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 271
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: $0.00
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 271
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 February 28, 1997
THE FIRST TRUST COMBINED SERIES 271
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.
Part I of II
PENNSYLVANIA INSURED TRUST, SERIES 74
(The First Trust (registered trademark) Combined Series 270)
Prospectus - Part I
THIS PART I OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY THE PART II OF THE PROSPECTUS DATED FEBRUARY 27, 1997. BOTH PARTS I
AND II OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Pennsylvania Insured Trust, Series 74 (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 six 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
__________ ___________________ ____________
2 Health Care 33.47%
1 Electric 16.74%
1 Airport 16.32%
2 Miscellaneous 33.47%
Each Bond issue represents 10% or more of the aggregate principal amount
of the Bonds in the Trust. The five largest such issues represent
approximately 17% each. 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 Company 50.21%
AMBAC Indemnity Corporation 33.05%
Financial Guaranty Insurance Company 16.74%
____________
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 February 27, 1997
Page 1 of 12
SUMMARY OF ESSENTIAL INFORMATION
At the Opening of Business on the Initial Date of Deposit
of the Bonds-February 27, 1997
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 $1,195,000
Number of Units 1,220
Fractional Undivided Interest in the Trust per Unit 1/1,220
Principal Amount (Par Value) of Bonds per Unit (1) $ 979.51
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $1,160,224
Aggregate Offering Price Evaluation per Unit $ 951.00
Sales Charge 4.9% (5.152% of the Aggregate Price Evaluation per Unit) (2) $ 49.00
Public Offering Price per Unit (3) $ 1,000.00
Sponsor's Initial Repurchase Price per Unit (3) $ 951.00
Redemption Price per Unit (4) $ 947.33
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 52.67
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 3.67
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date March 4, 1997
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) Many unit investment trusts comprised of municipal securities issue a
number of Units such that each Unit represents approximately $1,000
principal amount of underlying securities. For the Pennsylvania Insured
Trust, the Sponsor has elected to provide that number of Units which
will establish as close as possible as of the opening of business on the
Initial Date of Deposit a Public Offering Price per Unit of $1,000.
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>
Special Trust Information
Monthly Semi-Annual
_______ ___________
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 53.05 $ 53.05
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) $ .29 $ .29
Supervisory and Administrative Fees (1) $ .49 $ .49
Other Expenses $ .40 $ .35
__________ _________
Less: Estimated Annual Expense per Unit $ 2.58 $ 2.08
__________ _________
Estimated Net Annual Interest Income per Unit $ 50.47 $ 50.97
Calculation of Interest Distribution per Unit
Divided by 12 and 2, respectively $ 4.21 $ 25.48
Estimated Daily Rate of Net Interest Accrual per Unit $ .140193 $.141582
Initial Distribution - March 31, 1997 (2) $ 1.54 $ 1.56
Partial Distribution - June 30, 1997 (2) $ - $ 12.74
Regular Distribution (2) $ 4.21 $ 25.48
(Commencing) 4/30/97 12/31/97
Estimated Current Return Based on Public Offering Price (3) 5.05% 5.10%
Estimated Long-Term Return Based on Public Offering Price (3) 5.06% 5.12%
CUSIP 3371M5 528 536
</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.
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.
Page 3 of 12
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;
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 1997. 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
$121,200. 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
Page 4 of 12
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
________________________ ________________
5.00% 5.50% 6.00%
Single Return Joint Return Tax Rate* Taxable Equivalent Yield
_____________ _____________ _________ _______________________
<C> <C> <S> <C> <C> <C>
$ 0 - 24.6 $ 0 - 41.2 17.4% 6.05 6.66 7.26
24.6 - 59.7 41.2 - 99.6 30.0 7.14 7.86 8.57
59.7 - 124.6 99.6 - 151.7 32.9 7.45 8.20 8.94
124.6 - 271.0 151.7 - 271.0 37.8 8.04 8.84 9.65
Over 271.0 Over 271.0 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 74
Portfolio
Units Rated "AAA"* at the Opening of Business
On the Initial Date of Deposit of the Bonds-February 27, 1997
<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>
$ 200,000 Allegheny County Hospital Development AAA 2005 @ 102 $ 190,572
Authority (Pennsylvania), Health Center 2018 @ 100 S.F.
Revenue, Series of 1995 (University of
Pittsburgh Medical Center System) (MBIA
Insured), 5.375%, Due 12/01/2025
200,000 Delaware River Port Authority (Pennsylvania), AAA 2006 @ 102 198,070
Revenue, Series of 1995 (FGIC Insured), 2017 @ 100 S.F.
5.50%, Due 01/01/2026
200,000 Lehigh County Industrial Development AAA 2004 @ 102 195,750
Authority, Pollution Control Revenue
Refunding, 1994 Series A (Pennsylvania
Power & Light Company Project) (MBIA
Insured), 5.50%, Due 02/15/2027
200,000 Northeastern Pennsylvania Hospital and AAA 2007 @ 102 188,800
Education Authority, Health Care Revenue, 2017 @ 100 S.F.
1996 Series A (Wyoming Valley Health
Care Issue) (AMBAC Insured),
5.25%, Due 01/01/2026
200,000 + Philadelphia Authority for Industrial Development AAA 2007 @ 102 193,494
(Pennsylvania), Lease Revenue, 1996 2018 @ 100 S.F.
Series A (City of Philadelphia Project) (MBIA
Insured), 5.375%, Due 02/15/2027
195,000 The Philadelphia Parking Authority AAA 2007 @ 101 193,538
(Pennsylvania), Airport Parking Revenue, 2016 @ 100 S.F.
Series of 1997 (AMBAC Insured),
5.50%, Due 09/01/2018
__________ ___________
$1,195,000 $ 1,160,224
========== ===========
</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 November 1,
1996 at a price of 94.914% of their original principal amount.
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 on February
26, 1997. All contracts to purchase Bonds are expected to be settled on
or prior to March 4, 1997 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 74 $1,160,224 $1,159,856 $368 $1,155,742 $ - $64,725
</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. 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 74
Statement of Net Assets
(The First Trust Combined Series 270)
At the Opening of Business on the Initial Date of Deposit
February 27, 1997
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $1,160,224
Accrued interest on underlying bonds (2)(3)(4) 11,869
__________
1,172,093
Less distributions payable (4) 11,869
__________
Net assets $1,160,224
==========
Outstanding units 1,220
ANALYSIS OF NET ASSETS
Cost to investors (5) $1,220,004
Less gross underwriting commissions (5) 59,780
__________
Net assets $1,160,224
==========
</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 74 $2,100,000 $1,173,172 $1,160,224 $11,869 $1,079
</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 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 March 4, 1997, 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 270
Pennsylvania Insured Trust, Series 74
We have audited the accompanying statement of net assets, including the
portfolio, of Pennsylvania Insured Trust, Series 74 ("the Trust"),
included in The First Trust Combined Series 270, as of the opening of
business on February 27, 1997. 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 February 27,
1997. 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 74, included in The First Trust Combined Series
270, at the opening of business on February 27, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 27, 1997
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 74
Prospectus
Part I
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART ONE MUST BE
ACCOMPANIED BY PART TWO.
February 27, 1997
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 12 of 12
Part II of II
THE FIRST TRUST (registered trademark) COMBINED SERIES
Prospectus Part II
Dated February 27, 1997
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, 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."
