SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of
Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: THE FIRST TRUST COMBINED
SERIES 266
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of Depositor's 1001 Warrenville Road
Principal Offices: Lisle, Illinois 60532
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 of
Being Registered: 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
(as required by Rule 24f-2): $500.00
H. Approximate Date of Proposed ____ Check if it is
Sale to the Public: proposed that this filing
will become effective on
____________ at ___ p.m.
pursuant to Rule 487.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
THE FIRST TRUST COMBINED
SERIES 266
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 Front Cover
Page
2. Name and address of Depositor Summary of Essential
Information; Infor-
mation as to Sponsor,
Trustee and Evaluator
3. Name and address of Trustee Summary of Essential
Information; Infor-
mation as to Sponsor,
Trustee and Evaluator
4. Name and address of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
5. Organization of Trust The First Trust
Combined Series
6. Execution and termination of The First Trust
Trust Agreement 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 The First Trust
Trust's securities 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; The First Trust
Combined Series
Portfolio
12. Certain information regarding *
periodic payment certificates
13. (a) Load, fees, expenses, etc. Prospectus Front Cover
Page; Summary of
Essential
Information; The
First Trust Combined
Series; Rights of
Unit Holders
(b) Certain information regard- *
ing periodic payment
certificates
(c) Certain percentages Prospectus Front Cover
Page; Summary of
Essential Infor-
mation; 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 The First Trust
underlying securities Combined Series;
Information as to
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 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 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 AFFILICATED 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; The First Trust
Information 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 The First Trust
Combined Series
50. Trustee's lien 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 The First Trust
Combined Series
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during *
last ten years
55.
56. *
57. Certain information regarding
periodic payment certificates
58.
59 Financial statements Report of Independent
(Instruction 1(c) to Form S-6) Auditors
Statement of Net
Assets
* Inapplicable, omitted, answer negative or not required.
Preliminary Prospectus Dated August 13, 1996
THE FIRST TRUST COMBINED SERIES 266
10,000 Units (A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund
is hereby used as a preliminary Prospectus for the above stated
Series. The narrative information and structure of the attached
final Prospectus will be substantially the same as that of the
final Prospectus for this Series. Information with respect to
pricing, the number of Units, dates and summary information
regarding the characteristics of securities to be deposited in
this Series is not now available and will be different since each
Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be
considered as being included for informational purposes only.
Ratings of the securities in this Series are expected to be
comparable to those of the securities deposited in the previous
Series. However, the Estimated Current Return for this Series
will depend on the interest rates and offering prices of the
securities in this Series and may vary materially from that of
the previous Series.
A registration statement relating to the units of this
Series will be filed with the Securities and Exchange Commission
but has not yet become effective. Information contained herein
is subject to completion or amendment. Such Units may not be
sold nor may offer to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall
not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of the Units in any state in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such state.
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
MEMORANDUM
Re: The First Trust Combined Series 266
As indicated in our cover letter transmitting the
Registration Statement on Form S-6 and other related material
under the Securities Act of 1933 to the Commission, the only
difference of consequence (except as described below) between The
First Trust Combined Series 265, which is the current fund, and
The First Trust Combined Series 266, the filing of which this
memorandum accompanies, is the change in the series number. The
list of bonds comprising the Fund, the evaluation, record and
distribution dates and other changes pertaining specifically to
the new series, such as size and number of Units in the Fund and
the statement of condition of the new Fund, will be filed by
amendment.
1940 Act
Forms N-8A and N-8B-2
These forms were not filed, as the Form N-8A and Form N-8B-2
filed in respect of The First Trust of Insured Municipal Bonds,
Series 1 (File No. 811-2541) related also to the subsequent
series of the Fund.
1933 Act
Prospectus
The only significant changes in the Prospectus from the
Series 265 Prospectus relate to the series number and size and
the date and various items of information which will be derived
from and apply specifically to the bonds deposited in the Fund.
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 comprises the following
papers and documents:
See "Exhibit Index" on page S-5.
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 266, has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Village of
Lisle and State of Illinois on August 13, 1996.
THE FIRST TRUST COMBINED SERIES 266
(Registrant)
By: NIKE SECURITIES L.P.
(Depositor)
By Robert M Porcellino
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
Name Title* Date
Robert D. Van Kampen Sole Director )
of Nike Securities )
Corporation, the ) August 13, 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., the Depositor.
** An executed copy of the related power of
attorney was filed with the Securities and Exchange
Commission in connection with Amendment No. 1 to Form S-6 of
The First Trust Combined Series 258 (File No. 33-63483) and
the same is hereby incorporated herein by this reference.
S-2
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as
Exhibits 3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF ERNST & YOUNG LLP
The consent of Ernst & Young LLP to the use of its name and
to the reference to such firm in the Prospectus included in this
Registration Statement will be filed by amendment.
CONSENT OF 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 GROUP, A DIVISION OF MCGRAW-
HILL, INC.
The consent of Standard & Poor's Ratings Group, A Division
of McGraw-Hill, Inc. to the use of its name in the Prospectus
included in this Registration Statement will be filed as Exhibit
4.2 to the Registration Statement.
S-3
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. 33-3289] filed on
behalf of The First Trust Combined Series 145).
1.1.1* Form of Trust Agreement for Series 266 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).
1.6 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).
S-4
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by
reference).
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 to New York tax status of securities
being registered.
3.4* Opinion of counsel as to advancement of funds by Trustee.
4.1* Consent of Securities Evaluation Service, Inc.
4.2* Consent of Standard & Poor's Ratings Group, A Division of
McGraw-Hill, 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).
_________________
* To be filed by amendment.
S-5
