in the
portfolio of each Trust plus interest accrued to the date of settlement.
All expenses incurred in maintaining a secondary market, other than the
fees of the Evaluator, the other expenses of the Trust and the costs of
the Trustee in transferring and recording the ownership of Units, will
be borne by the Sponsor. The Sponsor may, at any time, discontinue
purchases of Units at such prices. If a Unit holder wishes to dispose of
his Units, he should inquire of the Sponsor as to current market prices
prior to making a tender for redemption to the Trustee. Prospectuses
relating to certain other bond funds indicate an intention, subject to
change, on the part of the respective sponsors of such funds to
repurchase units of those funds on the basis of a price higher than the
bid prices of the securities in the funds. Consequently, depending upon
the prices actually paid, the repurchase price of other sponsors for
units of their funds may be computed on a somewhat more favorable basis
than the repurchase price offered by the Sponsor for Units of a Trust in
secondary market transactions. As in this Fund, the purchase price per
unit of such bond funds will depend primarily on the value of the
securities in the portfolio of the fund.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made three days following such order or
shortly thereafter. Certificates to be redeemed or transferred must be
surrendered to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. A Unit holder must sign exactly
as his name appears on the face of the certificate with the signature
guaranteed by a participant in the Securities Transfer Agents Medallion
Program ("STAMP") or such other signature guaranty program in addition
to, or in substitution for, STAMP, as may be accepted by the Trustee. In
Page 16
certain instances the Trustee may require additional documents such as,
but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates
for Units will bear an appropriate notation on their face indicating
which plan of distribution has been selected in respect thereof. When a
change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then currently
effective plan of distribution. There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust after deduction of amounts sufficient to
reimburse the Trustee, without interest, for any amounts advanced and
paid to FGIC and/or AMBAC or to the Sponsor as the Unit holder of record
as of the First Settlement Date will be distributed on or shortly after
the last day of each month on a pro rata basis to Unit holders of record
as of the preceding Record Date who are entitled to distributions at
that time under the plan of distribution chosen. All distributions for a
Trust will be net of applicable expenses for such Trust.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. It is anticipated that an amount equal to
approximately one-half of the amount of net annual interest income per
Unit will be distributed on or shortly after each Distribution Date to
Unit holders of record on the preceding Record Date. See "Special Trust
Information" appearing in each Part I of this Prospectus.
Record Dates for monthly distributions of interest are the fifteenth
day of each month. The Distribution Dates for distributions of interest
under the monthly plan is the last day of each month in which the
related Record Date occurs. All Unit holders will receive the first
distribution of interest regardless of the plan of distribution chosen
and all Unit holders will receive such distributions, if any, from the
Principal Account as are made as of the Record Dates for monthly
distributions. PURCHASERS OF UNITS WHO DESIRE TO RECEIVE DISTRIBUTIONS
ON A SEMI-ANNUAL BASIS MAY ELECT TO DO SO AT THE TIME OF PURCHASE DURING
THE INITIAL PUBLIC OFFERING PERIOD. THOSE NOT SO INDICATING WILL BE
DEEMED TO HAVE CHOSEN THE MONTHLY DISTRIBUTION PLAN. The plan of
distribution selected by a Unit holder will remain in effect until
changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the
prior owner. Each year, approximately six weeks prior to the end of May,
the Trustee will furnish each Unit holder a card to be returned to the
Trustee not more than thirty nor less than ten days before the end of
such month. Unit holders desiring to change the plan of distribution in
which they are participating may so indicate on the card and return
same, together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on or
shortly after the last day of each month. Proceeds from the disposition
of any of the Bonds of such Trust (less any premiums due with respect to
Bonds for which the Trustee has exercised the right to obtain Permanent
Insurance) received after such Record Date and prior to the following
Distribution Date will be held in the Principal Account of such Trust
and not distributed until the next Distribution Date. The Trustee is not
required to make a distribution from the Principal Account of a Trust
unless the amount available for distribution shall equal at least $1.00
per Unit.
Page 17
The Trustee will credit to the Interest Account of each Trust all
interest received by such Trust, including that part of the proceeds
(including insurance proceeds if any, paid to an Insured Trust) of any
disposition of Bonds which represents accrued interest. Other receipts
will be credited to the Principal Account of such Trust. The
distribution to the Unit holders of a Trust as of each Record Date will
be made on the following Distribution Date or shortly thereafter and
shall consist of an amount substantially equal to such portion of the
holder's pro rata share of the estimated annual income of such Trust
after deducting estimated expenses. Except through an advancement of its
own funds, the Trustee has no cash for distribution to Unit holders
until it receives interest payments on the Bonds in a Trust. The Trustee
shall be reimbursed, without interest, for any advances from funds in
the Interest Account of such Trust on the ensuing Record Date. Persons
who purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date after
the purchase under the applicable plan of distribution. The Trustee is
not required to pay interest on funds held in the Principal or Interest
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in
a Universal Distribution Option which permits a Unit holder to direct
the Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an existing account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income or
principal on the participant's Units to, among other investment
vehicles, a Unit holder's checking, bank savings, money market,
insurance, reinvestment or any other account. All such distributions, of
course, are subject to the minimum investment and sales charges, if any,
of the particular investment vehicle to which distributions are
directed. The Trustee will notify the participant of each distribution
pursuant to the Universal Distribution Option. The Trustee will
distribute directly to the Unit holder any distributions which are not
accepted by the specified investment vehicle. A participant may at any
time, by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive directly
future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into an
arrangement with Oppenheimer Management Corporation which permits any
Unit holder of a Trust to elect to have each distribution of interest
income or principal on his Units automatically reinvested in shares of
either the Oppenheimer Intermediate Tax-Exempt Bond Fund (the
"Intermediate Series") or the Oppenheimer Insured Tax-Exempt Bond Fund
(the "Insured Series"). Oppenheimer Management Corporation is the
investment adviser of each Series which are open-end, diversified
management investment companies. The investment objective of the
Intermediate Series is to provide a high level of current interest
income exempt from Federal income tax through the purchase of investment
grade securities. The investment objective of the Insured Series is to
provide as high a level of current interest income exempt from Federal
income tax as is consistent with the assurance of the scheduled receipt
of interest and principal through insurance and the preservation of
capital (the income of either Series may constitute an item of
preference for determining the Federal alternative minimum tax). The
objectives and policies of each Series are presented in more detail in
the prospectus for each Series.
Each person who purchases Units of a Trust may contact the Trustee to
request a prospectus describing each Series and a form by which such
person may elect to become a participant in a Distribution Reinvestment
Option with respect to a Series. Each distribution of interest income or
Page 18
principal on the participant's Units will automatically be applied by
the Trustee to purchase shares (or fractions thereof) of a Series
without a sales charge and with no minimum investment requirements.
The shareholder service agent for each Series will mail to each
participant in the Distribution Reinvestment Option confirmations of all
transactions undertaken for such participant in connection with the
receipt of distributions from The First Trust Combined Series and the
purchase of shares (or fractions thereof) of a Series.
A participant may at any time, by so notifying the Trustee in writing,
elect to terminate his participation in the Distribution Reinvestment
Option and receive future distributions on his Units in cash. There will
be no charge or other penalty for such termination. The Sponsor and
Oppenheimer Management Corporation each have the right to terminate the
Distribution Reinvestment Option, in whole or in part.
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for income
tax purposes.
What is the Federal Tax Status of Unit Holders?
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.)
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code for Federal income tax purposes, when received by the Trusts and
when distributed to a Unit holder; however, such interest may be taken
into account in computing the alternative minimum tax, an additional tax
on branches of foreign corporations and the environmental tax (the
"Superfund Tax"). See "Certain Tax Matters Applicable to Corporate Unit
Holders";
(2) each Unit holder of a Trust is considered to be the owner of a pro
rata portion of such Trust under subpart E, subchapter J of chapter 1 of
the Internal Revenue Code of 1986 (hereinafter the "Code") and will have
a taxable event when the Trust disposes of a Bond, or when the Unit
holder redeems or sells his Units. Unit holders must reduce the tax
basis of their Units for their share of accrued interest received by the
Trust, if any, on Bonds delivered after the date the Unit holders pay
for their Units and, consequently, such Unit holders may have an
increase in taxable gain or reduction in capital loss upon the
disposition of such Units. Gain or loss upon the sale or redemption of
Units is measured by comparing the proceeds of such sale or redemption
with the adjusted basis of the Units. If the Trustee disposes of Bonds
(whether by sale, payment on maturity, redemption or otherwise), gain or
loss is recognized to the Unit holder. The amount of any such gain or
loss is measured by comparing the Unit holder's pro rata share of the
total proceeds from such disposition with his basis for his fractional
interest in the asset disposed of. In the case of a Unit holder who
purchases his Units, such basis (before adjustment for earned original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. The tax basis reduction requirements of said
Code relating to amortization of bond premium may, under some
circumstances, result in the Unit holder realizing a taxable gain when
his Units are sold or redeemed for an amount equal to or less than his
original cost; and
Page 19
(3) any insurance proceeds which represent maturing interest on
defaulted obligations held by the Trustee will be excludable from
Federal gross income if, and to the same extent as, such interest would
have been so excludable if paid by the issuer of the defaulted
obligations provided that, at the time such policies are purchased, the
amounts paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the obligations,
rather than the insurer, will pay debt service on the obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based on its issue price (its "adjusted issue price") to prior owners.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of the
Units, unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and Unit
holders should consult their tax advisers regarding these rules and
their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. On December 7, 1995, the
U.S. Treasury Department released proposed legislation that, if adopted,
would generally extend the financial institution rules to all
corporations effective for obligations acquired after the date of
announcement. Investors with questions regarding these issues should
consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
Page 20
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
For purposes of computing the alternative minimum tax applicable to all
taxpayers (including non-corporate taxpayers) subject to the alternative
minimum tax and the Superfund Tax for corporations, interest on certain
private activity bonds (which includes most industrial and housing
revenue bonds) issued on or after August 8, 1986 is included as an item
of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR CERTAIN
TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY BONDS
ISSUED ON OR AFTER THAT DATE.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993.For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. However, the Superfund Tax could
be extended retroactively. Under the provisions of Section 884 of the
Code, a branch profits tax is levied on the "effectively connected
earnings and profits" of certain foreign corporations which include tax-
exempt interest such as interest on the Bonds in the Trust.
Unit holders should consult their tax advisers with respect to the
particular tax consequences to them, including the corporate alternative
minimum tax, the Superfund Tax and the branch profits tax imposed by
Section 884 of the Code. Ownership of the Units may result in collateral
federal income tax consequences to certain taxpayers, including, without
limitation, corporations subject to either the environmental tax or the
branch profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to the Fund
for New York tax matters, under the existing income tax laws of the
State and City of New York, each Trust will not constitute an
association taxable as a corporation under New York law, and accordingly
will not be subject to the New York State franchise tax or the New York
City general corporation tax. Under the income tax laws of the State and
City of New York, the income of each Trust will be considered the income
of the holders of the Units.
Page 21
For information with respect to exemption from state or other local
taxes, see the sections in the Prospectus pertaining to each Trust.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after
the last business day of each calendar year, the Trustee will furnish to
each person who at any time during the calendar year was a Unit holder
of a Trust of record, a statement as to (1) the Interest Account:
interest received by such Trust (including amounts representing interest
received upon any disposition of Bonds of such Trust), the amount of
such interest representing insurance proceeds (if applicable),
deductions for payment of applicable taxes and for fees and expenses of
the Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount
and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (2) the
Principal Account: the dates of disposition of any Bonds of such Trust
and the net proceeds received therefrom (excluding any portion
representing interest and the premium attributable to the exercise of
the right, if applicable, to obtain Permanent Insurance), deduction for
payment of applicable taxes and for fees and expenses of the Trust,
redemptions of Units, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) the Bonds held and the
number of Units of such Trust outstanding on the last business day of
such calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5) the
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account of such Trust, separately stated,
expressed both as total dollar amounts and as dollar amounts per Unit
outstanding on the Record Date for such distributions.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the third day following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the Trustee of
such tender of Units. The "date of tender" is deemed to be the date on
which Units are received by the Trustee, except that as regards Units
received after the close of trading on the New York Stock Exchange, the
date of tender is the next day on which such Exchange is open for
trading and such Units will be deemed to have been tendered to the
Trustee on such day for redemption at the redemption price computed on
that day. Units so redeemed shall be cancelled.
Accrued interest to the settlement date paid on redemption shall be
withdrawn from the Interest Account of the Trust or, if the balance
therein is insufficient, from the Principal Account of such Trust. All
other amounts paid on redemption shall be withdrawn from the Principal
Account of the Trust.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Bonds in the Trust as of the close of trading on the New York Stock
Exchange on the date any such determination is made. On the Initial Date
of Deposit the Public Offering Price per Unit (which is based on the
offering prices of the Bonds in the Trust and includes the sales charge)
exceeded the Unit value at which Units could have been redeemed (based
upon the current bid prices of the Bonds in such Trust) by the amount
shown under "Summary of Essential Information" in each Part I of this
Page 22
Prospectus. The Redemption Price per Unit is the pro rata share of each
Unit determined by the Trustee on the basis of (1) the cash on hand in
the Trust or moneys in the process of being collected, (2) the value of
the Bonds in such Trust based on the bid prices of the Bonds, except for
those cases in which the value of the insurance, if applicable, has been
added, and (3) interest accrued thereon, less (a) amounts representing
taxes or other governmental charges payable out of such Trust, (b) the
accrued expenses of such Trust, and (c) cash held for distribution to
Unit holders of record as of a date prior to the evaluation then being
made. The Evaluator may determine the value of the Bonds in the Trust
(1) on the basis of current bid prices of the Bonds obtained from
dealers or brokers who customarily deal in bonds comparable to those
held by such Trust, (2) on the basis of bid prices for bonds comparable
to any Bonds for which bid prices are not available, (3) by determining
the value of the Bonds by appraisal, or (4) by any combination of the
above. In determining the Redemption Price per Unit for an Insured
Trust, no value will be attributed to the portfolio insurance covering
the Bonds in such Trust unless such Bonds are in default in payment of
principal or interest or in significant risk of such default. On the
other hand, Bonds insured under a policy obtained by the Bond issuer,
the underwriters, the Sponsor or others are entitled to the benefits of
such insurance at all times and such benefits are reflected and included
in the market value of such Bonds. See "General Trust Information-Why
and How are the Insured Trusts Insured?" For a description of the
situations in which the evaluator may value the insurance obtained by an
Insured Trust, see "Public Offering-How is the Public Offering Price
Determined?"
The difference between the bid and offering prices of such Bonds may be
expected to average 1-2% of the principal amount. In the case of
actively traded bonds, the difference may be as little as 1/2 of 1% and,
in the case of inactively traded bonds, such difference usually will not
exceed 3%. Therefore, the price at which Units may be redeemed could be
less than the price paid by the Unit holder and may be less than the par
value of the Securities represented by the Units so redeemed.