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" or "The
First Trust of Insured Municipal Bonds-Multi-State" (the "Insured
Trusts") has been obtained by such Trusts from Financial Guaranty
Insurance Company ("FGIC") and/or AMBAC Indemnity Corporation ("AMBAC")
or was obtained directly by the
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
Bond issuer, the underwriters, the Sponsor or others prior to the
Initial Date of Deposit from FGIC, AMBAC or other insurers (the
"Preinsured Bonds"). NO PORTFOLIO INSURANCE 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
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.
Page 2
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?"
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
Page 3
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
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
Page 4
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
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
Page 5
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.
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
Page 6
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 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
Page 7
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.
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
Page 8
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. 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.
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."
The Trustee's and above described 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. However, the Trustee may bear from
its own resources certain expenses relating to a Trust, including
organization costs.
Each of the above mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services and
supervisory services, such individual fees may exceed the actual costs
of providing such services for a Trust, but at no time will the total
amount received for such services rendered to all unit investment trusts
of which Nike Securities L.P. is the Sponsor in any calendar year exceed
the actual cost to the Sponsor or its affiliate of supplying such
services in such year.
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 Trusts and if paid, will be
amortized over a 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
Page 9
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.
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
Page 10
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 March 31, 1996
(in millions of dollars)
_________________________
Date Admitted Policyholders
Name Established Assets Surplus
____ ___________ ________ _____________
<S> <C> <C> <C>
AMBAC Indemnity Corporation 1970 $2,439 $ 781
Capital Markets Assurance Corporation 1987 272 139
Connie Lee Insurance Company 1987 215 111
Financial Guaranty Insurance Company 1984 3,800 1,032
Financial Security Assurance, Inc. 1984 779 650
MBIA Insurance Corporation 1986 4,000 1,300
</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" in the Information Supplement.
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.
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?"
Page 11
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.
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%
_________
(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 or National Trust for purposes of
calculating the discount for volume purchases listed above. The
purchaser must inform the broker/dealer of any such combined
purchase prior to the sale in order to obtain the indicated discount. In
addition, with 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 broker/dealers and their
subsidiaries and vendors providing services to the Sponsor, may purchase
Units of the Trusts during the primary and secondary Public Offering
Periods at the Public Offering Price less the concession the Sponsor
typically allows broker/dealers.
Any such reduced sales charge shall be the responsibility of the selling
broker/dealer. The reduced sales charge structure will apply on all
purchases of Units in a Trust by the same person on any one day from the
Sponsor or any one broker/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 the Sponsor
or such broker/dealer of Units in any series of tax-exempt unit
Page 12
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.
Investors who purchase Units through registered broker/dealers who
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 may purchase Units in the primary market or
during the secondary market at the Public Offering Price less the
concession the Sponsor typically would allow such broker/dealer. See
"Public Offering-How are Units Distributed?"
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
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.
Page 13
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 Sponsor and through broker/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 broker/dealers
and other selling agents at prices which represent a concession or
agency commission of $37 per Unit for a National Trust and State Trusts.
Notwithstanding the foregoing, broker/dealers or other selling agents
who purchase in the aggregate, at least $100,000 of the Trusts on the
Initial Date of Deposit or $250,000 on any day thereafter receive a volume
concession or agency commission of $40.00 per Unit. However, resales of
Units of a Trust by such broker/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.
From time to time the Sponsor may implement programs under which
broker/dealers and other selling agents 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 broker/dealers and other selling agents
may be eligible to win other nominal awards for certain sales efforts,
or under which the Sponsor will reallow to any such broker/dealer or
other selling agent 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 broker/dealers and
other selling agents 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.
What are the Sponsor's Profits?
The Sponsor of each Trust 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), less any reduced sales
charge for quantity purchases as described under "Public Offering-How is
the Public Offering Price Determined?" See "How are Units Distributed?"
for information regarding the receipt of additional concessions
available to broker/dealers and other selling agents. In addition, the
Sponsor 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 Note 1 of "Notes to Portfolio" appearing in each
Part I of this Prospectus. During the initial offering period, the
Sponsor also may realize profits or sustain losses from the sale of
Units to broker/dealers 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 Sponsor.
Page 14
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 State Trust) or redeemed. The
secondary market public offering price of Units may be greater or less
than the cost of such Units to the Sponsor.
Will There be a Secondary Market?
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
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
Page 15
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.
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).
Page 16
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 advisor 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 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
Page 17
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 law:
(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 of 1986 will retain its status 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 each asset 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. If the Unit holder
disposes of a Unit, he is deemed thereby to have disposed of his entire
pro rata interest in all assets of the Trust involved including his pro
rata portion of all the Bonds represented by the Unit. Legislative
proposals have been made that would treat certain transactions designed
to reduce or eliminate risk of loss and opportunities for gain as
constructive sales for purposes of recognition of gain (but not loss).
Unit holders should consult their own tax advisors with regard to any
such constructive sale rules. Unit holders must reduce the tax basis of
their Units for their share of accrued interest received by the
respective Trust, if any, on Bonds delivered after the date the Unit
holders pay for their Units to the extent that such interest accrued on
such Bonds before the date the Trust acquired ownership of the Bonds
(and the amount of this reduction may exceed the amount of accrued
interest paid to the seller) 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 (subject to various non-
recognition provisions of the Code). The amount of any such gain or loss
is measured by comparing the Unit holder's pro rata share of the total
proceeds from such disposition with his basis for his fractional
interest in the asset disposed of. 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. It should be noted that certain legislative
proposals have been made which could affect the calculation of basis for
Unit holders holding securities that are substantially identical to the
Bonds. Unit holders should consult their own tax advisors with regard to
the calculation of basis. 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
(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 in the normal course 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.
Page 18
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.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. 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 advisors 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 advisors regarding these rules and
their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depend
upon the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing the alternative minimum taxable
income 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 alternative minimum
taxable income (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax
exempt interest, including interest on all of the Bonds in the Fund. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would extend the Superfund Tax. 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 Trusts. 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.
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. Legislative proposals have
been made that would extend the financial institution rules to most
corporations. Investors with questions regarding these issues should
consult with their tax advisors.
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
Page 19
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 advisor.
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.
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 (which are defined
as net long-term capital gain over net short-term capital loss for a
taxable year) 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. In the case of
certain corporations, 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
Page 20
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. Legislative proposals have
been made that would extend the Superfund Tax. 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 advisors 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 advisors 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.
For information with respect to exemption from state or other local
taxes, see the sections in the Prospectus pertaining to each Trust.
All statements of law in the Prospectus concerning exclusion from gross
income for 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
Page 21
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
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
Page 22
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
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 (630) 241-4141. As of
December 31, 1995, the total partners' capital of Nike Securities L.P.
was $9,033,760 (audited). (This paragraph relates only to the Sponsor
and not to the Trust or to any series thereof or to any broker/dealer.
The information is included herein only for the purpose of informing
Page 23
investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon request.)
Who is the Trustee?
The Trustee is The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
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.
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
Page 24
(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
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, 2046. 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.
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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? 8
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
Will There be a Secondary Market? 15
Rights of Unit Holders:
How are Certificates Issued and Transferred? 15
How are Interest and Principal Distributed? 16
How Can Distributions to Unit Holders be
Reinvested? 17
What is the Federal Tax Status of Unit Holders? 18
What Reports will Unit Holders Receive? 21
How May Units be Redeemed? 21
How May Units be Purchased by the Sponsor? 22
How May Bonds be Removed from the Fund? 23
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 23
Who is the Trustee? 24
Limitations on Liabilities of Sponsor and Trustee 24
Who is the Evaluator? 24
Other Information:
How May the Indenture be Amended or Terminated? 24
Legal Opinions 25
Experts 25
Supplemental Information 25
_________________
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
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE.