The Trustee is empowered to sell underlying Bonds in a Trust in order
to make funds available for redemption. To the extent that Bonds are
sold, the size and diversity of such Trust will be reduced. Such sales
may be required at a time when Bonds would not otherwise be sold and
might result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before 12:00 p.m. Eastern Time on the
next succeeding business day and by making payment therefor to the Unit
holder not later than the day on which the Units would otherwise have
been redeemed by the Trustee. Units held by the Sponsor may be tendered
to the Trustee for redemption as any other Units. Any profit or loss
resulting from the resale or redemption of such Units will belong to the
Sponsor.
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell such of the Bonds in each Trust on a
list furnished by the Sponsor as the Trustee in its sole discretion may
deem necessary to meet redemption requests or pay expenses to the extent
funds are unavailable. As described in the following paragraph and in
certain other unusual circumstances for which it is determined by the
Depositor to be in the best interests of the Unit holders or if there is
no alternative, the Trustee is empowered to sell Bonds in a Trust which
are in default in payment of principal or interest or in significant
risk of such default and for which value has been attributed to the
insurance, if any, obtained by the Trust. See "How May Units be
Redeemed?" The Sponsor is empowered, but not obligated, to direct the
Page 23
Trustee to dispose of Bonds in a Trust in the event of advanced
refunding. The Sponsor may from time to time act as agent for a Trust
with respect to selling Bonds out of a Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject to the
restrictions under the Investment Company Act of 1940, as amended.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor, either pursuant to
the portfolio insurance, if any, or otherwise, within thirty days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails
to instruct the Trustee to sell or to hold such Bond within thirty days
after notification by the Trustee to the Sponsor of such default, the
Trustee may, in its discretion, sell the defaulted Bond and not be
liable for any depreciation or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made by an
issuer of any of the Bonds to issue new obligations in exchange and
substitution for any Bonds pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem
proper if the issuer is in default with respect to such Bonds or in the
written opinion of the Sponsor the issuer will probably default in
respect to such Bonds in the foreseeable future. Any obligations so
received in exchange or substitution will be held by the Trustee subject
to the terms and conditions in the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under "What
are Certain General Matters Relating to the Trusts?" for Failed Bonds,
the acquisition by a Trust of any securities other than the Bonds
initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $9 billion in First Trust
unit investment trusts have been deposited. The Sponsor's employees
include a team of professionals with many years of experience in the
unit investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141. As of
December 31, 1995, the total partners' capital of Nike Securities L.P.
was $9,033,760 (audited). (This paragraph relates only to the Sponsor
and not to the Trust or to any series thereof or to any other
Underwriter. The information is included herein only for the purpose of
informing investors as to the financial responsibility of the Sponsor
and its ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon request.)
Who is the Trustee?
The Trustee is The Chase Manhattan Bank (National Association), a
national banking association with its principal executive office located
at 1 Chase Manhattan Plaza, New York, New York 10081 and its unit
investment trust office at 770 Broadway, New York, New York 10003. Unit
holders who have questions regarding the Trusts may call the Customer
Service Help Line at 1-800-682-7520. The Trustee is subject to
supervision by the Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve
System.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Page 24
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Fund which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trusts as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may
resign or may be removed by the Sponsor or the Trustee, in which event
the Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee), provided that
the Indenture is not amended to increase the number of Units of any
Trust issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
of any Trust initially deposited in a Trust, except for the substitution
of certain refunding securities for Bonds or New Bonds for Failed Bonds.
In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of the Unit
holders of such Trust or by the Trustee when the value of such Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds deposited in the Trust during the primary offering
period or by the Trustee in the event that Units of a Trust not yet sold
aggregating more than 60% of the Units of such Trust are tendered for
redemption by the Underwriters, including the Sponsor. If a Trust is
Page 25
liquidated because of the redemption of unsold Units of the Trust by the
Underwriters, the Sponsor will refund to each purchaser of Units of such
Trust the entire sales charge paid by such purchaser. The Indenture will
terminate upon the redemption, sale or other disposition of the last
Bond held thereunder, but in no event shall it continue beyond December
31, 2045. In the event of termination, written notice thereof will be
sent by the Trustee to all Unit holders of such Trust. Within a
reasonable period after termination, the Trustee will sell any Bonds
remaining in the Trust and, after paying all expenses and charges
incurred by such Trust, will distribute to each Unit holder of such
Trust (including the Sponsor if it then holds any Units), upon surrender
for cancellation of his Certificate for Units, his pro rata share of the
balances remaining in the Interest and Principal Accounts of such Trust,
all as provided in the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating
to Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Carter, Ledyard & Milburn, 2 Wall Street, New York, New York 10005, will
act as counsel for the Trustee and as special counsel for the Fund for
New York tax matters. For information with respect to state and local
tax matters, including the State Trust special counsel for such matters,
see the section of the Prospectus describing each Trust appearing herein.
Experts
The statements of net assets, including the portfolios, of the Trusts
on the Initial Date of Deposit appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing in
each Part I of this Prospectus and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
Supplemental Information
Upon written or telephonic request to the Trustee, investors will
receive at no cost to the investor supplemental information about this
Series, which has been filed with the Securities and Exchange Commission
and is hereby incorporated by reference. The supplemental information
includes more detailed information concerning certain of the Bonds
included in the Trusts and more specific risk information concerning the
individual state Trusts.
Page 26
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Page 27
CONTENTS:
What is the First Trust Combined Series? 1
What are Certain General Matters Relating
to the Trust? 2
Risk Factors 3
What are Estimated Long-Term and
Estimated Current Return? 7
How is Accrued Interest Treated? 8
What are the Expenses and Charges? 9
Why and How are the Insured Trusts Insured? 10
Public Offering:
How is the Public Offering Price Determined? 12
How are Units Distributed? 14
What are the Sponsor's Profits? 14
What are the Underwriting Concessions? 15
Will There be a Secondary Market? 16
Rights of Unit Holders:
How are Certificates Issued and Transferred? 16
How are Interest and Principal Distributed? 17
How Can Distributions to Unit Holders be
Reinvested? 18
What is the Federal Tax Status of Unit Holders? 19
What Reports will Unit Holders Receive? 22
How May Units be Redeemed? 22
How May Units be Purchased by the Sponsor? 23
How May Bonds be Removed from the Fund? 23
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 24
Who is the Trustee? 24
Limitations on Liabilities of Sponsor and Trustee 25
Who is the Evaluator? 25
Other Information:
How May the Indenture be Amended or
Terminated? 25
Legal Opinions 26
Experts 26
Supplemental Information 26
_________________
This Prospectus does not constitute an offer to sell, or solicitation of
an offer to buy, securities in any jurisdiction to any person to whom it
is not lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statements and exhibits relating thereto, which the Fund
has filed with the Securities and Exchange Commission, Washington, D.C.
under the Securities Act of 1933 and the Investment Company Act of 1940,
and to which reference is hereby made.
FIRST TRUST (registered trademark)
THE FIRST TRUST COMBINED SERIES
Prospectus
Part II
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, IL 60532
1-708-241-4141
Trustee:
The Chase Manhattan Bank
(National Association)
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
May 16, 1996
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
THE FIRST TRUST (REGISTERED TRADEMARK) COMBINED SERIES 265
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning
the structure, operations and risks of a First Trust Combined Series
Trust not found in the prospectuses for the Trusts. This Information
Supplement is not a prospectus and does not include all of the
information that a prospective investor should consider before investing
in a Trust. This Information Supplement should be read in conjunction
with the prospectus for the Trust in which an investor is considering
investing ("Prospectus"). Copies of the Prospectus can be obtained by
calling or writing the Trustee at the telephone number and address
indicated in Part II of the Prospectus. This Information Supplement has
been created to supplement information contained in the Prospectus.
The objectives of the Trust are conservation of capital and income
exempt, with certain exceptions, from Federal and applicable state and
local income taxes. The objectives are, of course, dependent upon the
continuing ability of the issuers, obligors and/or insurers to meet
their respective obligations.
This Information Supplement is dated August 6, 1996. Capitalized terms
have been defined in the Prospectus.
TABLE OF CONTENTS
General Risk Disclosure
Discount Bonds 1
Original Issue Discount Bonds 2
Zero Coupon Bonds 2
Premium Bonds 2
General Obligation Bonds 3
Healthcare Revenue Bonds 3
Single Family Mortgage Revenue Bonds 3
Multi-Family Mortgage Revenue Bonds 4
Water and Sewerage Revenue Bonds 4
Electric Utility Revenue Bonds 4
Lease Obligation Revenue Bonds 4
Industrial Revenue Bonds 5
Transportation Facility Revenue Bonds 5
Educational Obligation Revenue Bonds 6
Resource Recovery Facility Revenue Bonds 6
Bonds of Issuers Located in the Commonwealth of Puerto Rico 6
Insurance on the Bonds 7
How is the Public Offering Price Determined? 14
Description of Bond Ratings 15
Appendix - Pennsylvania Disclosure A-1
General Risk Disclosure
Discount Bonds. Certain of the Bonds in the Trusts may have been
acquired at a market discount from par value at maturity. The coupon
interest rates on the discount bonds at the time they were purchased and
deposited in the Trusts were lower than the current market interest
rates for newly issued bonds of comparable rating and type. If such
interest rates for newly issued comparable bonds increase, the market
discount of previously issued bonds will become greater, and if such
interest rates for newly issued comparable bonds decline, the market
discount of previously issued bonds will be reduced, other things being
equal. Investors should also note that the value of bonds purchased at a
market discount will increase in value faster than bonds purchased at a
market premium if interest rates decrease. Conversely, if interest rates
increase, the value of bonds purchased at a market discount will
decrease faster than bonds purchased at a market premium. In addition,
if interest rates rise, the prepayment risk of higher yielding, premium
bonds and the prepayment benefit for lower yielding, discount bonds will
Page 1
be reduced. A discount bond held to maturity will have a larger portion
of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond
newly issued at current market rates. See "What is the Federal Tax
Status of Unit Holders?" Market discount attributable to interest
changes does not indicate a lack of market confidence in the issue.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds.
Original Issue Discount Bonds. Certain of the Bonds in the Trusts may be
original issue discount bonds. Under current law, the original issue
discount, which is the difference between the stated redemption price at
maturity and the issue price of the Bonds, is deemed to accrue on a
daily basis and the accrued portion is treated as tax-exempt interest
income for Federal income tax purposes. On sale or redemption, any gain
realized that is in excess of the earned portion of original issue
discount will be taxable as capital gain unless the gain is attributable
to market discount in which case the accretion of market discount is
taxable as ordinary income. See "What is the Federal Tax Status of Unit
Holders?" The current value of an original issue discount bond reflects
the present value of its stated redemption price at maturity. The market
value tends to increase in greater increments as the Bonds approach
maturity.
Zero Coupon Bonds. Certain of the original issue discount bonds may be
Zero Coupon Bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital appreciation bonds, capital accumulator bonds,
compound interest bonds and money discount maturity payment bonds). Zero
Coupon Bonds do not provide for the payment of any current interest and
generally provide for payment at maturity at face value unless sooner
sold or redeemed. Zero Coupon Bonds may be subject to more price
volatility than conventional bonds. While some types of Zero Coupon
Bonds, such as multipliers and capital appreciation bonds, define par as
the initial offering price rather than the maturity value, they share
the basic Zero Coupon Bond features of (1) not paying interest on a semi-
annual basis and (2) providing for the reinvestment of the bond's semi-
annual earnings at the bond's stated yield to maturity. While Zero
Coupon Bonds are frequently marketed on the basis that their fixed rate
of return minimizes reinvestment risk, this benefit can be negated in
large part by weak call protection, i.e., a bond's provision for
redemption at only a modest premium over the accreted value of the bond.
Premium Bonds. Certain of the Bonds in the Trusts may have been acquired
at a market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased and deposited
in the Trusts were higher than the current market interest rates for
newly issued bonds of comparable rating and type. If such interest rates
for newly issued and otherwise comparable bonds decrease, the market
premium of previously issued bonds will be increased, and if such
interest rates for newly issued comparable bonds increase, the market
premium of previously issued bonds will be reduced, other things being
equal. The current returns of bonds trading at a market premium are
initially higher than the current returns of comparable bonds of a
similar type issued at currently prevailing interest rates because
premium bonds tend to decrease in market value as they approach maturity
when the face amount becomes payable. Because part of the purchase price
is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments of
principal will result in a reduction in yield. Redemption pursuant to
call provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the
Bonds were deposited in the Fund at a price higher than the price at
which they are redeemed, this will represent a loss of capital when
compared to the original Public Offering Price of the Units. Because
premium bonds generally pay a higher rate of interest than bonds priced
at or below par, the effect of the redemption of premium bonds would be
to reduce Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of Bonds in
the Trust. Although the actual impact of any such redemptions that may
occur will depend upon the specific Bonds that are redeemed, it can be
anticipated that the Estimated Net Annual Unit Income will be
significantly reduced after the dates on which such Bonds are eligible
for redemption. The Trust may be required to sell Zero Coupon Bonds
prior to maturity (at their current market price which is likely to be
less than their par value) in the event that all the Bonds in the
portfolio other than the Zero Coupon Bonds are called or redeemed in
Page 2
order to pay expenses of the Trust or in case the Trust is terminated.
See "Rights of Unit Holders: How May Bonds be Removed from the Fund?"
and "Other Information: How May the Indenture be Amended or Terminated?"
See "Portfolio" for each Trust for the earliest scheduled call date and
the initial redemption price for each Bond.
General Obligation Bonds. Certain of the Bonds in the Trusts may be
general obligations of a governmental entity that are backed by the
taxing power of such entity. All other Bonds in the Trusts are revenue
bonds payable from the income of a specific project or authority and are
not supported by the issuer's power to levy taxes. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. Revenue bonds, on the
other hand, are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of
a special excise tax or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Fund,
both within a particular classification and between classifications,
depending on numerous factors.
Healthcare Revenue Bonds. Certain of the Bonds in the Trusts may be
health care revenue bonds. Ratings of bonds issued for health care
facilities are sometimes based on feasibility studies that contain
projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service may be affected
by future events and conditions including among other things, demand for
services, the ability of the facility to provide the services required,
physicians' confidence in the facility, management capabilities,
competition with other hospitals, efforts by insurers and governmental
agencies to limit rates, legislation establishing state rate-setting
agencies, expenses, government regulation, the cost and possible
unavailability of malpractice insurance and the termination or
restriction of governmental financial assistance, including that
associated with Medicare, Medicaid and other similar third party payor
programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing
a single nationwide schedule of rates. Prior to such legislation
Medicare reimbursements were based on the actual costs incurred by the
health facility. The current legislation may adversely affect
reimbursements to hospitals and other facilities for services provided
under the Medicare program.
Single Family Mortgage Revenue Bonds. Certain of the Bonds in the Trusts
may be single family mortgage revenue bonds, which are issued for the
purpose of acquiring from originating financial institutions notes
secured by mortgages on residences located within the issuer's
boundaries and owned by persons of low or moderate income. Mortgage
loans are generally partially or completely prepaid prior to their final
maturities as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are subject
to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such Bonds will
probably be redeemed prior to their scheduled maturities or even prior
to their ordinary call dates. The redemption price of such issues may be
more or less than the offering price of such Bonds. Extraordinary
mandatory redemption without premium could also result from the failure
of the originating financial institutions to make mortgage loans in
sufficient amounts within a specified time period or, in some cases,
from the sale by the Bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other
sources becoming competitive with the interest rates on the mortgage
loans funded with the proceeds of the single family mortgage revenue
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single family
mortgage revenue bonds issued after December 31, 1980 were issued under
Section 103A of the Internal Revenue Code, which Section contains
certain ongoing requirements relating to the use of the proceeds of such
Bonds in order for the interest on such Bonds to retain its tax-exempt
status. In each case, the issuer of the Bonds has covenanted to comply
with applicable ongoing requirements and bond counsel to such issuer has
issued an opinion that the interest on the Bonds is exempt from Federal
income tax under existing laws and regulations. There can be no
assurances that the ongoing requirements will be met. The failure to
meet these requirements could cause the interest on the Bonds to become
taxable, possibly retroactively from the date of issuance.
Page 3
Multi-Family Mortgage Revenue Bonds. Certain of the Bonds in the Trusts
may be obligations of issuers whose revenues are primarily derived from
mortgage loans to housing projects for low to moderate income families.
The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income, increases in
taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial
ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies and social and economic
trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent
levels and income limitations imposed under Federal and state programs.
Like single family mortgage revenue bonds, multi-family mortgage revenue
bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of
other events. Certain issuers of single or multi-family housing bonds
have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In one situation the
New York City Housing Development Corporation, in reliance on its
interpretation of certain language in the indenture under which one of
its bond issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur prior
to 1992. In connection with the housing Bonds held by a Trust, the
Sponsor has not had any direct communications with any of the issuers
thereof, but at the Initial Date of Deposit it is not aware that any of
the respective issuers of such Bonds are actively considering the
redemption of such Bonds prior to their respective stated initial call
dates. However, there can be no assurance that an issuer of a Bond in a
Trust will not attempt to so redeem a Bond in a Trust.
Water and Sewerage Revenue Bonds. Certain of the Bonds in the Trusts may
be obligations of issuers whose revenues are derived from the sale of
water and/or sewerage services. Water and sewerage bonds are generally
payable from user fees. Problems faced by such issuers include the
ability to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing large
construction programs, the limitations on operations and increased costs
and delays attributable to environmental considerations, the increasing
difficulty of obtaining or discovering new supplies of fresh water, the
effect of conservation programs and the impact of "no-growth" zoning
ordinances. All of such issuers have been experiencing certain of these
problems in varying degrees.
Electric Utility Revenue Bonds. Certain of the Bonds in the Trusts may
be obligations of issuers whose revenues are primarily derived from the
sale of electric energy. Utilities are generally subject to extensive
regulation by state utility commissions which, among other things,
establish the rates which may be charged and the appropriate rate of
return on an approved asset base. The problems faced by such issuers
include the difficulty in obtaining approval for timely and adequate
rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of
future demand for electricity in certain areas of the country, the
difficulty of the capital market in absorbing utility debt, the
difficulty in obtaining fuel at reasonable prices and the effect of
energy conservation. All of such issuers have been experiencing certain
of these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing
and impose additional regulations governing the licensing, construction
and operation of nuclear power plants, which may adversely affect the
ability of the issuers of such Bonds to make payments of principal
and/or interest on such Bonds.
Lease Obligation Revenue Bonds. Certain of the Bonds in the Trusts may
be lease obligations issued for the most part by governmental
authorities that have no taxing power or other means of directly raising
revenues. Rather, the governmental authorities are financing vehicles
created solely for the construction of buildings (schools,
administrative offices, convention centers and prisons, for example) or
the purchase of equipment (police cars and computer systems, for
example) that will be used by a state or local government (the
Page 4
"lessee"). Thus, these obligations are subject to the ability and
willingness of the lessee government to meet its lease rental payments
which include debt service on the obligations. Lease obligations are
subject, in almost all cases, to the annual appropriation risk, i.e.,
the lessee government is not legally obligated to budget and appropriate
for the rental payments beyond the current fiscal year. These
obligations are also subject to construction and abatement risk in many
states-rental obligations cease in the event that delays in building,
damage, destruction or condemnation of the project prevents its use by
the lessee. In these cases, insurance provisions designed to alleviate
this risk become important credit factors. In the event of default by
the lessee government, there may be significant legal and/or practical
difficulties involved in the re-letting or sale of the project. Some of
these issues, particularly those for equipment purchase, contain the so-
called "substitution safeguard", which bars the lessee government, in
the event it defaults on its rental payments, from the purchase or use
of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate, even
though it is not legally obligated to do so, but its legality remains
untested in most, if not all, states.
Industrial Revenue Bonds. Certain of the Bonds in the Trusts may be
industrial revenue bonds ("IRBs"), including pollution control revenue
bonds, which are tax-exempt securities issued by states, municipalities,
public authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. These projects
are usually operated by corporate entities. Issuers are obligated only
to pay amounts due on the IRBs to the extent that funds are available
from the unexpended proceeds of the IRBs or receipts or revenues of the
issuer under an arrangement between the issuer and the corporate
operator of a project. The arrangement may be in the form of a lease,
installment sale agreement, conditional sale agreement or loan
agreement, but in each case the payments to the issuer are designed to
be sufficient to meet the payments of amounts due on the IRBs.
Regardless of the structure, payment of IRBs is solely dependent upon
the creditworthiness of the corporate operator of the project or
corporate guarantor. Corporate operators or guarantors may be affected
by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions,
litigation resulting from accidents or environmentally-caused illnesses,
extensive competition and financial deterioration resulting from a
complete restructuring pursuant to a leveraged buy-out, takeover or
otherwise. Such a restructuring may result in the operator of a project
becoming highly leveraged which may impact on such operator's
creditworthiness, which in turn would have an adverse impact on the
rating and/or market value of such Bonds. Further, the possibility of
such a restructuring may have an adverse impact on the market for and
consequently the value of such Bonds, even though no actual takeover or
other action is ever contemplated or affected. The IRBs in a Trust may
be subject to special or extraordinary redemption provisions which may
provide for redemption at par or, with respect to original issue
discount bonds, at issue price plus the amount of original issue
discount accreted to the redemption date plus, if applicable, a premium.
The Sponsor cannot predict the causes or likelihood of the redemption of
IRBs or other Bonds in the Trusts prior to the stated maturity of such
Bonds.
Transportation Facility Revenue Bonds. Certain of the Bonds in the
Trusts may be obligations which are payable from and secured by revenues
derived from the ownership and operation of facilities such as airports,
bridges, turnpikes, port authorities, convention centers and arenas. The
major portion of an airport's gross operating income is generally
derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for leases, occupancy of
certain terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation,
traffic constraints and other factors, and several airlines are
experiencing severe financial difficulties. The Sponsor cannot predict
what effect these industry conditions may have on airport revenues which
are dependent for payment on the financial condition of the airlines and
their usage of the particular airport facility. Similarly, payment on
Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges
and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost of
maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Page 5
Educational Obligation Revenue Bonds. Certain of the Bonds in the Trusts
may be obligations of issuers which are, or which govern the operation
of, schools, colleges and universities and whose revenues are derived
mainly from ad valorem taxes, or for higher education systems, from
tuition, dormitory revenues, grants and endowments. General problems
relating to school bonds include litigation contesting the state
constitutionality of financing public education in part from ad valorem
taxes, thereby creating a disparity in educational funds available to
schools in wealthy areas and schools in poor areas. Litigation or
legislation on this issue may affect the sources of funds available for
the payment of school bonds in the Trusts. General problems relating to
college and university obligations would include the prospect of a
declining percentage of the population consisting of "college" age
individuals, possible inability to raise tuitions and fees sufficiently
to cover increased operating costs, the uncertainty of continued receipt
of Federal grants and state funding and new government legislation or
regulations which may adversely affect the revenues or costs of such
issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Resource Recovery Facility Revenue Bonds. Certain of the Bonds in the
Trusts may be obligations which are payable from and secured by revenues
derived from the operation of resource recovery facilities. Resource
recovery facilities are designed to process solid waste, generate steam
and convert steam to electricity. Resource recovery bonds may be subject
to extraordinary optional redemption at par upon the occurrence of
certain circumstances, including but not limited to: destruction or
condemnation of a project; contracts relating to a project becoming
void, unenforceable or impossible to perform; changes in the economic
availability of raw materials, operating supplies or facilities
necessary for the operation of a project or technological or other
unavoidable changes adversely affecting the operation of a project;
administrative or judicial actions which render contracts relating to
the projects void, unenforceable or impossible to perform; or impose
unreasonable burdens or excessive liabilities. The Sponsor cannot
predict the causes or likelihood of the redemption of resource recovery
bonds in the Trusts prior to the stated maturity of the Bonds.
Bonds of Issuers Located in the Commonwealth of Puerto Rico. Certain
Trusts of the Fund may contain Bonds of issuers located in the
Commonwealth of Puerto Rico or issuers which will be affected by general
economic conditions of Puerto Rico. Puerto Rico's unemployment rate
remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon
U.S. policies and programs that are being reviewed and may be eliminated.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source of semi-
finished manufactured articles on which further manufacturing operations
are performed in Puerto Rico. Since World War II the economic importance
of agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled
sugar monopoly remains an important economic factor and is largely
dependent upon Federal maintenance of sugar prices, the discontinuation
of which could severely affect Puerto Rico sugar production. The level
of tourism is affected by various factors including the strength of the
U.S. dollar. During periods when the dollar is strong, tourism in
foreign countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
Internal Revenue Code provides for a credit against Federal income taxes
for U.S. companies operating on the island if certain requirements are
met. The Omnibus Budget Reconciliation Act of 1993 imposes limits on
such credit, effective for tax years beginning after 1993. In addition,
from time to time proposals are introduced in Congress which, if enacted
into law, would eliminate some or all of the benefits of Section 936.
Although no assessment can be made at this time of the precise effect of
such limitation, it is expected that the limitation of Section 936
credits would have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on
Federal programs, and current Federal budgetary policies suggest that an
expansion of aid to Puerto Rico is unlikely. An adverse effect on the
Page 6
Puerto Rican economy could result from other U.S. policies, including a
reduction of tax benefits for distilled products, further reduction in
transfer payment programs such as food stamps, curtailment of military
spending and policies which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate chose
to continue Puerto Rico's Commonwealth status. Previously proposed
legislation, which was not enacted, would have preserved the federal tax
exempt status of the outstanding debts of Puerto Rico and its public
corporations regardless of the outcome of the referendum, to the extent
that similar obligations issued by the states are so treated and subject
to the provisions of the Internal Revenue Code currently in effect.
There can be no assurance that any pending or future legislation finally
enacted will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to have both
direct and indirect consequences on such matters as the basic
characteristics of future Puerto Rico debt obligations, the markets for
these obligations, and the types, levels and quality of revenue sources
pledged for the payment of existing and future debt obligations. Such
possible consequences include, without limitation, legislative proposals
seeking restoration of the status of Section 936 benefits otherwise
subject to the limitations discussed above. However, no assessment can
be made at this time of the economic and other effects of a change in
federal laws affecting Puerto Rico as a result of the November 1993
plebiscite.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
of the issuers of Bonds, could affect or could have an adverse impact on
the financial condition of Puerto Rico and various agencies and
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Insurance on the Bonds
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS. THE
BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED BY
INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as to the
scheduled payment of interest and principal by policies obtained by each
Insured Trust from Financial Guaranty Insurance Company ("Financial
Guaranty" or "FGIC"), a New York stock insurance company, or AMBAC
Indemnity Corporation ("AMBAC Indemnity" or "AMBAC"), a Wisconsin-
domiciled stock insurance company, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from Financial Guaranty, AMBAC Indemnity or other insurers (the
"Preinsured Bonds"). The insurance policy obtained by each Insured Trust
is noncancellable and will continue in force for such Trust so long as
such Trust is in existence and the Bonds described in the policy
continue to be held by such Trust (see "Portfolio" for each Insured
Trust). Nonpayment of premiums on the policy obtained by each Insured
Trust will not result in the cancellation of insurance, but will permit
Financial Guaranty and/or AMBAC Indemnity to take action against the
Trustee to recover premium payments due it. Premium rates for each issue
of Bonds protected by the policy obtained by each Insured Trust are
fixed for the life of such Trust. The premium for any Preinsured Bonds
has been paid in advance by the Bond issuer, the underwriters, the
Sponsor or others and any such policy or policies are noncancellable and
will continue in force so long as the Bonds so insured are outstanding
and the insurer and/or insurers thereof remain in business. If the
provider of an original issuance insurance policy is unable to meet its
obligations under such policy, or if the rating assigned to the claims-
paying ability of such insurer deteriorates, Financial Guaranty and/or
AMBAC Indemnity has no obligation to insure any issue adversely affected
by either of the above described events. A monthly premium is paid by
each Insured Trust for the insurance obtained by such Trust, which is
payable from the interest income received by such Trust. In the case of
Preinsured Bonds, no premiums for insurance are paid by the Insured Trust.
Financial Guaranty Insurance Company. Under the provisions of the
aforementioned portfolio insurance issued by Financial Guaranty,
Page 7
Financial Guaranty unconditionally and irrevocably agrees to pay to
Citibank, N.A., or its successor, as its agent (the "Fiscal Agent"),
that portion of the principal of and interest on the Bonds covered by
the policy which shall become due for payment but shall be unpaid by
reason of nonpayment by the issuer of the Bonds. The term "due for
payment" means, when referring to the principal of a Bond, its stated
maturity date or the date on which it shall have been called for
mandatory sinking fund redemption and does not refer to any earlier date
on which payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement of
maturity and means, when referring to interest on a Bond, the stated
date for payment of interest, except that when the interest on a Bond
shall have been determined, as provided in the underlying documentation
relating to such Bond, to be subject to Federal income taxation, "due
for payment" also means, when referring to the principal of such Bond,
the date on which such Bond has been called for mandatory redemption as
a result of such determination of taxability, and when referring to
interest on such Bond, the accrued interest at the rate provided in such
documentation to the date on which such Bond has been called for such
mandatory redemption, together with any applicable redemption premium.
The term "due for payment" will not include, when referring to either
the principal of a Bond or the interest on a Bond, any acceleration of
payment unless such acceleration is at the sole option of Financial
Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the
business day next following the day on which Financial Guaranty shall
have received notice of nonpayment, whichever is later. The Fiscal Agent
will disburse to the Trustee the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by
the issuer but only upon receipt by the Fiscal Agent of (i) evidence of
the Trustee's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or
interest due for payment shall thereupon vest in Financial Guaranty.
Upon such disbursement, Financial Guaranty shall become the owner of the
Bond, appurtenant coupon or right to payment of principal or interest on
such Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained by an
Insured Trust has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to maturity of the Bonds regardless of the
identity of the holder thereof) (the "Permanent Insurance") upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the Trustee
will exercise the right to obtain Permanent Insurance only if upon such
exercise the Insured Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent
Insurance) from such sale in excess of the sale proceeds if such Bonds
were sold on an uninsured basis. The insurance premium with respect to
each Bond eligible for Permanent Insurance is determined based upon the
insurability of each Bond as of the Initial Date of Deposit and will not
be increased or decreased for any change in the creditworthiness of such
Bond.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a wholly
owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in
the State of New York and is subject to regulation by the State of New
York Insurance Department. As of March 31, 1996, the total capital and
surplus of Financial Guaranty was approximately $1,032,675,000. Copies
of Financial Guaranty's financial statements, prepared on the basis of
statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting
principles, may be obtained by writing to Financial Guaranty at 115
Broadway, New York, New York 10006, Attention: Communications Department
(telephone number (212) 312-3000) or to the New York State Insurance
Department at 160 West Broadway, 18th Floor, New York, New York 10013,
Attention: Financial Condition Property/Casualty Bureau (telephone
number (212) 621-0389).