February 27, 1997
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
THE FIRST TRUST (REGISTERED TRADEMARK) COMBINED SERIES 270
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning
the structure, operations and risks of a First Trust Combined Series
Trust not found in the prospectuses for the Trusts. This Information
Supplement is not a prospectus and does not include all of the
information that a prospective investor should consider before investing
in a Trust. This Information Supplement should be read in conjunction
with the prospectus for the Trust in which an investor is considering
investing ("Prospectus"). Copies of the Prospectus can be obtained by
calling or writing the Trustee at the telephone number and address
indicated in Part II of the Prospectus. This Information Supplement has
been created to supplement information contained in the Prospectus.
The objectives of the Trust are conservation of capital and income
exempt, with certain exceptions, from Federal and applicable state and
local income taxes. The objectives are, of course, dependent upon the
continuing ability of the issuers, obligors and/or insurers to meet
their respective obligations.
This Information Supplement is dated February 27, 1997. Capitalized
terms have been defined in the Prospectus.
TABLE OF CONTENTS
General Risk Disclosure
Discount Bonds 1
Original Issue Discount Bonds 2
Zero Coupon Bonds 2
Premium Bonds 2
General Obligation Bonds 3
Healthcare Revenue Bonds 3
Single Family Mortgage Revenue Bonds 3
Multi-Family Mortgage Revenue Bonds 3
Water and Sewerage Revenue Bonds 4
Electric Utility Revenue Bonds 4
Lease Obligation Revenue Bonds 4
Industrial Revenue Bonds 5
Transportation Facility Revenue Bonds 5
Educational Obligation Revenue Bonds 5
Resource Recovery Facility Revenue Bonds 6
Bonds of Issuers Located in the Commonwealth of Puerto Rico 6
Insurance on the Bonds 7
How is the Public Offering Price Determined? 14
Description of Bond Ratings 15
Appendix A - Pennsylvania A-1
General Risk Disclosure
Discount Bonds. Certain of the Bonds in the Trusts may have been
acquired at a market discount from par value at maturity. The coupon
interest rates on the discount bonds at the time they were purchased and
deposited in the Trusts were lower than the current market interest
rates for newly issued bonds of comparable rating and type. If such
interest rates for newly issued comparable bonds increase, the market
discount of previously issued bonds will become greater, and if such
interest rates for newly issued comparable bonds decline, the market
discount of previously issued bonds will be reduced, other things being
equal. Investors should also note that the value of bonds purchased at a
market discount will increase in value faster than bonds purchased at a
market premium if interest rates decrease. Conversely, if interest rates
increase, the value of bonds purchased at a market discount will
decrease faster than bonds purchased at a market premium. In addition,
if interest rates rise, the prepayment risk of higher yielding, premium
bonds and the prepayment benefit for lower yielding, discount bonds will
be reduced. A discount bond held to maturity will have a larger portion
of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond
Page 1
newly issued at current market rates. See "What is the Federal Tax
Status of Unit Holders?" Market discount attributable to interest
changes does not indicate a lack of market confidence in the issue.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds.
Original Issue Discount Bonds. Certain of the Bonds in the Trusts may be
original issue discount bonds. Under current law, the original issue
discount, which is the difference between the stated redemption price at
maturity and the issue price of the Bonds, is deemed to accrue on a
daily basis and the accrued portion is treated as tax-exempt interest
income for Federal income tax purposes. On sale or redemption, any gain
realized that is in excess of the earned portion of original issue
discount will be taxable as capital gain unless the gain is attributable
to market discount in which case the accretion of market discount is
taxable as ordinary income. See "What is the Federal Tax Status of Unit
Holders?" The current value of an original issue discount bond reflects
the present value of its stated redemption price at maturity. The market
value tends to increase in greater increments as the Bonds approach
maturity.
Zero Coupon Bonds. Certain of the original issue discount bonds may be
Zero Coupon Bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital appreciation bonds, capital accumulator bonds,
compound interest bonds and money discount maturity payment bonds). Zero
Coupon Bonds do not provide for the payment of any current interest and
generally provide for payment at maturity at face value unless sooner
sold or redeemed. Zero Coupon Bonds may be subject to more price
volatility than conventional bonds. While some types of Zero Coupon
Bonds, such as multipliers and capital appreciation bonds, define par as
the initial offering price rather than the maturity value, they share
the basic Zero Coupon Bond features of (1) not paying interest on a semi-
annual basis and (2) providing for the reinvestment of the bond's semi-
annual earnings at the bond's stated yield to maturity. While Zero
Coupon Bonds are frequently marketed on the basis that their fixed rate
of return minimizes reinvestment risk, this benefit can be negated in
large part by weak call protection, i.e., a bond's provision for
redemption at only a modest premium over the accreted value of the bond.
Premium Bonds. Certain of the Bonds in the Trusts may have been acquired
at a market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased and deposited
in the Trusts were higher than the current market interest rates for
newly issued bonds of comparable rating and type. If such interest rates
for newly issued and otherwise comparable bonds decrease, the market
premium of previously issued bonds will be increased, and if such
interest rates for newly issued comparable bonds increase, the market
premium of previously issued bonds will be reduced, other things being
equal. The current returns of bonds trading at a market premium are
initially higher than the current returns of comparable bonds of a
similar type issued at currently prevailing interest rates because
premium bonds tend to decrease in market value as they approach maturity
when the face amount becomes payable. Because part of the purchase price
is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments of
principal will result in a reduction in yield. Redemption pursuant to
call provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the
Bonds were deposited in the Fund at a price higher than the price at
which they are redeemed, this will represent a loss of capital when
compared to the original Public Offering Price of the Units. Because
premium bonds generally pay a higher rate of interest than bonds priced
at or below par, the effect of the redemption of premium bonds would be
to reduce Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of Bonds in
the Trust. Although the actual impact of any such redemptions that may
occur will depend upon the specific Bonds that are redeemed, it can be
anticipated that the Estimated Net Annual Unit Income will be
significantly reduced after the dates on which such Bonds are eligible
for redemption. The Trust may be required to sell Zero Coupon Bonds
prior to maturity (at their current market price which is likely to be
less than their par value) in the event that all the Bonds in the
portfolio other than the Zero Coupon Bonds are called or redeemed in
order to pay expenses of the Trust or in case the Trust is terminated.
See "Rights of Unit Holders: How May Bonds be Removed from the Fund?"
and "Other Information: How May the Indenture be Amended or Terminated?"
See "Portfolio" for each Trust for the earliest scheduled call date and
the initial redemption price for each Bond.
Page 2
General Obligation Bonds. Certain of the Bonds in the Trusts may be
general obligations of a governmental entity that are backed by the
taxing power of such entity. All other Bonds in the Trusts are revenue
bonds payable from the income of a specific project or authority and are
not supported by the issuer's power to levy taxes. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. Revenue bonds, on the
other hand, are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of
a special excise tax or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Fund,
both within a particular classification and between classifications,
depending on numerous factors.
Healthcare Revenue Bonds. Certain of the Bonds in the Trusts may be
health care revenue bonds. Ratings of bonds issued for health care
facilities are sometimes based on feasibility studies that contain
projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service may be affected
by future events and conditions including among other things, demand for
services, the ability of the facility to provide the services required,
physicians' confidence in the facility, management capabilities,
competition with other hospitals, efforts by insurers and governmental
agencies to limit rates, legislation establishing state rate-setting
agencies, expenses, government regulation, the cost and possible
unavailability of malpractice insurance and the termination or
restriction of governmental financial assistance, including that
associated with Medicare, Medicaid and other similar third party payor
programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing
a single nationwide schedule of rates. Prior to such legislation
Medicare reimbursements were based on the actual costs incurred by the
health facility. The current legislation may adversely affect
reimbursements to hospitals and other facilities for services provided
under the Medicare program.