In addition, Financial Guaranty is currently licensed to write insurance
in all fifty states and the District of Columbia.
Page 8
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained
herein with respect to such corporation is unaudited but appears in
reports or other materials filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). The Insurance Policy of
AMBAC Indemnity obtained by an Insured Trust is noncancellable and will
continue in force for so long as the Bonds described in the Insurance
Policy are held by an Insured Trust. A monthly premium is paid by an
Insured Trust for the Insurance Policy obtained by it. The Trustee will
pay, when due, successively, the full amount of each installment of the
insurance premium. Pursuant to a binding agreement with AMBAC Indemnity,
in the event of a sale of a Bond covered by the AMBAC Indemnity
Insurance Policy, the Trustee has the right to obtain permanent
insurance for such Bond upon payment of a single predetermined premium
from the proceeds of the sale of such Bond.
Under the terms of the Insurance Policy, AMBAC Indemnity agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by AMBAC Indemnity which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
term "due for payment" means, when referring to the principal of a Bond
so insured, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest.
AMBAC Indemnity will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by AMBAC Indemnity that a
nonpayment of principal or of interest on a Bond has occurred, but not
earlier than the date on which the Bonds are due for payment. AMBAC
Indemnity will disburse to the Trustee the face amount of principal and
interest which is then due for payment but is unpaid by reason of
nonpayment by the issuer in exchange for delivery of Bonds, not less in
face amount than the amount of the payment in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where
Bonds are issuable only in a form whereby principal is payable to
registered holders or their assigns, AMBAC Indemnity shall pay principal
only upon presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment in
satisfactory form, so as to permit ownership of such Bonds to be
registered in the name of AMBAC Indemnity or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, AMBAC Indemnity shall pay interest
only upon presentation of proof that the claimant is the person entitled
to the payment of interest on the Bonds and delivery of an instrument of
assignment, in satisfactory form, transferring to AMBAC Indemnity all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $2,440,000,000 (unaudited) and statutory capital of
approximately $1,387,000,000 (unaudited) as of March 31, 1996. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and
statutory contingency reserve. AMBAC Indemnity is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's
Investors Service, Inc. and Standard & Poor's have both assigned a
triple-A claims-paying ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York, New
York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
Page 9
adverse changes in such information, subsequent to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or AMBAC
Indemnity has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or AMBAC Indemnity and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor AMBAC Indemnity nor its parent, AMBAC, Inc., or
any affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor has in
the past and may from time to time in the future, in the normal course
of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of
municipal bonds in which the investors or the affiliates of FGIC
Corporation and/or AMBAC Inc. have or will be participants or for which
a policy of insurance guaranteeing the scheduled payment of interest and
principal has been obtained from Financial Guaranty and/or AMBAC
Indemnity. Neither the Fund nor the Units of a Trust nor the portfolio
of such Trust is insured directly or indirectly by FGIC Corporation
and/or AMBAC Inc.
MBIA Insurance Corporation. MBIA Insurance Corporation ("MBIA
Corporation" or "MBIA") is the principal operating subsidiary of MBIA,
Inc., a New York Stock Exchange listed company. MBIA, Inc. is not
obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation is a limited liability corporation rather than a several
liability association. MBIA Corporation is domiciled in the State of New
York and licensed to do business in all fifty states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and
the Territory of Guam. MBIA has one European branch in the Republic of
France.
As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total
Page 10
capital and surplus of $1.3 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of March 31, 1996, MBIA had admitted assets
of $4.0 billion (unaudited), total liabilities of $2.7 billion
(unaudited), and total capital and surplus of $1.3 billion (unaudited),
determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King
Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now known as MBIA Insurance Corp. of Illinois.
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG 1," both designated to be of the highest
quality. Standard & Poor's rates all new issues insured by MBIA "AAA."
Capital Guaranty Insurance Company. On December 20, 1995, Capital
Guaranty Corporation ("CGC") merged with a subsidiary of Financial
Security Assurance Holdings Ltd. and Capital Guaranty Insurance Company,
CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly-
owned subsidiary of Financial Security Assurance Inc. For further
description, see "Financial Security Assurance Inc." herein. The address
of FSA Maryland and its telephone number are Steuart Tower, One Market
Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance company
which engages only in the business of financial guarantee and surety
insurance. CapMAC is licensed in 49 states in addition to the District
of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also
provide financial guarantee reinsurance for structured asset-backed,
corporate and municipal obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's, and "AAA" by Duff
& Phelps, Inc. ("Duff & Phelps"). Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or
hold securities and are subject to revision or withdrawal at any time by
such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees. CapMAC commenced operations on
December 24, 1987 as an indirect, wholly-owned subsidiary of Citibank
(New York State), a wholly-owned subsidiary of Citicorp. On June 25,
1992, Citibank (New York State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or
to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of
New York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC
is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may retain,
after giving effect to reinsurance, collateral or other securities, is
also regulated. Statutory and regulatory accounting practices may
prescribe appropriate rates at which premiums are earned and the levels
of reserves required. In addition, various insurance laws restrict the
incurrence of debt, regulate permissible investments of reserves,
capital and surplus, and govern the form of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the
Surety Bond(s).
Page 11
THE SURETY BONDS ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale, Holdings and CapMAC entered into an
Ownership Policy Agreement (the "Ownership Policy Agreement"), which
sets forth Holdings' intent with respect to its ownership and control of
CapMAC and provides for certain policies and agreements with respect to
Holdings' exercise of its control of CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the term of the Ownership
Policy Agreement, it will not and will not permit any stockholder of
Holdings to enter into any transaction the result of which would be a
change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long-term debt obligations or claims-paying ability
of the person which would control CapMAC after such transaction or its
direct or indirect parent are rated in a high investment grade category,
unless Holdings or CapMAC has confirmed that CapMAC's claims-paying
ability rating by Moody's (the "Rating") in effect immediately prior to
any such change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a result of
a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i) not
to change the "zero-loss" underwriting standards or policies and
procedures of CapMAC in a manner that would materially and adversely
affect the risk profile of CapMAC's book of business, (ii) that CapMAC
will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time to time as
consistent with maintaining CapMAC's Rating and (iii) that until
CapMAC's statutory capital surplus and contingency reserve ("qualified
statutory capital") equal $250 million, CapMAC will maintain a specified
amount of qualified statutory capital in excess of the amount of
qualified statutory capital that CapMAC is required at such time to
maintain under the aggregate leverage limitations set forth in Article
69 of the New York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date
on which a change of control of CapMAC occurs and the date on which
CapMAC and Holdings agree in writing to terminate the Ownership Policy
Agreement; provided that, CapMAC or Holdings has confirmed that CapMAC's
Rating in effect immediately prior to any such termination will not be
downgraded upon such termination.
As of December 31, 1994 and 1993, CapMAC had statutory capital and
surplus of approximately $170 million and $168 million, respectively,
and had not incurred any debt obligations. Article 69 of the New York
State Insurance Law requires that CapMAC establishes and maintains the
contingency reserve.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the
State of New York are available upon request. CapMAC is located at 885
Third Avenue, New York, New York 10022, and its telephone number is
(212) 755-1155.
Financial Security Assurance. Financial Security Assurance Inc.
("Financial Security") is a monoline insurance company incorporated in
1984 under the laws of the State of New York. Financial Security is
licensed to engage in the financial guaranty insurance business in all
50 states, the District of Columbia, Puerto Rico and the United Kingdom.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general,
financial guaranty insurance consists of the issuance of a guaranty of
scheduled payments of an issuer's securities, thereby enhancing the
credit rating of those securities, in consideration for payment of a
premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or
other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds
and sale/leaseback obligation bonds. Municipal securities consist
largely of general obligation bonds, special revenue bonds and other
special obligations of state and local governments. Financial Security
insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Page 12
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
company. Major shareholders of Holdings include Fund American
Enterprises Holdings, Inc., U S West Capital Corporation and The Tokio
Marine and Fire Insurance Co. Ltd. No shareholder of Financial Security
is obligated to pay any debt of Financial Security or its subsidiaries
or any claim under any insurance policy issued by Financial Security or
its subsidiaries or to make any additional contribution to the capital
of Financial Security or its subsidiaries. As of March 31, 1996, the
total policyholders' surplus and contingency reserves and the total
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $650,053,000 (unaudited) and $387,239,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $779,177,000 (unaudited), and $340,226,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York,
New York, 10022, Attention Communications Department. Financial
Security's telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries
(including FSA Maryland) are reinsured among such companies on an agreed-
upon percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security and FSA Maryland reinsure a portion of
their liabilities under certain of their financial guaranty insurance
policies with other reinsurers under various quota share treaties and on
a transaction-by-transaction basis. Such reinsurance is utilized as a
risk management device and to comply with certain statutory and rating
agency requirements; it does not alter or limit the obligations of
Financial Security or FSA Maryland under any financial guaranty
insurance policy.
The claims-paying ability of Financial Security and FSA Maryland is
rated "Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard &
Poor's Rating Services, Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies.
Connie Lee Insurance Company. Connie Lee Insurance Company ("Connie
Lee"), a stock insurance company incorporated in Wisconsin, is a wholly-
owned subsidiary of College Construction Loan Insurance Association
("CCLIA"), a stockholder-owned District of Columbia insurance holding
company whose creation was authorized by the 1986 amendments to the
Higher Education Act. The United States Department of Education ("DOE")
and Student Loan Marketing Association ("Sallie Mae") are founding
shareholders of College Construction Loan Insurance Association. Connie
Lee is not an agency or instrumentality of the United States Government,
although the United States Government is a stockholder of CCLIA. The
obligations of Connie Lee are not obligations of the United States
Government. As a federally authorized company, Connie Lee's structure
and operational authorities are subject to revision by amendments to the
Higher Education Act or other federal enactments.
Various bills containing provisions relating to the privatization of
Connie Lee ("Connie Lee Privatization Legislation") are pending in the
United States Congress. If enacted in the form included in these bills,
the Connie Lee Privatization Legislation would, among other things,
remove the restrictions that limit the types of obligations Connie Lee
is permitted to insure and would authorize Connie Lee to engage in any
business appropriate for any other fully private corporation. The Connie
Lee Privatization Legislation would also provide for the disposition of
the stock in CCLIA held by DOE and for the repeal of substantially all
of the provisions of the Higher Education Act pertaining to the
structure and other operational authorities of Connie Lee. While one
bill containing the Connie Lee Privatization Legislation was passed by
the House of Representatives in September of 1995 and companion
legislation has been introduced in the Senate, it cannot be predicted
whether, or in what form, the Connie Lee Privatization Legislation or
other federal legislation affecting Connie Lee will ultimately be
enacted into law, or the effect that any such enactment may ultimately
have on Connie Lee.
Page 13
As of March 31, 1996, the total policyholders' surplus of Connie Lee was
$111,462,158 (unaudited) and total admitted assets were $215,702,727
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin in Connie Lee's financial statements prepared in accordance
with statutory accounting principles applicable to insurance companies.
Copies of these financial statements are available from Connie Lee upon
request.
CCLIA's consolidated annual (audited) and quarterly (unaudited)
financial statements prepared in accordance with generally accepted
accounting principles are filed periodically with the Nationally
Recognized Municipal Securities Information Repositories designated
under Rule 15c2-12 of the Securities and Exchange Commission. The
information contained in these financial statements is incorporated
herein by reference. Copies of these financial statements are available
from Connie Lee upon request.
Standard & Poor's has rated the claims-paying ability of Connie Lee "AAA".
Connie Lee makes no representation regarding the Bonds or the
advisability of investing in the Bonds. The above rating is not a
recommendation to buy, sell or hold the Connie Lee insured Bonds and
such rating is subject to the revision or withdrawal at any time by the
rating agency. Any downward revision or withdrawal of the rating may
have an adverse effect on the market price of the Connie Lee insured Bonds.
The address of Connie Lee's administrative offices and its telephone
number are 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and
(202) 835-0090.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust 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 each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. Such
rating will be in effect for a period of thirteen months from the
Initial Date of Deposit of an Insured Trust and will, unless renewed,
terminate at the end of such period. There is no guarantee that the
"AAA" investment rating with respect to the Units of an Insured Trust
will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is to
obtain a higher yield on the Bonds in the portfolio of such Trust than
would be available if all the Bonds in such portfolio had the Standard &
Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course, no
certainty that this result will be achieved. Bonds in a Trust for which
insurance has been obtained by the Bond issuer, the underwriters, the
Sponsor or others (all of which were rated "AAA" by Standard & Poor's
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's or
"Aaa" by Moody's Investors Service, Inc. In selecting Bonds for the
portfolio of each Insured Trust, the Sponsor has applied the criteria
herein before described.
How is the Public Offering Price Determined?
Secondary Market Sales Charge. The sales charge assessed on Units sold
in secondary market transactions is determined in accordance with the
table set forth below based upon the number of years remaining to the
maturity of each such Bond. The effect of this method of sales charge
calculation will be that different sales charge rates will be applied to
the various Bonds in a Trust portfolio based upon the maturities of such
Bonds, in accordance with the following schedule.
Page 14
Secondary Offering Period
Sales Charge
___________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_________________ __________ ___________
0 Months to 1 Year 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
There will be no reduction of the sales charges for volume purchases for
secondary market transactions. A dealer will receive from the Sponsor a
dealer concession of 70% of the total sales charges for Units sold by
such dealer and dealers will not be eligible for additional concessions
for Units sold pursuant to the above schedule.
Description of Bond Ratings*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
* As published by the ratings companies.
** Bonds insured by Financial Guaranty Insurance Company, AMBAC
Indemnity Corporation, Municipal Bond Investors Assurance Corporation,
Connie Lee Insurance Company, Financial Security Assurance and Capital
Guaranty Insurance Company are automatically rated "AAA" by Standard &
Poor's.
Page 15
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
Page 16
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(--)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Fitch Investors Service, Inc. A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follow:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
Page 17
APPENDIX A
PENNSYLVANIA DISCLOSURE
Investors should be aware of certain factors that might affect the
financial conditions of the Commonwealth of Pennsylvania. Pennsylvania
historically has been identified as a heavy industry state although that
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries
began to decline. A more diversified economy was necessary as the
traditionally strong industries in the Commonwealth declined due to a
long-term shift in jobs, investment and workers away from the northeast
part of the nation. The major sources of growth in Pennsylvania are in
the service sector, including trade, medical and the health services,
education and financial institutions. Pennsylvania's agricultural
industries are also an important component of the Commonwealth's
economic structure, accounting for more than $3.6 billion in crop and
livestock products annually, while agribusiness and food related
industries support $39 billion in economic activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1% during
the recessionary period from 1980 to 1983. In 1984, the declining trend
was reversed as employment grew by 2.9% over 1983 levels. From 1983 to
1990, Commonwealth employment continued to grow each year, increasing an
additional 14.3%. For the three years ended 1993, unemployment in the
Commonwealth declined 1.2%.