Single Family Mortgage Revenue Bonds. Certain of the Bonds in the Trusts
may be single family mortgage revenue bonds, which are issued for the
purpose of acquiring from originating financial institutions notes
secured by mortgages on residences located within the issuer's
boundaries and owned by persons of low or moderate income. Mortgage
loans are generally partially or completely prepaid prior to their final
maturities as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are subject
to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such Bonds will
probably be redeemed prior to their scheduled maturities or even prior
to their ordinary call dates. The redemption price of such issues may be
more or less than the offering price of such Bonds. Extraordinary
mandatory redemption without premium could also result from the failure
of the originating financial institutions to make mortgage loans in
sufficient amounts within a specified time period or, in some cases,
from the sale by the Bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other
sources becoming competitive with the interest rates on the mortgage
loans funded with the proceeds of the single family mortgage revenue
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single family
mortgage revenue bonds issued after December 31, 1980 were issued under
Section 103A of the Internal Revenue Code, which Section contains
certain ongoing requirements relating to the use of the proceeds of such
Bonds in order for the interest on such Bonds to retain its tax-exempt
status. In each case, the issuer of the Bonds has covenanted to comply
with applicable ongoing requirements and bond counsel to such issuer has
issued an opinion that the interest on the Bonds is exempt from Federal
income tax under existing laws and regulations. There can be no
assurances that the ongoing requirements will be met. The failure to
meet these requirements could cause the interest on the Bonds to become
taxable, possibly retroactively from the date of issuance.
Multi-Family Mortgage Revenue Bonds. Certain of the Bonds in the Trusts
may be obligations of issuers whose revenues are primarily derived from
mortgage loans to housing projects for low to moderate income families.
The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income, increases in
Page 3
taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial
ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies and social and economic
trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent
levels and income limitations imposed under Federal and state programs.
Like single family mortgage revenue bonds, multi-family mortgage revenue
bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of
other events. Certain issuers of single or multi-family housing bonds
have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In one situation the
New York City Housing Development Corporation, in reliance on its
interpretation of certain language in the indenture under which one of
its bond issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur prior
to 1992. In connection with the housing Bonds held by a Trust, the
Sponsor has not had any direct communications with any of the issuers
thereof, but at the Initial Date of Deposit it is not aware that any of
the respective issuers of such Bonds are actively considering the
redemption of such Bonds prior to their respective stated initial call
dates. However, there can be no assurance that an issuer of a Bond in a
Trust will not attempt to so redeem a Bond in a Trust.
Water and Sewerage Revenue Bonds. Certain of the Bonds in the Trusts may
be obligations of issuers whose revenues are derived from the sale of
water and/or sewerage services. Water and sewerage bonds are generally
payable from user fees. Problems faced by such issuers include the
ability to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing large
construction programs, the limitations on operations and increased costs
and delays attributable to environmental considerations, the increasing
difficulty of obtaining or discovering new supplies of fresh water, the
effect of conservation programs and the impact of "no-growth" zoning
ordinances. All of such issuers have been experiencing certain of these
problems in varying degrees.
Electric Utility Revenue Bonds. Certain of the Bonds in the Trusts may
be obligations of issuers whose revenues are primarily derived from the
sale of electric energy. Utilities are generally subject to extensive
regulation by state utility commissions which, among other things,
establish the rates which may be charged and the appropriate rate of
return on an approved asset base. The problems faced by such issuers
include the difficulty in obtaining approval for timely and adequate
rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of
future demand for electricity in certain areas of the country, the
difficulty of the capital market in absorbing utility debt, the
difficulty in obtaining fuel at reasonable prices and the effect of
energy conservation. All of such issuers have been experiencing certain
of these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing
and impose additional regulations governing the licensing, construction
and operation of nuclear power plants, which may adversely affect the
ability of the issuers of such Bonds to make payments of principal
and/or interest on such Bonds.
Lease Obligation Revenue Bonds. Certain of the Bonds in the Trusts may
be lease obligations issued for the most part by governmental
authorities that have no taxing power or other means of directly raising
revenues. Rather, the governmental authorities are financing vehicles
created solely for the construction of buildings (schools,
administrative offices, convention centers and prisons, for example) or
the purchase of equipment (police cars and computer systems, for
example) that will be used by a state or local government (the
"lessee"). Thus, these obligations are subject to the ability and
willingness of the lessee government to meet its lease rental payments
which include debt service on the obligations. Lease obligations are
subject, in almost all cases, to the annual appropriation risk, i.e.,
the lessee government is not legally obligated to budget and appropriate
for the rental payments beyond the current fiscal year. These
obligations are also subject to construction and abatement risk in many
states-rental obligations cease in the event that delays in building,
damage, destruction or condemnation of the project prevents its use by
the lessee. In these cases, insurance provisions designed to alleviate
this risk become important credit factors. In the event of default by
the lessee government, there may be significant legal and/or practical
Page 4
difficulties involved in the re-letting or sale of the project. Some of
these issues, particularly those for equipment purchase, contain the so-
called "substitution safeguard," which bars the lessee government, in
the event it defaults on its rental payments, from the purchase or use
of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate, even
though it is not legally obligated to do so, but its legality remains
untested in most, if not all, states.
Industrial Revenue Bonds. Certain of the Bonds in the Trusts may be
industrial revenue bonds ("IRBs"), including pollution control revenue
bonds, which are tax-exempt securities issued by states, municipalities,
public authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. These projects
are usually operated by corporate entities. Issuers are obligated only
to pay amounts due on the IRBs to the extent that funds are available
from the unexpended proceeds of the IRBs or receipts or revenues of the
issuer under an arrangement between the issuer and the corporate
operator of a project. The arrangement may be in the form of a lease,
installment sale agreement, conditional sale agreement or loan
agreement, but in each case the payments to the issuer are designed to
be sufficient to meet the payments of amounts due on the IRBs.
Regardless of the structure, payment of IRBs is solely dependent upon
the creditworthiness of the corporate operator of the project or
corporate guarantor. Corporate operators or guarantors may be affected
by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions,
litigation resulting from accidents or environmentally-caused illnesses,
extensive competition and financial deterioration resulting from a
complete restructuring pursuant to a leveraged buy-out, takeover or
otherwise. Such a restructuring may result in the operator of a project
becoming highly leveraged which may impact on such operator's
creditworthiness, which in turn would have an adverse impact on the
rating and/or market value of such Bonds. Further, the possibility of
such a restructuring may have an adverse impact on the market for and
consequently the value of such Bonds, even though no actual takeover or
other action is ever contemplated or affected. The IRBs in a Trust may
be subject to special or extraordinary redemption provisions which may
provide for redemption at par or, with respect to original issue
discount bonds, at issue price plus the amount of original issue
discount accreted to the redemption date plus, if applicable, a premium.
The Sponsor cannot predict the causes or likelihood of the redemption of
IRBs or other Bonds in the Trusts prior to the stated maturity of such Bonds.