Back-to-back recessions in the early 1980s reduced the manufacturing
sector's employment levels moderately during 1980 and 1981, sharply
during 1982, and even further in 1983. Non-manufacturing employment has
increased steadily since 1980 to its 1993 level of 81.6% of total
Commonwealth employment. Consequently, manufacturing employment
constitutes a diminished share of total employment within the
Commonwealth. Manufacturing, contributing 18.4% of 1993 non-agricultural
employment, has fallen behind both the services sector and the trade
sector as the largest single source of employment within the
Commonwealth. In 1993 the services sector accounted for 29.9% of all non-
agricultural employment while the trade sector accounted for 22.4%.
From 1983 to 1989, Pennsylvania's annual average unemployment rate
dropped from 11.8% to 4.5%, falling below the national rate in 1986 for
the first time in over a decade. Pennsylvania's annual average
unemployment rate remained below the national average from 1986 until
1990. Slower economic growth caused the unemployment rate in the
Commonwealth to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of
faster economic growth resulted in a decrease in the Commonwealth's
unemployment rate to 7.1% in 1993. As of March 1995, the seasonally
adjusted unemployment rate for the Commonwealth was 6.0% compared to
5.5% for the United States.
The five-year period from fiscal 1990 through fiscal 1994 was marked by
public health and welfare costs growing at a rate double the growth rate
for all the state expenditures. Rising caseloads, increased utilization
of services and rising prices joined to produce the rapid rise of public
health and welfare costs at a time when a national recession caused tax
revenues to stagnate and even decline. During the period from fiscal
1989 through fiscal 1993, public health and welfare costs rose by an
average annual rate of 9.4% while tax revenues were growing at an
average annual rate of 5.8%. Consequently, spending on other budget
programs was restrained to a growth rate below 4.7% and sources of
revenues other than taxes became larger components of fund revenues.
Among those sources are transfers from other funds and hospital and
nursing home pooling of contributions to use as federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in the
economy. A $2.7 billion tax increase enacted for fiscal 1992 brought
financial stability to the General Fund. That tax increase included
several taxes with retroactive effective dates which generated some one-
time revenues during fiscal 1992. The absence of those revenues in
fiscal 1993 contributed to the decline in tax revenues shown for fiscal
1993. Fiscal 1994 revenues increased 4.1%, but a decline in other
revenues caused by the end of medical assistance pooled financing in
fiscal 1993 held total revenues to a 1.8% gain. Expenditures for fiscal
1994 rose by 4.3%.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Financial information for the principal operating funds of the
Commonwealth is maintained on a budgetary basis of accounting. A
Page A-1
budgetary basis of accounting is used for the purpose of ensuring
compliance with the enacted operating budget and is governed by
applicable statutes of the Commonwealth and by administrative
procedures. The Commonwealth also prepares annual financial statements
in accordance with generally accepted accounting principles ("GAAP").
The budgetary basis financial information maintained by the Commonwealth
to monitor and enforce budgetary control is adjusted at fiscal year-end
to reflect appropriate accruals for financial reporting in conformity
with GAAP.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992 the
General Fund reported a $1.1 billion operating surplus. This operating
surplus was achieved through legislated tax rate increases and tax base
broadening measures enacted in August 1991 and by controlling
expenditures through numerous cost reduction measures implemented
throughout the fiscal year. As a result of the fiscal 1992 operating
surplus, the fund balance increased to $87.5 million and the unreserved-
undesignated deficit dropped to $138.6 million from its fiscal 1991
level of $1,146.2 million.
Budgetary Basis: Total revenues for the fiscal year were $14,516.8
million, a $2,654.5 million increase over cash revenues during fiscal
1991. Largely due to the tax revisions enacted for the budget, corporate
tax receipts totalled $3,761.2 million, up from $2,656.3 million in
fiscal 1991, sales tax receipts increased by $302 million to $4,499.7
million, and personal income tax receipts totalled $4,807.4 million, an
increase of $1,443.8 million over receipts in fiscal 1991.
Spending increases in the fiscal 1992 budget were largely accounted for
by increases for education, social services and corrections programs.
Commonwealth funds for the support of public schools were increased by
9.8% to provide a $438 million increase to $4.9 billion for fiscal 1992.
Child welfare appropriations supporting county operated child welfare
programs were increased $67 million, more than 31.5% over fiscal 1991.
Other social service areas such as medical and cash assistance also
received significant funding increases as costs rose quickly as a result
of the economic recession and high inflation rates of medical care
costs. The costs of corrections programs, reflecting the marked increase
in the prisoner population, increased by 12%. Economic development
efforts, largely funded from bond proceeds in fiscal 1991, were
continued with General Fund appropriations for fiscal 1992.
The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135 million of
Commonwealth funds, allowing total spending under the budget to increase
by an equal amount.
Fiscal 1993 Financial Results. GAAP Basis: The fund balance of the
General Fund increased by $611.4 million during the fiscal year, led by
an increase in the unreserved balance of $576.8 million over the prior
fiscal year balance. At June 30, 1993, the fund balance totaled $698.9
and the unreserved/undesignated balance totaled $64.4 million. The
increase in the fund balance and a return to a positive
unreserved/undesignated balance provided indication of a continuing
recovery of the Commonwealth's financial condition.
Budgetary Basis: The 1993 fiscal year closed with revenues higher than
anticipated and expenditures about as projected, resulting in an ending
unappropriated balance surplus (prior to the ten percent transfer to the
Tax Stabilization Reserve Fund) of $242.3 million, slightly higher than
estimated. Cash revenues were $41.5 million above the budget estimate
and totaled $14.633 billion representing less than a one percent
increase over revenues for the 1992 fiscal year. A reduction in the
personal income tax rate in July 1992 and the one-time receipt of
revenues from retroactive corporate tax increases in fiscal 1992 were
responsible, in part, for the low revenue growth in fiscal 1993.
Appropriations less lapses totaled $13.870 billion representing a 1.1%
increase over expenditures during fiscal 1992. The low growth in
spending is a consequence of a low rate of revenue growth, significant
one-time expenses during fiscal 1992, increased tax refund reserves to
cushion against adverse decisions on pending litigations, and the
receipt of federal funds for expenditures previously paid out of
Commonwealth funds.
By state statute, ten percent of the budgetary basis unappropriated
surplus at the end of a fiscal year is to be transferred to the Tax
Stabilization Reserve Fund. The transfer for the fiscal 1993 balance was
$24.2 million. The remaining unappropriated surplus of $218.0 million
was carried forward into the 1994 fiscal year.
Fiscal 1994 Financial Results. GAAP Basis: The fund balance increased
Page A-2
$194.0 million due largely to an increased reserve for encumbrances and
an increase in other designated funds. The unreserved/undesignated
balance increased by $14.8 million to $72.2 million. Revenues and other
sources increased by 1.8% over the prior fiscal year while expenditures
and other uses increased by 4.3%. Consequently, the operating surplus
declined to $179.4 million for fiscal 1994 from $686.3 million for
fiscal 1993.
Budgetary Basis: Commonwealth revenues during the fiscal year totaled
$15,210.7 million, $38.6 million above the fiscal year estimate, and
3.9% over Commonwealth revenues during the previous fiscal year. The
sales tax was an important contributor to the higher than estimated
revenues. Collections from the sales tax were $5.124 billion, a 6.1%
increase from the prior fiscal year and $81.3 million above estimate.
The strength of collections from the sales tax offset the lower than
budgeted performance of the personal income tax which ended the fiscal
year $74.4 million below estimate. The shortfall in the personal income
tax was largely due to shortfalls in income not subject to withholding
such as interest, dividends and other income. Tax refunds in fiscal 1994
were reduced substantially below the $530 million amount provided in
fiscal 1993. The higher fiscal 1993 amount and the reduced fiscal 1994
amount occurred because reserves of approximately $160 million were
added to fiscal 1993 tax refunds to cover potential payments if the
Commonwealth lost litigation known as Philadelphia Suburban Corp. v.
Commonwealth. Those reserves were carried into fiscal 1994 until the
litigation was decided in the Commonwealth's favor in December 1993 and
$147.3 million of reserves for tax refunds were released.
Expenditures, excluding pooled financing expenditures and net of all
fiscal 1994 appropriation lapses, totaled $14,934.4 million representing
a 7.2% increase over fiscal 1993 expenditures. Medical assistance and
corrections spending contributed to the rate of spending growth for the
fiscal year.
The Commonwealth maintained an operating balance on a budgetary basis
for fiscal 1994 producing a fiscal year ending unappropriated surplus of
$335.8 million. By state statute, ten percent ($33.6 million) of that
surplus transferred to the Tax Stabilization Reserve Fund and the
remaining balance was carried over into the fiscal 1995 fiscal year. The
balance in the Tax Stabilization Reserve Fund as of March 31, 1995 was
$65.3 million.
Fiscal 1995 Budget. The approved fiscal 1995 budget provided for
$15,665.7 million of appropriations from Commonwealth funds, an increase
of 4.0% over appropriations, including supplemental appropriations, for
fiscal 1994. Medical assistance expenditures represent the largest
single increase in the budget ($221 million) representing a nine percent
increase over the prior fiscal year. The budget includes a reform of the
state-funded public assistance program that added certain categories of
eligibility to the program but also limited the availability of such
assistance to other eligible persons. Education subsidies to local
school districts were increased by $132.2 million to continue the
increased funding for the poorest school districts in the state.
Several tax reductions were enacted with the fiscal 1995 budget. Low-
income working families will benefit from an increase to the dependent
exemption to $3,000 from $1,500 for the first dependent and from $1,000
for all additional dependents. A reduction to the corporate net income
tax rate from 12.25% to 9.99% to be phased in over a period of four
years was enacted. A net operating loss provision has been added to the
corporate net income tax and will be phased in over three years with an
annual $500,000 cap on losses used to offset profits. Several other tax
changes to the sales tax, the inheritance tax and the capital stock and
franchise tax also were enacted. Estimated commonwealth revenue
reductions from these tax cuts have been raised from $166.4 million to
$173.4 million based on upward revised estimates of commonwealth
revenues for the fiscal year. Estimated fiscal year revenues, net of the
enacted tax cuts, were increased $296.5 million in the revised
projection for fiscal 1994. The increase represents a 1.9 percentage
point increase in the rate of growth anticipated for fiscal 1995 to
6.3%, excluding the effect of the fiscal 1995 tax reductions, and is
largely due to actual and anticipated higher collections of the
corporate net income tax, the sales and use tax and miscellaneous
collections.
After a review of the fiscal 1994 budget in January 1995, $64.9 million
of additional appropriation needs were identified for the fiscal year.
Of this amount, the largest are for medical assistance ($21.8 million)
and general assistance cash grants ($10.3 million). The balance of the
additional appropriation needs are for other public welfare programs,
educational subsidies and office relocation costs due to a fire. The
supplemental appropriations requested are proposed to be funded from
appropriation lapses estimated to total $172 million for the fiscal year.
Page A-3
With the revised estimates for revenues, appropriations and lapses for
the 1994 fiscal year, an unappropriated balance prior to transfers to
the Tax Stabilization Reserve Fund of $395.5 million is projected, an
increase from the $335.8 million fiscal year 1993 ending balance (prior
to transfers).
Fiscal 1996 Budget. The fiscal 1996 budget was approved by the Governor
on June 30, 1995. The budget includes spending growth of 2.7%. It
includes a reduction of the Corporate Net Income Tax from 10.99% to
9.99% retroactive to January 1, 1995. The budget includes a
proportionate increase in funds for public safety and education and a
proportionate decrease in funds for welfare.
Fiscal 1997 Budget. The fiscal 1997 budget was approved by the Governor
on June 29, 1996. The budget increases government spending by only six-
tenths of one percent. It increases the Rainy Day Fund-Pennsylvania's
"savings account" to protect against future tax increases-to a balance
of $209 million. The budget includes a $15 million Job Creation Tax
Credit intended to help create more jobs for Pennsylvanians. The budget
offers $138 million in increased funding and savings for local school
districts including the Link to Learn technology-in-schools program
which is a $40.3 million initiative designed to make computer resources
available in Pennsylvania classrooms.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be
revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the
1990 Census. Philadelphia functions both as a city of the first class
and a county for the purpose of administering various governmental
programs.
For the fiscal year ended June 30, 1991, Philadelphia experienced a
cumulative General Fund balance deficit of $153.5 million. The audit
findings for the fiscal year ended June 30, 1992, placed the Cumulative
General Fund balance deficit at $224.9.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class
cities in remedying fiscal emergencies was enacted by the General
Assembly and approved by the Governor in June 1991. PICA is designed to
provide assistance through the issuance of funding debt to liquidate
budget deficits and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. An
intergovernmental cooperation agreement between Philadelphia and PICA
was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8, 1992. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA
on April 30, 1996 in which Philadelphia projects a balanced budget in
each of the five years (fiscal years 1997 through 2001) covered by the plan.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue Bonds
(the "1992 Bonds") to provide financial assistance to Philadelphia and
to liquidate the cumulative General Fund balance deficit. PICA issued
$643,430,000 in July 1993 and $178,675,000 in August 1993 of Special Tax
Revenue Bonds (the "1994 Bonds") to refund certain general obligation
bonds of the City and to fund additional capital projects. In December
1994, PICA issued $122,020,000 of Special Tax Revenue Bonds to fund
additional capital projects. In May 1996, PICA issued $343,030,000 of
Special Tax Revenue Refunding Bonds to (i) advance refund the 1992 Bonds
and the 1994 Bonds; (ii) pay the premium for a surety bond to satisfy
the Debt Service Reserve Fund Requirement for the 1996 Bonds; and (iii)
pay the costs of issuing the 1996 Bonds.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Baa by
Moody's and BBB- by S&P. Any explanation concerning the significance of
such ratings must be obtained from the rating agencies. There is no
assurance that any ratings will continue for any period of time or that
they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds in the Pennsylvania
Trust are subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which are
Page A-4
not within the control of the issuers of Bonds, could have an adverse
impact on the financial condition of the State and various agencies and
political subdivisions located in the State. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Pennsylvania Trust to pay interest on or principal of the Bonds.
Page A-5
CONTENTS OF REGISTRATION STATEMENT
Item A. Bonding Arrangements of Depositor
Nike Securities L.P. is covered by a Brokers' Fidelity Bond,
in the total amount of $1,000,000, the insurer being National
Union Fire Insurance Company of Pittsburgh.
Item B.
This Registration Statement on Form S-6 comprises the
following papers and documents:
The Facing Sheet
The Cross-Reference Sheet
The Prospectus
The Signatures
Exhibits
Financial Data Schedules
EXPLANATORY NOTE
This Amendment No. 1 to the Registration Statement contains
multiple separate prospectuses. Each prospectus will relate to
an individual unit investment trust and will consist of a Part I,
a Part II and an Information Supplement, all dated the date of
this Amendment No. 1 to the Registration Statement. Each
prospectus will be identical with the exception of the respective
Part I which will contain the financial information specific to
such underlying unit investment trust.