Transportation Facility Revenue Bonds. Certain of the Bonds in the
Trusts may be obligations which are payable from and secured by revenues
derived from the ownership and operation of facilities such as airports,
bridges, turnpikes, port authorities, convention centers and arenas. The
major portion of an airport's gross operating income is generally
derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for leases, occupancy of
certain terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation,
traffic constraints and other factors, and several airlines are
experiencing severe financial difficulties. The Sponsor cannot predict
what effect these industry conditions may have on airport revenues which
are dependent for payment on the financial condition of the airlines and
their usage of the particular airport facility. Similarly, payment on
Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges
and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors as increased cost of
maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Educational Obligation Revenue Bonds. Certain of the Bonds in the Trusts
may be obligations of issuers which are, or which govern the operation
of, schools, colleges and universities and whose revenues are derived
mainly from ad valorem taxes, or for higher education systems, from
tuition, dormitory revenues, grants and endowments. General problems
relating to school bonds include litigation contesting the state
constitutionality of financing public education in part from ad valorem
taxes, thereby creating a disparity in educational funds available to
schools in wealthy areas and schools in poor areas. Litigation or
legislation on this issue may affect the sources of funds available for
the payment of school bonds in the Trusts. General problems relating to
Page 5
college and university obligations would include the prospect of a
declining percentage of the population consisting of "college" age
individuals, possible inability to raise tuitions and fees sufficiently
to cover increased operating costs, the uncertainty of continued receipt
of Federal grants and state funding and new government legislation or
regulations which may adversely affect the revenues or costs of such
issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Resource Recovery Facility Revenue Bonds. Certain of the Bonds in the
Trusts may be obligations which are payable from and secured by revenues
derived from the operation of resource recovery facilities. Resource
recovery facilities are designed to process solid waste, generate steam
and convert steam to electricity. Resource recovery bonds may be subject
to extraordinary optional redemption at par upon the occurrence of
certain circumstances, including but not limited to: destruction or
condemnation of a project; contracts relating to a project becoming
void, unenforceable or impossible to perform; changes in the economic
availability of raw materials, operating supplies or facilities
necessary for the operation of a project or technological or other
unavoidable changes adversely affecting the operation of a project;
administrative or judicial actions which render contracts relating to
the projects void, unenforceable or impossible to perform; or impose
unreasonable burdens or excessive liabilities. The Sponsor cannot
predict the causes or likelihood of the redemption of resource recovery
bonds in the Trusts prior to the stated maturity of the Bonds.
Bonds of Issuers Located in the Commonwealth of Puerto Rico. Certain
Trusts of the Fund may contain Bonds of issuers located in the
Commonwealth of Puerto Rico or issuers which will be affected by general
economic conditions of Puerto Rico. Puerto Rico's unemployment rate
remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon
U.S. policies and programs that are being reviewed and may be eliminated.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source of semi-
finished manufactured articles on which further manufacturing operations
are performed in Puerto Rico. Since World War II the economic importance
of agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled
sugar monopoly remains an important economic factor and is largely
dependent upon Federal maintenance of sugar prices, the discontinuation
of which could severely affect Puerto Rico sugar production. The level
of tourism is affected by various factors including the strength of the
U.S. dollar. During periods when the dollar is strong, tourism in
foreign countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
Internal Revenue Code provides for a credit against Federal income taxes
for U.S. companies operating on the island if certain requirements are
met. The Omnibus Budget Reconciliation Act of 1993 imposes limits on
such credit, effective for tax years beginning after 1993. In addition,
from time to time proposals are introduced in Congress which, if enacted
into law, would eliminate some or all of the benefits of Section 936.
Although no assessment can be made at this time of the precise effect of
such limitation, it is expected that the limitation of Section 936
credits would have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on
Federal programs, and current Federal budgetary policies suggest that an
expansion of aid to Puerto Rico is unlikely. An adverse effect on the
Puerto Rican economy could result from other U.S. policies, including a
reduction of tax benefits for distilled products, further reduction in
transfer payment programs such as food stamps, curtailment of military
spending and policies which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate chose
to continue Puerto Rico's Commonwealth status. Previously proposed
legislation, which was not enacted, would have preserved the federal tax
exempt status of the outstanding debts of Puerto Rico and its public
corporations regardless of the outcome of the referendum, to the extent
that similar obligations issued by the states are so treated and subject
to the provisions of the Internal Revenue Code currently in effect.
There can be no assurance that any pending or future legislation finally
enacted will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to have both
Page 6
direct and indirect consequences on such matters as the basic
characteristics of future Puerto Rico debt obligations, the markets for
these obligations, and the types, levels and quality of revenue sources
pledged for the payment of existing and future debt obligations. Such
possible consequences include, without limitation, legislative proposals
seeking restoration of the status of Section 936 benefits otherwise
subject to the limitations discussed above. However, no assessment can
be made at this time of the economic and other effects of a change in
federal laws affecting Puerto Rico as a result of the November 1993
plebiscite.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
of the issuers of Bonds, could affect or could have an adverse impact on
the financial condition of Puerto Rico and various agencies and
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Insurance on the Bonds
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS. THE
BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED BY
INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as to the
scheduled payment of interest and principal by policies obtained by each
Insured Trust from Financial Guaranty Insurance Company ("Financial
Guaranty" or "FGIC"), a New York stock insurance company, or AMBAC
Indemnity Corporation ("AMBAC Indemnity" or "AMBAC"), a Wisconsin-
domiciled stock insurance company, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from Financial Guaranty, AMBAC Indemnity or other insurers (the
"Preinsured Bonds"). The insurance policy obtained by each Insured Trust
is noncancellable and will continue in force for such Trust so long as
such Trust is in existence and the Bonds described in the policy
continue to be held by such Trust (see "Portfolio" for each Insured
Trust). Nonpayment of premiums on the policy obtained by each Insured
Trust will not result in the cancellation of insurance, but will permit
Financial Guaranty and/or AMBAC Indemnity to take action against the
Trustee to recover premium payments due it. Premium rates for each issue
of Bonds protected by the policy obtained by each Insured Trust are
fixed for the life of such Trust. The premium for any Preinsured Bonds
has been paid in advance by the Bond issuer, the underwriters, the
Sponsor or others and any such policy or policies are noncancellable and
will continue in force so long as the Bonds so insured are outstanding
and the insurer and/or insurers thereof remain in business. If the
provider of an original issuance insurance policy is unable to meet its
obligations under such policy, or if the rating assigned to the claims-
paying ability of such insurer deteriorates, Financial Guaranty and/or
AMBAC Indemnity has no obligation to insure any issue adversely affected
by either of the above described events. A monthly premium is paid by
each Insured Trust for the insurance obtained by such Trust, which is
payable from the interest income received by such Trust. In the case of
Preinsured Bonds, no premiums for insurance are paid by the Insured Trust.
Financial Guaranty Insurance Company. Under the provisions of the
aforementioned portfolio insurance issued by Financial Guaranty,
Financial Guaranty unconditionally and irrevocably agrees to pay to
Citibank, N.A., or its successor, as its agent (the "Fiscal Agent"),
that portion of the principal of and interest on the Bonds covered by
the policy which shall become due for payment but shall be unpaid by
reason of nonpayment by the issuer of the Bonds. The term "due for
payment" means, when referring to the principal of a Bond, its stated
maturity date or the date on which it shall have been called for
mandatory sinking fund redemption and does not refer to any earlier date
on which payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement of
maturity and means, when referring to interest on a Bond, the stated
date for payment of interest, except that when the interest on a Bond
shall have been determined, as provided in the underlying documentation
relating to such Bond, to be subject to Federal income taxation, "due
for payment" also means, when referring to the principal of such Bond,
Page 7
the date on which such Bond has been called for mandatory redemption as
a result of such determination of taxability, and when referring to
interest on such Bond, the accrued interest at the rate provided in such
documentation to the date on which such Bond has been called for such
mandatory redemption, together with any applicable redemption premium.
The term "due for payment" will not include, when referring to either
the principal of a Bond or the interest on a Bond, any acceleration of
payment unless such acceleration is at the sole option of Financial
Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the
business day next following the day on which Financial Guaranty shall
have received notice of nonpayment, whichever is later. The Fiscal Agent
will disburse to the Trustee the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by
the issuer but only upon receipt by the Fiscal Agent of (i) evidence of
the Trustee's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or
interest due for payment shall thereupon vest in Financial Guaranty.
Upon such disbursement, Financial Guaranty shall become the owner of the
Bond, appurtenant coupon or right to payment of principal or interest on
such Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained by an
Insured Trust has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to maturity of the Bonds regardless of the
identity of the holder thereof) (the "Permanent Insurance") upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the Trustee
will exercise the right to obtain Permanent Insurance only if upon such
exercise the Insured Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent
Insurance) from such sale in excess of the sale proceeds if such Bonds
were sold on an uninsured basis. The insurance premium with respect to
each Bond eligible for Permanent Insurance is determined based upon the
insurability of each Bond as of the Initial Date of Deposit and will not be
increased or decreased for any change in the creditworthiness of such Bond.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a wholly
owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in
the State of New York and is subject to regulation by the State of New
York Insurance Department. As of September 30, 1996, the total capital
and surplus of Financial Guaranty was approximately $1,097,600,190.
Copies of Financial Guaranty's financial statements, prepared on the
basis of statutory accounting principles, and the Corporation's
financial statements, prepared on the basis of generally accepted
accounting principles, may be obtained by writing to Financial Guaranty
at 115 Broadway, New York, New York 10006, Attention: Communications
Department (telephone number (212) 312-3000) or to the New York State
Insurance Department at 160 West Broadway, 18th Floor, New York, New
York 10013, Attention: Financial Condition Property/Casualty Bureau
(telephone number (212) 621-0389).
In addition, Financial Guaranty is currently licensed to write insurance
in all fifty states and the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained
herein with respect to such corporation is unaudited but appears in
reports or other materials filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). The Insurance Policy of
AMBAC Indemnity obtained by an Insured Trust is noncancellable and will
continue in force for so long as the Bonds described in the Insurance
Policy are held by an Insured Trust. A monthly premium is paid by an
Insured Trust for the Insurance Policy obtained by it. The Trustee will
pay, when due, successively, the full amount of each installment of the
insurance premium. Pursuant to a binding agreement with AMBAC Indemnity,
in the event of a sale of a Bond covered by the AMBAC Indemnity
Page 8
Insurance Policy, the Trustee has the right to obtain permanent
insurance for such Bond upon payment of a single predetermined premium
from the proceeds of the sale of such Bond.
Under the terms of the Insurance Policy, AMBAC Indemnity agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by AMBAC Indemnity which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
term "due for payment" means, when referring to the principal of a Bond
so insured, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest.
AMBAC Indemnity will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by AMBAC Indemnity that a
nonpayment of principal or of interest on a Bond has occurred, but not
earlier than the date on which the Bonds are due for payment. AMBAC
Indemnity will disburse to the Trustee the face amount of principal and
interest which is then due for payment but is unpaid by reason of
nonpayment by the issuer in exchange for delivery of Bonds, not less in
face amount than the amount of the payment in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where
Bonds are issuable only in a form whereby principal is payable to
registered holders or their assigns, AMBAC Indemnity shall pay principal
only upon presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment in
satisfactory form, so as to permit ownership of such Bonds to be
registered in the name of AMBAC Indemnity or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, AMBAC Indemnity shall pay interest
only upon presentation of proof that the claimant is the person entitled
to the payment of interest on the Bonds and delivery of an instrument of
assignment, in satisfactory form, transferring to AMBAC Indemnity all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $2,550,327,507 (unaudited) and statutory capital of
approximately $1,446,559,894 (unaudited) as of December 31, 1996. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and
statutory contingency reserve. AMBAC Indemnity is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's
Investors Service, Inc. and Standard & Poor's have both assigned a
triple-A claims-paying ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York, New
York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
adverse changes in such information, subsequent to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or AMBAC
Indemnity has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
Page 9
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or AMBAC Indemnity and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor AMBAC Indemnity nor its parent, AMBAC, Inc., or
any affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor has in
the past and may from time to time in the future, in the normal course
of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of
municipal bonds in which the investors or the affiliates of FGIC
Corporation and/or AMBAC Inc. have or will be participants or for which
a policy of insurance guaranteeing the scheduled payment of interest and
principal has been obtained from Financial Guaranty and/or AMBAC
Indemnity. Neither the Fund nor the Units of a Trust nor the portfolio
of such Trust is insured directly or indirectly by FGIC Corporation
and/or AMBAC Inc.
MBIA Insurance Corporation. MBIA Insurance Corporation ("MBIA
Corporation" or "MBIA") is the principal operating subsidiary of MBIA,
Inc., a New York Stock Exchange listed company. MBIA, Inc. is not
obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation is domiciled in the State of New York and licensed to do
business in and subject to regulation under the laws of all fifty
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. MBIA has two European branches,
one in the Republic of France and the other in the Kingdom of Spain. New
York has laws prescribing minimum capital requirements, limiting classes
and concentrations of investments and requiring the approval of policy
rates and forms. State laws also regulate the amount of both the
aggregate and individual risks that may be insured, the payment of
dividends by the insurer, changes in control and transactions among
affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for
certain periods of time.
As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total
capital and surplus of $1.3 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of September 30, 1996, MBIA had admitted
assets of $4.3 billion (unaudited), total liabilities of $2.9 billion
(unaudited), and total capital and surplus of $1.4 billion (unaudited),
determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King
Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now known as MBIA Insurance Corp. of Illinois.
Page 10
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG 1," both designated to be of the highest
quality. Standard & Poor's rates all new issues insured by MBIA "AAA."
Capital Guaranty Insurance Company. On December 20, 1995, Capital
Guaranty Corporation ("CGC") merged with a subsidiary of Financial
Security Assurance Holdings Ltd. and Capital Guaranty Insurance Company,
CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly-
owned subsidiary of Financial Security Assurance Inc. For further
description, see "Financial Security Assurance Inc." herein. The address
of FSA Maryland and its telephone number are Steuart Tower, One Market
Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance company
which engages only in the business of financial guarantee and surety
insurance. CapMAC is licensed in 49 states in addition to the District
of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also
provide financial guarantee reinsurance for structured asset-backed,
corporate and municipal obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's, and "AAA" by Duff
& Phelps, Inc. ("Duff & Phelps"). Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or
hold securities and are subject to revision or withdrawal at any time by
such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees. CapMAC commenced operations on
December 24, 1987 as an indirect, wholly-owned subsidiary of Citibank
(New York State), a wholly-owned subsidiary of Citicorp. On June 25,
1992, Citibank (New York State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or
to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of
New York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC
is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may retain,
after giving effect to reinsurance, collateral or other securities, is
also regulated. Statutory and regulatory accounting practices may
prescribe appropriate rates at which premiums are earned and the levels
of reserves required. In addition, various insurance laws restrict the
incurrence of debt, regulate permissible investments of reserves,
capital and surplus, and govern the form of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the
Surety Bond(s).