UNDERTAKINGS
1. With the exception of the information included in the
state specific appendices to the Information Supplement, which
will vary depending upon the make-up of a Fund or updated to
reflect current events, any amendment to a Fund's Information
Supplement will be subject to the review of the staff of the
Securities and Exchange Commission prior to distribution; and
2. The Information Supplement to the Trust will not
include third party financial information.
S-1
SIGNATURES
The Registrant, The First Trust Combined Series 265, hereby
identifies The First Trust Combined Series 83, The First Trust
Combined Series 198, The First Trust Combined Series 251 and The
First Trust Special Situations Trust, Series 18, for purposes of
the representations required by Rule 487 and represents the
following:
(1) that the portfolio securities deposited in the series
as to the securities of which this Registration Statement is
being filed do not differ materially in type or quality from
those deposited in such previous series;
(2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide
essential financial information for, the series with respect to
the securities of which this Registration Statement is being
filed, this Registration Statement does not contain disclosures
that differ in any material respect from those contained in the
registration statements for such previous series as to which the
effective date was determined by the Commission or the staff; and
(3) that it has complied with Rule 460 under the
Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 265, has duly
caused this Amendment of Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
Village of Lisle and State of Illinois on August 6, 1996.
THE FIRST TRUST COMBINED SERIES 265
By: NIKE SECURITIES L.P.
(Depositor)
By: Robert M. Porcellino
Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE* DATE
Robert D. Van Kampen Sole Director )
of Nike Securities )
Corporation, the ) August 6, 1996
General Partner of )
Nike Securities L.P. )
)
)
) Robert M. Porcellino
) Attorney-in-Fact**
)
)
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated August 6, 1996 (File
No. 333-04579) and related Prospectus of The First Trust Combined
Series 265.
ERNST & YOUNG LLP
Chicago, Illinois
August 6, 1996
CONSENTS OF COUNSEL
The consents of counsel are contained in their respective
opinions filed by this amendment as Exhibits 3.1, 3.2, 3.3, 3.4
and 3.5 to 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 the Registration Statement
is filed as Exhibit 4.1 to the Registration Statement.
CONSENT OF STANDARD & POOR'S RATINGS SERVICES, A DIVISION OF THE
McGRAW-HILL COMPANIES, INC.
The consent of Standard & Poor's Ratings Services, A Division of
the McGraw-Hill Companies, Inc. to the use of its name in the
Prospectus included in the Registration Statement is filed as
Exhibit 4.2 to the Registration Statement.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Combined Series 145 and subsequent Series
effective October 16, 1991, among Nike Securities L.P.,
as Depositor, United States Trust Company of New York,
as Trustee, Securities Evaluation Service, Inc., as
Evaluator and Nike Financial Advisory Services L.P., as
Portfolio Supervisor (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-43289] filed on
behalf of The First Trust Combined Series 145).
1.1.1 Form of Trust Agreement for Series 265 among Nike
Securities L.P., as Depositor, The Chase Manhattan Bank,
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 Nike
Securities L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership
Agreement of Nike Securities L.P. (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.4 Copy of Articles of Incorporation of Nike Securities
Corporation, General Partner of Nike Securities L.P.,
Depositor (incorporated by reference to Amendment No. 1
to Form S-6 [File No. 33-42683] filed on behalf of The
First Trust Special Situations Trust, Series 18).
1.5 Copy of By-Laws of Nike Securities Corporation, General
Partner of Nike Securities L.P., Depositor (incorporated
by reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.7 Master Agreement Among Underwriters (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
on page 2 and incorporated herein by reference).
S-5
3.1 Opinion of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal income tax status of
securities being registered.
3.3 Opinion of counsel as to New York tax status of
securities being registered.
3.4 Opinion of counsel as to advancement of funds by Trustee.
3.5 Opinions of state counsel.
4.1 Consent of Securities Evaluation Service, Inc.
4.2 Consent of Standard & Poor's Ratings Services, A division
of The McGraw-Hill Companies, 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 Director listed on
page S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
63483] filed on behalf of The First Trust Combined
Series 258).
EX-27 Financial Data Schedules.
S-6
EXHIBIT 1.1.1
THE FIRST TRUST COMBINED SERIES 265
TRUST AGREEMENT
Dated: August 6, 1996
This Trust Agreement among Nike Securities L.P., as
Depositor, The Chase Manhattan Bank, as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and First Trust Advisors
L.P., as Portfolio Supervisor, sets forth certain provisions in
full and incorporates other provisions by reference to the
document entitled "Standard Terms and Conditions of Trust for The
First Trust Combined Series 145 and subsequent Series, effective
October 16, 1991" (herein called the "Standard Terms and
Conditions of Trust"), and such provisions as are set forth in
full and such provisions as are incorporated by reference
constitute a single instrument. All references herein to
Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the
Evaluator and Portfolio Supervisor agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the
provisions contained in the Standard Terms and Conditions of
Trust are herein incorporated by reference in their entirety and
shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in
full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed
to:
(a) The Bonds defined in Section 1.01(5) listed in Schedule
A hereto have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of
the Trust Fund represented by each Unit for a Trust on the
Initial Date of Deposit is the amount set forth under the
captions "Summary of Essential Information - Fractional Undivided
Interest in the Trust per Unit" in the Prospectus.
(c) The number of units in a Trust on the Initial Date of
Deposit referred to in Section 2.03 is set forth under the
caption "Summary of Essential Information - Number of Units" in
the Prospectus.
(d) The approximate amount, if any, which the Trustee shall
be required to advance out of its own funds and cause to be paid
to the Depositor pursuant to the second sentence of Section 3.05
shall be the amount per Unit for each Trust that the Trustee
agreed to reduce its fee or pay Trust Fund expenses set forth in
the footnotes to the "Special Trust Information" for each Trust
in the Prospectus times the number of units for such Trust
referred to in Part II (c) of this Trust Agreement.
(e) For each Trust the First General Record Date and the
amount of the second distribution of funds from the Interest
Account shall be the record date for the Interest Account and the
amount set forth under "Special Trust Information-Distributions"
for such Trust in the Prospectus.
(f) For each Trust the "First Settlement Date" is the date
set forth under "Summary of Essential Information-First
Settlement Date" for such Trust in the Prospectus.
(g) The first sentence of Section 3.15. shall be amended to
read as follows:
"As compensation for providing supervisory portfolio
services under this Indenture, the Portfolio Supervisor shall
receive against a statement or statements therefor submitted to
the Trustee monthly or annually an aggregate annual fee in an
amount which shall not exceed the amount set forth under "Summary
of Essential Information-Supervisory Fee" in the Prospectus times
the number of Units outstanding as of January 1 of such year (or,
with respect to the first calendar year of a Trust, the date of
deposit), but in no event shall such compensation when combined
with all compensation received from other series of the Fund for
providing such supervisory services in any calendar year exceed
the aggregate cost to the Portfolio Supervisor for providing such
services (such annual fee to be pro rated for any calendar year
in which the Portfolio Supervisor provides services during less
than the whole of such year)."
(h) Section 1.01(4) shall be amended to read as follows:
"(4) "Portfolio Supervisor" shall mean First Trust Advisors
L.P. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided."
(i) The first four sentences of Section 6.04 shall be
amended in their entirety to read as follows:
"For services performed under this Indenture the Trustee
shall be paid an amount per annum specified in Part II of the
Trust Agreement in respect of which payment is made pursuant
to Section 3.05. The Trustee's compensation shall accrue
daily and be computed on the basis of the greatest number of
Units in each Trust at any time during the period with
respect to which such compensation is being computed (such
period being the period commencing with the next preceding
Distribution Date, or the initial date of deposit, as
appropriate, and running to, but not including, the
Distribution Date on which such computation is made) and
shall be apportioned among the respective plans of
distribution in effect as of January 1 next preceding such
computation. During the first year of a Trust, such
compensation shall be reduced by the amount of interest which
accrues on "when-issued" Bonds and Contract Bonds from the
First Settlement Date, as defined in Part II of the Trust
Agreement, to the respective delivery dates of such Bonds and
Contract Bonds."
(j) The Trustee's annual fee referred to in Section 6.04 is
set forth for each Trust under "Special Trust Information" for
such Trust in the Prospectus.
(k) The first paragraph of Section 3.05 shall be amended to
read as follows:
"The Trustee, as of the "First Settlement Date", as
defined in Part II of the Trust Agreement, shall advance from
its own funds and shall pay to the Depositor the amount of
interest accrued to such date on the Bonds deposited in the
respective Trusts. The Trustee, as of the "First Settlement
Date," as defined in Part II of the Trust Agreement, shall
also advance to the Trust from its own funds and distribute
to the Depositor the amount specified in Part II of the Trust
Agreement, which is the amount by which the Trustee's fee is
reduced and Trust expenses assumed by the Trustee in respect
of interest accrued on "when-issued" Bonds and on Contract
Bonds delivered to the Trustee subsequent to the First
Settlement Date pursuant to Section 6.04. The Trustee shall
be entitled to reimbursement, without interest, for such
advancements from interest received by the Trust. Subsequent
distributions shall be made as hereinafter provided."
(l) Section 2.01 of Article II of the Standard Terms and
Conditions of Trust is hereby amended by inserting "(a)" prior to
the beginning of the text of the paragraph and adding the
following additional paragraphs:
"(b) From time to time following the Initial Date of
Deposit, the Depositor is hereby authorized, in its
discretion, to assign, convey to and deposit with the
Trustee additional Bonds, in bearer form or duly endorsed in
blank or accompanied by all necessary instruments of
assignment and transfer in proper form (or Contract
Obligations relating to such Bonds), to be held, managed and
applied by the Trustee as herein provided. Such deposit of
additional Bonds shall be made, in each case, pursuant to a
Notice of Deposit of Additional Bonds from the Depositor to
the Trustee. The Depositor, in each case, shall ensure that
each deposit of additional Bonds pursuant to this Section
shall be, as nearly as is practicable, in the identical
ratio as the Percentage Ratio for such Bonds as is specified
in the Prospectus for each Trust and the Depositor shall
ensure that such Bonds are identical to those deposited on
the Initial Date of Deposit. The Depositor shall deliver
the additional Bonds which were not delivered concurrently
with the deposit of additional Bonds and which were
represented by Contract Obligations within 10 calendar days
after such deposit of additional Bonds (the "Additional
Bonds Delivery Period"). If a contract to buy such Bonds
between the Depositor and seller is terminated by the seller
thereof for any reason beyond the control of the Depositor
or if for any other reason the Bonds are not delivered to
the Trust by the end of the Additional Bonds Delivery Period
for such deposit, the Trustee shall immediately draw on the
Letter of Credit, if any, in its entirety, apply the monies
in accordance with Section 2.01(d), and the Depositor shall
forthwith take the remedial action specified in
Section 3.14.
(c) In connection with the deposits described in
Section 2.01 (a) and (b), the Depositor has, in the case of
Section 2.01(a) deposits, and, prior to the Trustee
accepting a Section 2.01(b) deposit, will, deposit cash
and/or Letter(s) of Credit (meeting the conditions set forth
in Section 2.07) in an amount sufficient to purchase the
Contract Obligations (the "Purchase Amount") relating to
Bonds which are not actually delivered to the Trustee at the
time of such deposit, the terms of which unconditionally
allow the Trustee to draw on the full amount of the
available Letter of Credit. The Trustee may deposit such
cash or cash drawn on the Letter of Credit in a non-interest
bearing account for the Trust.
(d) In the event that the purchase of Contract
Obligations pursuant to any contract shall not be
consummated in accordance with said contract or if the Bonds
represented by Contract Obligations are not delivered to the
Trust in accordance with Section 2.01(a) or 2.01(b) and the
monies, or, if applicable, the monies drawn on the Letter of
Credit, deposited by the Depositor are not utilized for
Section 3.14 purchases of New Bonds, such funds, to the
extent of the purchase price of Special Bonds for which no
New Bond was acquired pursuant to Section 3.14, plus all
amounts described in the next succeeding two sentences,
shall be credited to the Principal Account and distributed
pursuant to Section 3.05 to Unit holders of record as of the
Record Date next following the failure of consummation of
such purchase. The Depositor shall cause to be refunded to
each Unit holder his pro rata portion of the sales charge
levied on the sale of Units to such Unit holder attributable
to such Failed Contract Obligation. The Depositor shall
also pay to the Trustee, for distribution to the Unit
holders, interest on the amount of the purchase price to the
Trust of the Special Bonds, at the rate of 5% per annum to
the date the Depositor notifies the Trustee that no New Bond
will be purchased or, in the absence of such notification,
to the expiration date for purchase of a New Bond specified
in Section 3.14. Any amounts remaining from monies drawn on
the Letter of Credit which are not used to purchase New
Bonds or are not used to provide refunds to Unit holders
shall be paid to the Depositor.
(e) The Trustee is hereby irrevocably authorized to
effect registration or transfer of the Bonds in fully
registered form to the name of the Trustee or to the name of
its nominee.
(f) In connection with and at the time of any deposit
of additional Bonds pursuant to Section 2.01(b), the
Depositor shall exactly replicate Cash (as defined below)
received or receivable by the Trust as of the date of such
deposit. For purposes of this paragraph, "Cash" means, as
to the Principal Account, cash or other property (other than
Bonds) on hand in the Principal Account or receivable and to
be credited to the Principal Account as of the date of the
deposit (other than amounts to be distributed solely to
persons other than holders of Units created by the deposit)
and, as to the Income Account, cash or other property (other
than Bonds) received by the Trust as of the date of the
deposit or receivable by the Trust in respect of a coupon
date which has occurred or will occur before the Trust will
be the holder of record of a Bond, reduced by the amount of
any cash or other property received or receivable on any
Bonds allocable (in accordance with the Trustee's
calculation of the monthly distribution from the Income
Account pursuant to Section 3.05) to a distribution made or
to be made in respect of a Record Date occurring prior to
the deposit. Such replication will be made on the basis of
a fraction, the numerator of which is the number of Units
created by the deposit and the denominator of which is the
number of Units which are outstanding immediately prior to
the deposit."
(m) Article II of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraph
which shall be entitled Section 2.07.:
"Section 2.07. Letter of Credit. The Trustee shall not
accept any Letter of Credit under this Indenture unless the
stated expiration date of the Letter of Credit is at least
thirty days from the respective date of deposit of Contract
Obligations pursuant to Section 2.01(a) or 2.01(b). The
Trustee is authorized to downpost the amount available under
the Letter of Credit, if any, deposited by the Depositor by
an amount equal to the purchase price of Contract
Obligations representing Bonds delivered to the Trust on the
date of delivery of such Bonds."
(n) Section 3.05 of Article III of the Standard Terms and
Conditions of Trust is hereby amended to include the following
subsection:
"Section 3.05(e) deduct from the Interest Account
or, to the extent funds are not available in such Account,
from the Principal Account and pay to the Depositor the
amount that it is entitled to receive pursuant to Section
3.16.
(o) Article III of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraphs
which shall be entitled Section 3.16.:
"Section 3.16. Bookkeeping and Administrative Expenses.
As compensation for providing bookkeeping or other
administrative services of a character described in Section
26(a)(2)(C) of the Investment Company Act of 1940 to the
extent such services are in addition to, and do not
duplicate, the services to be provided hereunder by the
Trustee or the Portfolio Supervisor, the Depositor shall
receive against a statement or statements therefor submitted
to the Trustee monthly or annually an aggregate annual fee
in an amount which shall not exceed that amount set forth
under "Summary of Essential Information" in the Prospectus
times the number of Units outstanding as of January 1 of
such year except for a year or years in which an initial
offering period as determined by Section 4.01 of this
Indenture occurs, in which case the fee for a month is based
on the number of Units outstanding at the end of such month
(such annual fee to be pro rated for any calendar year in
which the Depositor provides service during less than the
whole of such year), but in no event shall such compensation
when combined with all compensation received from other unit
investment trusts for which the Depositor hereunder is
acting as Depositor for providing such bookkeeping and
administrative services in any calendar year exceed the
aggregate cost to the Depositor of providing such services
to such unit investment trusts. Such compensation may, from
time to time, be adjusted provided that the total adjustment
upward does not, at the time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in
consumer prices for services as measured by the United
States Department of Labor Consumer Price Index entitled
"All Services Less Rent of Shelter" or similar index, if
such index should no longer be published. The consent or
concurrence of any Unit holder hereunder shall not be
required for any such adjustment or increase. Such
compensation shall be paid by the Trustee, upon receipt of
invoice therefor from the Depositor, upon which, as to the
cost incurred by the Depositor of providing services
hereunder the Trustee may rely, and shall be charged against
the Interest and Principal Accounts on or before the
Distribution Date following the Monthly Record Date on which
such period terminates. The Trustee shall have no liability
to any Certificateholder or other person for any payment
made in good faith pursuant to this Section.
If the cash balance in the Interest and Principal
Accounts shall be insufficient to provide for amounts
payable pursuant to this Section 3.16, the Trustee shall
have the power to sell (i) Bonds from the current list of
Bonds designated to be sold pursuant to Section 5.02 hereof,
or (ii) if no such Bonds have been so designated, such Bonds
as the Trustee may see fit to sell in its own discretion,
and to apply the proceeds of any such sale in payment of the
amounts payable pursuant to this Section 3.16.
Any moneys payable to the Depositor pursuant to this
Section 3.16 shall be secured by a prior lien on the Trust
Fund except that no such lien shall be prior to any lien in
favor of the Trustee under the provisions of Section 6.04
herein.
(p) All provisions regarding the Distribution Date included
in Section 3.05 of Article III of the Standard Terms and
Conditions of Trust are hereby amended to change the Distribution
Date from the first day of the month following the Record Date to
the last day of the month in which the Record Date occurs.
(q) Section 6.01(i) of the Standard Terms and Conditions of
Trust shall be amended by deleting the first word of such Section
and replacing it with the following:
"Except as provided in Section 3.01, no"
(r) Section 8.04 is hereby amended by inserting the
following at the end of such section:
", except as provided in Section 3.01"
(s) The second sentence of the first paragraph of Section
5.01 of the Standard Terms and Conditions of Trust shall be
amended by deleting the word "and" appearing immediately prior to
subsection (c) of such sentence and inserting the following at
the end of such sentence:
", and (d) amounts representing organizational expenses paid
less amounts representing accrued organizational expenses of a
Trust."
(t) Section 1.01.(2) shall be amended to read as follows:
"(2) "Trustee" shall mean The Chase Manhattan Bank, or any
successor trustee appointed as hereinafter provided."
All references to United States Trust Company of New York in
the Standard Terms and Conditions of Trust shall be amended to
refer to The Chase Manhattan Bank.
PART III
Notwithstanding any provision to the contrary contained in
the Standard Terms and Conditions of Trust and in lieu of the
receipt of Certificates evidencing ownership of Units of the
Fund, the Sponsor or any Underwriter of the Fund listed under the
caption "Underwriting" in the Prospectus, at its option, may
elect that Units of the Fund owned by it be reflected by book
entry on the books and records of the Trustee. For all purposes
such Sponsor or Underwriter shall be deemed the owner of such
Units as if a Certificate evidencing ownership of Units of the
Fund had actually been issued by the Trustee. The Units
reflected by book entry on the books and records of the Trustee
may be transferable by the registered owner of such Units by
written instrument in form satisfactory to the Trustee. The
registered owner of Units reflected by book entry on the books
and records of the Trustee shall have the right at any time to
obtain Certificates evidencing ownership of such Units.
IN WITNESS WHEREOF, Nike Securities L.P., The Chase
Manhattan Bank, Securities Evaluation Service, Inc. and First
Trust Advisors L.P. have each caused this Trust Agreement to be
executed and the respective corporate seal to be hereto affixed
and attested (if applicable) by authorized officers; all as of
the day, month and year first above written.
NIKE SECURITIES L.P.,
Depositor
By Robert M. Porcellino
Vice President
THE CHASE MANHATTAN BANK, Trustee
(SEAL) By Thomas Porrazzo
Vice President
Attest:
Rosalia A. Raviele
Second Vice President
SECURITIES EVALUATION SERVICE,
INC., Evaluator
(SEAL) By Jerome G. Klaas
Vice President
Attest:
James G. Prince
Vice President and
Assistant Secretary
FIRST TRUST ADVISORS L.P.,
Portfolio Supervisor
By Robert M. Porcellino
Vice President
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
THE FIRST TRUST COMBINED SERIES 265
(Note: Incorporated herein and made a part hereof is the
"Portfolio" as set forth for each Trust in the
Prospectus.)
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
August 6, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 265
Gentlemen:
We have served as counsel for Nike Securities L.P., as
Sponsor and Depositor of The First Trust Combined Series 265, in
connection with the preparation, execution and delivery of a
Trust Agreement dated August 6, 1996 among Nike Securities L.P.,
as Depositor, The Chase Manhattan Bank, as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and First Trust Advisors
L.P., as Portfolio Supervisor, pursuant to which the Depositor
has delivered to and deposited the Bonds listed in Schedule A to
the Trust Agreement with the Trustee and pursuant to which the
Trustee has issued to or on the order of the Depositor a
certificate or certificates representing units of fractional
undivided interest in and ownership of the Fund created under
said Trust Agreement.
In connection therewith, we have examined such pertinent
records and documents and matters of law as we have deemed
necessary in order to enable us to express the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and
the execution and issuance of certificates evidencing the Units
in the Fund have been duly authorized; and
2. the certificates evidencing the Units in the Fund when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will
constitute valid and binding obligations of the Fund and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 333-04579)
relating to the Units referred to above, to the use of our name
and to the reference to our firm in said Registration Statement
and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/jln
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, IL 60603
August 6, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
The Chase Manhattan Bank
770 Broadway, 6th Floor
New York, New York 10003
Re: The First Trust Combined Series 265
Gentlemen:
We have served as counsel for Nike Securities L.P.,
Depositor of The First Trust Combined Series 265 (the "Trust") in
connection with the issuance of Units of fractional undivided
interest in said Trust under a Trust Agreement dated August 6,
1996 (the "Indenture") among Nike Securities L.P., as Depositor,
The Chase Manhattan Bank, as Trustee, Securities Evaluation
Service, Inc., as Evaluator, and First Trust Advisors L.P., as
Portfolio Supervisor.
In this connection, we have examined the Registration
Statement, the form of Prospectus proposed to be filed with the
Securities and Exchange Commission, the Indenture and such other
instruments and documents as we have deemed pertinent.
Based upon the foregoing, and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing federal income tax law:
(i) Each Trust is not an association taxable as a
corporation but will be governed by the provisions of
Subchapter J (relating to Trusts) of Chapter 1, Internal
Revenue Code of 1986 (the "Code").
(ii) Each Certificateholder will be considered as
owning a pro rata share of each asset of the respective
Trust in the proportion that the number of Units of such
Trust held by him bears to the total number of Units
outstanding of such Trust. Under Subpart E, Subchapter J of
Chapter 1 of the Code, income of each Trust will be treated
as income of each Certificateholder in the proportion
described, and an item of Trust income will have the same
character in the hands of a Certificateholder as it would
have in the hands of the Trustee. Accordingly, to the
extent that the income of a Trust consists of interest and
original issue discount excludable from gross income under
Section 103 of the Code, such income will be excludable from
federal gross income of the Certificateholder, except in the
case of a Certificateholder who is a substantial user (or a
person related to such user) of a facility financed through
issuance of any industrial development bonds or certain
private activity bonds held by the Trust. In the case of
such Certificateholder who is a substantial user (and no
other) interest received with respect to his Units
attributable to such industrial development bonds or such
private activity bonds is includable in his gross income.
To the extent a Trust holds Bonds that are "specified
private activity Bonds" within the meaning of Section
57(a)(5) of the Code, a Certificateholder's pro rata portion
of the income on such Bonds will be included as an item of
tax preference in the computation of the alternative minimum
tax applicable to all taxpayers (including non-corporate
taxpayers) subject to the alternative minimum tax. In the
case of certain corporations, interest on all of the Bonds
is included in computing the alternative minimum tax
pursuant to Section 56(c) of the Code, the environmental tax
(the "Superfund Tax") imposed by Section 59A of the Code,
and the branch profits tax imposed by Section 884 of the
Code with respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a
Certificateholder upon redemption or sale of his Units.
Such gain or loss is measured by comparing the proceeds of
such redemption or sale with the adjusted basis of the Units
represented by his Certificate. Before adjustment, such
basis would normally be cost if the Certificateholder had
acquired his Units by purchase, plus his aliquot share of
advances by the Trustee to the respective Trust to pay
interest on Bonds delivered after the Certificateholder's
settlement date to the extent that such interest accrued on
the Bonds during the period from the Certificateholder's
settlement date to the date such Bonds are delivered to the
Trust, but only to the extent that such advances are to be
repaid to the Trustee out of interest received by such Trust
with respect to such Bonds. In addition, such basis will be
increased by the Certificateholder's aliquot share of the
accrued original issue discount (and market discount, if the
Certificateholder elects to include market discount in
income as it accrues) with respect to each Bond held by the
Trust with respect to which there was an original issue
discount at the time the Bond was issued (or which was
purchased with market discount) and reduced by the annual
amortization of bond premium, if any, on Bonds held by the
Trust.
(iv) If the Trustee disposes of an asset of a Trust
(whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the
Certificateholder and the amount thereof is measured by
comparing the Certificateholder's aliquot share of the total
proceeds from the transaction with his basis for his
fractional interest in the asset disposed of. Such basis is
ascertained by apportioning the tax basis for his Units
among each of the assets of such Trust (as of the date on
which his Units were acquired) ratably according to their
values as of the valuation date nearest the date on which he
purchased such Units. A Certificateholder's basis in his
Units and of his fractional interest in each asset of the
Trust must be reduced by the amount of his aliquot share of
interest received by the Trust, if any, on Bonds delivered
after the Certificateholder's settlement date to the extent
that such interest accrued on the Bonds during the period
from the Certificateholder's settlement date to the date
such Bonds are delivered to the Trust must be reduced by the
annual amortization of bond premium, if any, on Bonds held
by the Trust and must be increased by the
Certificateholder's share of the accrued original issue
discount (and market discount, if the Unitholder elects to
include market discount in income as it accrues) with
respect to each Bond which, at the time the Bond was issued,
had original issue discount (or which was purchased with
market discount).
(v) In the case of any Bond held by the Trust where
the "stated redemption price at maturity" exceeds the "issue
price", such excess shall be original issue discount. With
respect to each Certificateholder, upon the purchase of his
Units subsequent to the original issuance of Bonds held by
the Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original
issue discount upon the purchase of a Bond subsequent to the
Bond's original issue, under certain circumstances. In the
case of any Bond held by the Trust the interest on which is
excludable from gross income under Section 103 of the Code,
any original issue discount which accrues with respect
thereto will be treated as interest which is excludable from
gross income under Section 103 of the Code.
(vi) Certain bonds in the portfolio of the Trust have
been insured by the issuers, underwriters, the Sponsor or
others against default in the prompt payment of principal
and interest (the "Insured Bonds"). Such Bonds are so
designated on the portfolio pages in the Prospectus for each
Trust. Insurance on Insured Bonds is effective so long as
such bonds remain outstanding. For each of these bonds, we
have been advised that the aggregate principal amount of
such bonds listed on the portfolio page was acquired by the
Trust and are part of the series of such bonds in the listed
aggregate principal amount. Based upon the assumption that
the Insured Bonds of the Trust are part of a series covered
by an insurance policy, it is our opinion that any amounts
received by the Trust representing maturing interest on such
bonds will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so
excludable if paid in normal course by the Issuer provided
that, at the time such policies are purchased, the amounts
paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer
of the bonds, rather than the insurer will pay debt service
on the bonds. Paragraph (ii) of this opinion is accordingly
applicable to such payment.
Sections 1288 and 1272 of the Code provide a complex set of
rules governing the accrual of original issue discount. These
rules provide that original issue discount accrues either on the
basis of a constant compound interest rate or ratably over the
term of the Bonds, depending on the date the Bond was issued. In
addition, special rules apply if the purchase price of a Bond
exceeds the original issue price plus the amount of original
issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). The application of
these rules will also vary depending on the value of the Bond on
the date a Certificateholder acquires his Units, and the price
the Certificateholder pays for his Units.
Except with respect to those Trusts that hold "specified
private activity bonds" within the meaning of Section 57(a)(5) of
the Code issued on or after August 8, 1986 as identified in the
Prospectus related hereto (the "AMT Trusts"), the Trusts do not
include any specified private activity bonds and accordingly none
of the interest income of the Trusts (other than the AMT Trusts,
if any) shall be treated as an item of tax preference when
computing the alternative minimum tax. Because the AMT Trusts
include "specified private activity bonds," all or a portion of
the income of the AMT Trusts shall be treated as an item of tax
preference for alternative minimum tax purposes. In the case of
corporations, for taxable years beginning after December 31,
1986, the alternative minimum tax and the Superfund Tax depend
upon the corporation's alternative minimum taxable income
("AMTI"), which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment
items used in computing AMTI and the Superfund Tax of a
corporation (other than an S Corporation, Regulated Investment
Company, Real Estate Investment Trust or REMIC) for taxable years
beginning after 1989, is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount
equal to its AMTI (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax-exempt interest, including interest on
all Bonds in the Trust, and tax-exempt original issue discount.
Effective for tax returns filed after December 31, 1987, all
taxpayers are required to disclose to the Internal Revenue
Service the amount of tax-exempt interest earned during the year.
Section 265 of the Code generally provides for a reduction
in each taxable year of 100% of the otherwise deductible interest
on indebtedness incurred or continued by financial institutions,
to which either Section 585 or Section 593 of the Code applies,
to purchase or carry obligations acquired after August 7, 1986,
the interest on which is exempt from federal income taxes for
such taxable year. Under rules prescribed by Section 265, the
amount of interest otherwise deductible by such financial
institutions in any taxable year which is deemed to be
attributable to tax-exempt obligations acquired after August 7,
1986, will be the amount that bears the same ratio to the
interest deduction otherwise allowable (determined without regard
to Section 265) to the taxpayer for the taxable year as the
taxpayer's average adjusted basis (within the meaning of Section
1016) of tax-exempt obligations acquired after August 7, 1986,
bears to such average adjusted basis for all assets of the
taxpayer, unless such financial institution can otherwise
establish, under regulations to be prescribed by the Secretary of
the Treasury, the amount of interest an indebtedness incurred or
continued to purchase or carry such obligations. On December 7,
1995 the U.S. Treasury Department released proposed legislation
that, if adopted, would generally extend the financial
institution rules to all corporations, effective for obligations
acquired after the date of announcement.