THE SURETY BONDS ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale, Holdings and CapMAC entered into an
Ownership Policy Agreement (the "Ownership Policy Agreement"), which
sets forth Holdings' intent with respect to its ownership and control of
CapMAC and provides for certain policies and agreements with respect to
Holdings' exercise of its control of CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the term of the Ownership
Policy Agreement, it will not and will not permit any stockholder of
Holdings to enter into any transaction the result of which would be a
change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long-term debt obligations or claims-paying ability
of the person which would control CapMAC after such transaction or its
direct or indirect parent are rated in a high investment grade category,
unless Holdings or CapMAC has confirmed that CapMAC's claims-paying
Page 11
ability rating by Moody's (the "Rating") in effect immediately prior to
any such change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a result of
a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i) not
to change the "zero-loss" underwriting standards or policies and
procedures of CapMAC in a manner that would materially and adversely
affect the risk profile of CapMAC's book of business, (ii) that CapMAC
will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time to time as
consistent with maintaining CapMAC's Rating and (iii) that until
CapMAC's statutory capital surplus and contingency reserve ("qualified
statutory capital") equal $250 million, CapMAC will maintain a specified
amount of qualified statutory capital in excess of the amount of
qualified statutory capital that CapMAC is required at such time to
maintain under the aggregate leverage limitations set forth in Article
69 of the New York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date
on which a change of control of CapMAC occurs and the date on which
CapMAC and Holdings agree in writing to terminate the Ownership Policy
Agreement; provided that, CapMAC or Holdings has confirmed that CapMAC's
Rating in effect immediately prior to any such termination will not be
downgraded upon such termination.
As of December 31, 1994 and 1993, CapMAC had statutory capital and
surplus of approximately $170 million and $168 million, respectively,
and had not incurred any debt obligations. Article 69 of the New York
State Insurance Law requires that CapMAC establishes and maintains the
contingency reserve.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the
State of New York are available upon request. CapMAC is located at 885
Third Avenue, New York, New York 10022, and its telephone number is
(212) 755-1155.
Financial Security Assurance. Financial Security Assurance Inc.
("Financial Security") is a monoline insurance company incorporated in
1984 under the laws of the State of New York. Financial Security is
licensed to engage in the financial guaranty insurance business in all
50 states, the District of Columbia, Puerto Rico and the United Kingdom.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general,
financial guaranty insurance consists of the issuance of a guaranty of
scheduled payments of an issuer's securities, thereby enhancing the
credit rating of those securities, in consideration for payment of a
premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or
other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds
and sale/leaseback obligation bonds. Municipal securities consist
largely of general obligation bonds, special revenue bonds and other
special obligations of state and local governments. Financial Security
insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
company. Major shareholders of Holdings include Fund American
Enterprises Holdings, Inc., U S West Capital Corporation and The Tokio
Marine and Fire Insurance Co. Ltd. No shareholder of Financial Security
is obligated to pay any debt of Financial Security or its subsidiaries
or any claim under any insurance policy issued by Financial Security or
its subsidiaries or to make any additional contribution to the capital
of Financial Security or its subsidiaries. As of March 31, 1996, the
total policyholders' surplus and contingency reserves and the total
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $650,053,000 (unaudited) and $387,239,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $779,177,000 (unaudited), and $340,226,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York,
New York, 10022, Attention Communications Department. Financial
Security's telephone number is (212) 826-0100.
Page 12
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries
(including FSA Maryland) are reinsured among such companies on an agreed-
upon percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security and FSA Maryland reinsure a portion of
their liabilities under certain of their financial guaranty insurance
policies with other reinsurers under various quota share treaties and on
a transaction-by-transaction basis. Such reinsurance is utilized as a
risk management device and to comply with certain statutory and rating
agency requirements; it does not alter or limit the obligations of
Financial Security or FSA Maryland under any financial guaranty
insurance policy.
The claims-paying ability of Financial Security and FSA Maryland is
rated "Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard &
Poor's Rating Services, Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies.
Connie Lee Insurance Company. Connie Lee Insurance Company ("Connie
Lee"), a stock insurance company incorporated in Wisconsin, is a wholly-
owned subsidiary of College Construction Loan Insurance Association
("CCLIA"), a stockholder-owned District of Columbia insurance holding
company whose creation was authorized by the 1986 amendments to the
Higher Education Act. The United States Department of Education ("DOE")
and Student Loan Marketing Association ("Sallie Mae") are founding
shareholders of College Construction Loan Insurance Association. CONNIE
LEE IS NOT AN AGENCY OR INSTRUMENTALITY OF THE UNITED STATES GOVERNMENT,
ALTHOUGH THE UNITED STATES GOVERNMENT IS A STOCKHOLDER OF CCLIA. THE
OBLIGATIONS OF CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED STATES
GOVERNMENT. As a federally authorized company, Connie Lee's structure
and operational authorities are subject to revision by amendments to the
Higher Education Act or other federal enactments.
Various bills containing provisions relating to the privatization of
Connie Lee ("Connie Lee Privatization Legislation") are pending in the
United States Congress. If enacted in the form included in these bills,
the Connie Lee Privatization Legislation would, among other things,
remove the restrictions that limit the types of obligations Connie Lee
is permitted to insure and would authorize Connie Lee to engage in any
business appropriate for any other fully private corporation. The Connie
Lee Privatization Legislation would also provide for the disposition of
the stock in CCLIA held by DOE and for the repeal of substantially all
of the provisions of the Higher Education Act pertaining to the
structure and other operational authorities of Connie Lee. While one
bill containing the Connie Lee Privatization Legislation was passed by
the House of Representatives in September of 1995 and companion
legislation has been introduced in the Senate, it cannot be predicted
whether, or in what form, the Connie Lee Privatization Legislation or
other federal legislation affecting Connie Lee will ultimately be
enacted into law, or the effect that any such enactment may ultimately
have on Connie Lee.
As of March 31, 1996, the total policyholders' surplus of Connie Lee was
$111,462,158 (unaudited) and total admitted assets were $215,702,727
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin in Connie Lee's financial statements prepared in accordance
with statutory accounting principles applicable to insurance companies.
Copies of these financial statements are available from Connie Lee upon
request.
CCLIA's consolidated annual (audited) and quarterly (unaudited)
financial statements prepared in accordance with generally accepted
accounting principles are filed periodically with the Nationally
Recognized Municipal Securities Information Repositories designated
under Rule 15c2-12 of the Securities and Exchange Commission. The
information contained in these financial statements is incorporated
herein by reference. Copies of these financial statements are available
from Connie Lee upon request.
Standard & Poor's has rated the claims-paying ability of Connie Lee "AAA."
Connie Lee makes no representation regarding the Bonds or the
advisability of investing in the Bonds. The above rating is not a
recommendation to buy, sell or hold the Connie Lee insured Bonds and
such rating is subject to the revision or withdrawal at any time by the
rating agency. Any downward revision or withdrawal of the rating may
have an adverse effect on the market price of the Connie Lee insured Bonds.
Page 13
The address of Connie Lee's administrative offices and its telephone
number are 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and
(202) 835-0090.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the
market value of each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. Such
rating will be in effect for a period of thirteen months from the
Initial Date of Deposit of an Insured Trust and will, unless renewed,
terminate at the end of such period. There is no guarantee that the
"AAA" investment rating with respect to the Units of an Insured Trust
will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is to
obtain a higher yield on the Bonds in the portfolio of such Trust than
would be available if all the Bonds in such portfolio had the Standard &
Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course, no
certainty that this result will be achieved. Bonds in a Trust for which
insurance has been obtained by the Bond issuer, the underwriters, the
Sponsor or others (all of which were rated "AAA" by Standard & Poor's
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's or
"Aaa" by Moody's Investors Service, Inc. In selecting Bonds for the
portfolio of each Insured Trust, the Sponsor has applied the criteria
herein before described.