We also call attention to the fact that, under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units is not deductible for federal income tax
purposes. Under rules used by the Internal Revenue Service for
determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase
of Units may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of Units. However, these rules generally do not apply
to indebtedness incurred for expenditures of a personal nature
such as a mortgage incurred to purchase or improve a personal
residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
subjects tax-exempt bonds to the market discount rules of the
Code effective for bonds purchased after April 30, 1993. In
general, market discount is the amount (if any) by which the
stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued)
subject to a statutory de minimis rule. Market discount can
arise based on the price a Trust pays for Bonds or the price a
Certificateholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law, the accretion had been treated as capital gain.
Market discount that accretes while a Trust holds a Bond would be
recognized as ordinary income by the Certificateholders when
principal payments are received on the Bond, upon sale or at
redemption (including early redemption), or upon the sale or
redemption of his or her Units, unless a Certificateholder elects
to include market discount in taxable income as it accrues.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 333-04579)
relating to the Units referred to above and to the use of our
name and to the reference of our firm in said Registration
Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/jln
EXHIBIT 3.3
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
August 6, 1996
The Chase Manhattan Bank
as Trustee of
The First Trust Combined,
Series 265
770 Broadway - 6th Floor
New York, New York 10003
Attention: Mr. Paul J. Holland
Vice President
Re: The First Trust Combined Series 265
Dear Sirs:
We are acting as special counsel with respect to New York
tax matters for The First Trust Combined Series 265, including
the individual trust thereunder (each "the Trust"), which will be
established under a Standard Terms and Conditions of Trust dated
October 16, 1991, and a related Trust Agreement dated today's
date (collectively, the "Indenture"), among Nike Securities L.P.,
as Depositor (the "Depositor"); Securities Evaluation Service,
Inc., as Evaluator; First Trust Advisors L.P., as Portfolio
Supervisor and The Chase Manhattan Bank, as Trustee (the
"Trustee"). Pursuant to the terms of the Indenture, units of
fractional undivided interest in the Trusts (the "Units") will be
issued in the aggregate number set forth in the Indenture.
We have examined and are familiar with originals or certified
copies, or copies otherwise identified to our satisfaction, of
such documents as we have deemed necessary or appropriate for the
purpose of this opinion. In giving this opinion, we have relied
upon the two opinions, each dated today and addressed to the
Trustee, of Chapman and Cutler, counsel for the Depositor, with
respect to the matters of law set forth therein.
Based upon the foregoing, we are of the opinion that:
1. The Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax.
2. Under the income tax laws of the State and City of New
York, the income of the Trust will be considered the income of
the holders of the Units.
We consent to the filing of this opinion as an exhibit to
the Registration Statement (No. 333-04579) filed with the
Securities and Exchange Commission with respect to the
registration of the sale of the Units and to the references to
our name under the captions "What is the Federal Tax Status of
Unit Holders?" and "Legal Opinions" in such Registration
Statement and the preliminary prospectus included therein.
Very truly yours,
CARTER, LEDYARD & MILBURN
EXHIBIT 3.4
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
August 6, 1996
The Chase Manhattan Bank,
as Trustee of The First Trust Combined,
Series 265
770 Broadway - 6th Floor
New York, New York 10003
Attention: Mr. Paul J. Holland
Vice President
Re: The First Trust Combined Series 265
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank
("Chase") in connection with the execution and delivery of a
Trust Agreement (the "Trust Agreement") dated today's date (which
Trust Agreement incorporates by reference a certain Standard
Terms and Conditions of Trust dated October 16, 1991, and the
same are collectively referred to herein as the "Indenture",
among Nike Securities L.P., as Depositor (the "Depositor");
Securities Evaluation Service, Inc., as Evaluator; First Trust
Advisors L.P., as Portfolio Supervisor; and Chase, as Trustee
(the "Trustee"), establishing The First Trust Combined Series
265, including the individual trusts thereunder (each, "the
Trust"), and the execution by Chase, as Trustee under the
Indenture, of a certificate or certificates evidencing ownership
of units (such certificate or certificates and such aggregate
units being herein called "Certificates" and "Units"), each of
which represents an undivided interest in the Trust, which
consist of interest bearing, tax-exempt bonds (including
confirmations of contracts for the purchase of certain bonds not
yet delivered and cash, cash equivalents or an irrevocable letter
of credit or a combination thereof, in the amount required for
such purchase upon the receipt of such bonds), such bonds being
defined in the Indenture as Bonds and listed in the Schedules to
the Indenture.
We have examined the Indenture, the Closing Memorandum dated
today's date, a specimen certificate, and such other documents as
we have deemed necessary in order to render this opinion. Based
on the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing corporation
having the powers of a trust company under the laws of the State
of New York.
2. The Trust Agreement has been duly executed and
delivered by Chase and, assuming due execution and delivery by
the other parties thereto, constitutes the valid and legally
binding obligation of Chase.
3. The Certificates are in proper form for execution and
delivery by Chase, as Trustee.
4. Chase, as Trustee, has duly executed and delivered to
or upon the order of the Depositor a Certificate or Certificates
evidencing ownership of the Units, registered in the name of the
Depositor. Upon receipt of confirmation of the effectiveness of
the registration statement for the sale of the Units filed with
the Securities and Exchange Commission under the Securities Act
of 1933, the Trustee may deliver such other Certificates, in such
names and denominations as the Depositor may request, to or upon
the order of the Depositor as provided in the Closing Memorandum.
5. Chase, as Trustee, may lawfully advance to the Trust
amounts as may be necessary to provide periodic interest
distributions of approximately equal amounts, and be reimbursed,
without interest, for any such advances from funds in the
interest account, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered,
among other things, whether the Bonds have been duly authorized
and delivered.
Very truly yours,
CARTER, LEDYARD & MILBURN
EXHIBIT 4.1
SES
Securities Evaluation Service, Inc.
Suite 200
531 E. Roosevelt Road
Wheaton, Illinois 60187
August 6, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, IL 60532
Re: THE FIRST TRUST COMBINED SERIES 265
Gentlemen:
We have examined the Registration Statement File No.
333-04579 for the above captioned fund. We hereby consent to the
use in the Registration Statement of the references to Securities
Evaluation Service, Inc. as evaluator.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Securities Evaluation Service, Inc.
James R. Couture
President
Standard & Poor's Ratings Services,
A Division of The McGraw-Hill Companies
25 Broadway, 13th Floor
New York, New York 10004-1064
Telephone 212/208-8287
FAX 212/208-8034
August 6, 1996
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 265
(As used in this letter the term "Trust" refers to: The
First Trust of Insured Municipal Bonds: Multi-State Pennsylvania
Trust, Series 72)
Pursuant to your request for a Standard & Poor's rating on
the units of the above-captioned trust, SEC # 333-04579, we have
reviewed the information presented to us and have assigned a
'AAA' rating to the units of the trust and a 'AAA' rating to the
securities contained in the trust for as long as they remain in
the trust. The ratings are direct reflections, of the portfolio
of the trust, which will be composed solely of securities covered
by bond insurance policies that insure against default in the
payment of principal and interest on the securities so long as
they remain in the trust. Since such policies have been issued
by one or more insurance companies which have been assigned 'AAA'
claims paying ability ratings by S&P, S&P has assigned a 'AAA'
rating to the units of the trust and to the securities contained
in the trust for as long as they remain in the trust.
STANDARD & POOR'S WILL MAINTAIN SURVEILLANCE ON THE 'AAA'
RATING UNTIL SEPTEMBER 5, 1997. ON THIS DATE, THE RATING WILL BE
AUTOMATICALLY WITHDRAWN BY STANDARD & POOR'S UNLESS A POST
EFFECTIVE LETTER IS REQUESTED BY THE TRUST.
You have permission to use the name of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
and the above-assigned ratings in connection with your
dissemination of information relating to these units, provided
that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold, or sell the units of the trust
or the securities contained in the trust. Further, it should be
understood the rating on the units does not take into account the
extent to which fund expenses or portfolio asset sales for less
than the fund's purchase price will reduce payment to the unit
holders of the interest and principal required to be paid on the
portfolio assets. S&P reserves the right to advise its own
clients, subscribers, and the public of the ratings. S&P relies
on the sponsor and its counsel, accountants, and other experts
for the accuracy and completeness of the information submitted in
connection with the ratings. S&P does not independently verify
the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. in connection with the rating assigned to the
units in the registration statement or prospectus relating to the
units or the trust. However, this letter should not be construed
as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities
contained in the trust. You are hereby authorized to file a copy
of this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final
prospectus as soon as it becomes available. Should we not
receive them within a reasonable time after the closing or should
they not conform to the representations made to us, we reserve
the right to withdraw the rating.
We are pleased to have had the opportunity to be of service
to you. If we can be of further help, please do not hesitate to
call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
Exhibit 3.5
LAW OFFICES OF
SAUL, EWING, REMICK & SAUL
3800 CENTRE SQUARE WEST
PHILADELPHIA, PENNSYLVANIA 19102
August 6, 1996
Nike Securities L.P. The Chase Manhattan Bank
1001 Warrenville Road 770 Broadway
Lisle, IL 60432 New York, NY 10003
Re: The First Trust Combined Series 265;
The First Trust of Insured Municipal Bonds -
Multi-State: Pennsylvania Trust, Series 72
Gentlemen:
We are acting as special counsel with respect to
Pennsylvania tax matters for The First Trust Combined Series 265,
The First Trust of Insured Municipal Bonds - Multi-State:
Pennsylvania Trust Series 72 (the "Fund") in connection with the
issuance of Units of fractional undivided interests in the Fund,
under a Trust Indenture and Agreement dated August 6, 1996
between Nike Securities L.P. as Sponsor, Securities Evaluation
Service, Inc. as Evaluator, The Chase Manhattan Bank, as Trustee,
and First Trust Advisors L.P., as Portfolio Supervisor. It is
our understanding that the Fund consists of a portfolio composed
of interest-bearing obligations issued by the Commonwealth of
Pennsylvania or by municipalities and other governmental
authorities within the Commonwealth of Pennsylvania (the
"Bonds").
We have not examined any preliminary or final official
statements of issuers of the Bonds, nor have we examined any
legal opinions, or summaries of such opinions, relating to the
validity of the Bonds in the Fund, the exemption of interest
thereon from federal income tax, the exemption of the Bonds from
personal property taxes in Pennsylvania, or the exemption of the
interest on and any gain from the sale of the Bonds from the
Pennsylvania personal income tax, given or to be given by bond
counsel to the issuer at the time such Bonds are issued.
Further, we have made no review of the proceedings relating to
the issuance of the Bonds or of the basis for such opinions. Our
opinion expressed below is based in part on the assurance of Nike
Securities L.P. that the Bonds being deposited in the Fund have
been issued only by the Commonwealth of Pennsylvania or by
municipalities or other governmental authorities within the
Commonwealth of Pennsylvania.
We have examined certified copies, or copies otherwise
identified to our satisfaction, of such other documents as we
have deemed necessary or appropriate for the purpose of rendering
this opinion, including those related to previous transactions in
which Nike Securities L.P. was the Depositor which we have been
assured by Nike Securities L.P. are substantially the same as
those relating to the Fund. We have also examined the Standard
Terms and Conditions of Trust dated October 16, 1991 pertaining
to the Fund.
Based upon the foregoing, we are of the opinion that:
(1) Units evidencing fractional undivided interests in
the Fund, to the extent represented by obligations issued by
the Commonwealth of Pennsylvania, any public authority,
commission, board or other agency created by the
Commonwealth of Pennsylvania, any political subdivision of
the Commonwealth of Pennsylvania or any public authority
created by any such political subdivision, are not taxable
under any of the personal property taxes presently in effect
in Pennsylvania;
(2) Distributions of interest income to Unitholders
that would not be taxable if received directly by a
Pennsylvania resident are not subject to personal income tax
under the Pennsylvania Tax Reform Code of 1971; nor will
such interest be taxable under Philadelphia School District
Investment Income Tax imposed on Philadelphia resident
individuals;
(3) A Unitholder will have a taxable event under the
Pennsylvania state and local income tax referred to in the
preceding paragraph upon the redemption or sale of his
Units;
(4) Units are subject to Pennsylvania inheritance and
estate taxes;
(5) A Unitholder which is a corporation will have a
taxable event under the Pennsylvania Corporate Net Income
Tax upon the redemption or sale of its Units. Interest
income distributed to Unitholders which are corporations is
not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title
insurance companies and trust companies may be required to
take the value of Units into account in determining the
taxable value of their shares subject to Shares Tax;
(6) Gains derived by the Fund from the sale, exchange
or other disposition of Bonds may be subject to Pennsylvania
personal or corporate income taxes. Those gains which are
distributed by the Fund to Unit holders who are individuals
may be subject to Pennsylvania Personal Income Tax. For
Unit holders which are corporations, the distributed gains
may be subject to Corporate Net Income Tax or Mutual Thrift
Institutions Tax. Gains which are not distributed by the
Fund may nevertheless be taxable to Unit holders if derived
by the Fund from the sale, exchange or other disposition of
Bonds issued on or after February 1, 1994. Gains which are
not distributed by the Fund will remain nontaxable to Unit
holders if derived by the Fund from the sale, exchange or
other disposition of Bonds issued prior to February 1, 1994;
(7) Any proceeds paid under insurance policies issued
to the Trustee or obtained by issuers or the underwriters of
the Bonds, the Sponsor or others which represent interest on
defaulted obligations held by the Trustee will be excludable
from Pennsylvania gross income if, and to the same extent
as, such interest would have been so excludable if paid in
the normal course by the issuer of the defaulted
obligations; and
(8) The Fund is not taxable as a corporation under
Pennsylvania tax laws applicable to corporations.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (SEC No. 333-04579)
relating to the Units referred to above and to the use of our
name and to the reference to our firm in the said Registration
Statement and in the related Prospectus.
Very truly yours,
Saul, Ewing, Remick & Saul
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted
from Amendment number 1 to form S-6 and is qualified in its entirety by
reference to such Amendment number 1 to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 72
<NAME> Pennsylvania Insured
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-06-1996
<PERIOD-START> AUG-06-1996
<PERIOD-END> AUG-06-1996
<INVESTMENTS-AT-COST> 2,796,183
<INVESTMENTS-AT-VALUE> 2,796,183
<RECEIVABLES> 2,796,183
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,840,143
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<OTHER-ITEMS-LIABILITIES> 43,960
<TOTAL-LIABILITIES> 43,960
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,796,183
<SHARES-COMMON-STOCK> 2,960
<SHARES-COMMON-PRIOR> 2,960
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
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<NET-ASSETS> 2,796,183
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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