How is the Public Offering Price Determined?
Secondary Market Sales Charge. The sales charge assessed on Units sold
in secondary market transactions is determined in accordance with the
table set forth below based upon the number of years remaining to the
maturity of each such Bond. The effect of this method of sales charge
calculation will be that different sales charge rates will be applied to
the various Bonds in a Trust portfolio based upon the maturities of such
Bonds, in accordance with the following schedule.
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
_________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
__________________ __________ __________
<S> <C> <C>
0 Months to 1 Year 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
There will be no reduction of the sales charges for volume purchases for
secondary market transactions. A dealer will receive from the Sponsor a
dealer concession of 70% of the total sales charges for Units sold by
such dealer and dealers will not be eligible for additional concessions
for Units sold pursuant to the above schedule.
Page 14
Description of Bond Ratings*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong./Note2/
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
____________
* As published by the ratings companies.
** Bonds insured by Financial Guaranty Insurance Company, AMBAC
Indemnity Corporation, Municipal Bond Investors Assurance Corporation,
Connie Lee Insurance Company, Financial Security Assurance and Capital
Guaranty Insurance Company are automatically rated "AAA" by Standard &
Poor's.
Page 15
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(--)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Fitch Investors Service, Inc. A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follow:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
Page 16
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
Page 17
APPENDIX A
PENNSYLVANIA DISCLOSURE
Investors should be aware of certain factors that might affect the
financial conditions of the Commonwealth of Pennsylvania. Pennsylvania
historically has been identified as a heavy industry state although that
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries
began to decline. A more diversified economy was necessary as the
traditionally strong industries in the Commonwealth declined due to a
long-term shift in jobs, investment and workers away from the northeast
part of the nation. The major sources of growth in Pennsylvania are in
the service sector, including trade, medical and the health services,
education and financial institutions. Pennsylvania's agricultural
industries are also an important component of the Commonwealth's
economic structure, accounting for more than $3.6 billion in crop and
livestock products annually, while agribusiness and food related
industries support $39 billion in economic activity annually.
Non-manufacturing employment in the Commonwealth has increased steadily
since 1980 to its 1995 level of 82.1% of total Commonwealth employment.
The growth in employment experienced in the Commonwealth during such
periods is comparable to the growth in employment in the Middle Atlantic
region of the United States. Manufacturing, which contributed 17.9% of
1995 non-agricultural employment, has fallen behind both the services
sector and the trade sector as the largest single source of employment
within the Commonwealth. In 1995, the services sector accounted for
30.4% of all non-agricultural employment in the Commonwealth while the
trade sector accounted for 22.8%.
The Commonwealth recently experienced a slowdown in its economy.
Moreover, economic strengths and weaknesses vary in different parts of
the Commonwealth. In general, heavy industry and manufacturing have been
facing increasing competition from foreign producers. During 1995, the
annual average unemployment rate in the Commonwealth was 5.9% compared
to 5.6% for the United States. For September 1996, the unadjusted
unemployment rate was 4.8% in the Commonwealth and 5.0% in the United
States, while the seasonally adjusted unemployment rate for the
Commonwealth was 5.0% and for the United States was 5.2%.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Financial information for the principal operating funds of the
Commonwealth is maintained on a budgetary basis of accounting. A
budgetary basis of accounting is used for the purpose of ensuring
compliance with the enacted operating budget and is governed by
applicable statutes of the Commonwealth and by administrative
procedures. The Commonwealth also prepares annual financial statements
in accordance with generally accepted accounting principles ("GAAP").
The budgetary basis financial information maintained by the Commonwealth
to monitor and enforce budgetary control is adjusted at fiscal year-end
to reflect appropriate accruals for financial reporting in conformity
with GAAP.
Fiscal 1995 Budget. The approved fiscal 1995 budget provided for
$15,665.7 million of appropriations from Commonwealth funds, an increase
of 4.0% over appropriations, including supplemental appropriations, for
fiscal 1994. Medical assistance expenditures represent the largest
single increase in the budget ($221 million) representing a nine percent
increase over the prior fiscal year. The budget includes a reform of the
state-funded public assistance program that added certain categories of
eligibility to the program but also limited the availability of such
assistance to other eligible persons. Education subsidies to local
school districts were increased by $132.2 million to continue the
increased funding for the poorest school districts in the state.
Several tax reductions were enacted with the fiscal 1995 budget. Low-
income working families will benefit from an increase to the dependent
exemption to $3,000 from $1,500 for the first dependent and from $1,000
for all additional dependents. A reduction to the corporate net income
tax rate from 12.25% to 9.99% to be phased in over a period of four
years was enacted. A net operating loss provision has been added to the
corporate net income tax and will be phased in over three years with an
annual $500,000 cap on losses used to offset profits. Several other tax
changes to the sales tax, the inheritance tax and the capital stock and
Page A-1
franchise tax also were enacted. Estimated commonwealth revenue
reductions from these tax cuts have been raised from $166.4 million to
$173.4 million based on upward revised estimates of commonwealth
revenues for the fiscal year. Estimated fiscal year revenues, net of the
enacted tax cuts, were increased $296.5 million in the revised
projection for fiscal 1994. The increase represents a 1.9 percentage
point increase in the rate of growth anticipated for fiscal 1995 to
6.3%, excluding the effect of the fiscal 1995 tax reductions, and is
largely due to actual and anticipated higher collections of the
corporate net income tax, the sales and use tax and miscellaneous
collections.
After a review of the fiscal 1994 budget in January 1995, $64.9 million
of additional appropriation needs were identified for the fiscal year.
Of this amount, the largest are for medical assistance ($21.8 million)
and general assistance cash grants ($10.3 million). The balance of the
additional appropriation needs are for other public welfare programs,
educational subsidies and office relocation costs due to a fire. The
supplemental appropriations requested are proposed to be funded from
appropriation lapses estimated to total $172 million for the fiscal year.
With the revised estimates for revenues, appropriations and lapses for
the 1994 fiscal year, an unappropriated balance prior to transfers to
the Tax Stabilization Reserve Fund of $395.5 million is projected, an
increase from the $335.8 million fiscal year 1993 ending balance (prior
to transfers).
Fiscal 1996 Budget. The fiscal 1996 budget was approved by the Governor
on June 30, 1995. The budget includes spending growth of 2.7%. It
includes a reduction of the Corporate Net Income Tax from 10.99% to
9.99% retroactive to January 1, 1995. The budget includes a
proportionate increase in funds for public safety and education and a
proportionate decrease in funds for welfare.
Fiscal 1997 Budget. The fiscal 1997 budget was approved by the Governor
on June 29, 1996. The budget increases government spending by only six-
tenths of one percent. It increases the Rainy Day Fund-Pennsylvania's
"savings account" to protect against future tax increases-to a balance
of $209 million. The budget includes a $15 million Job Creation Tax
Credit intended to help create more jobs for Pennsylvanians. The budget
offers $138 million in increased funding and savings for local school
districts including the Link to Learn technology-in-schools program
which is a $40.3 million initiative designed to make computer resources
available in Pennsylvania classrooms.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be
revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the
1990 Census. Philadelphia functions both as a city of the first class
and a county for the purpose of administering various governmental
programs. In its 1992 Comprehensive Annual Financial Report, Philadelphia
reported a cumulative general fund balance deficit of $71.4 million for the
fiscal year 1992.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class
cities in remedying fiscal emergencies was enacted by the General
Assembly and approved by the Governor in June 1991. PICA is designed to
provide assistance through the issuance of funding debt to liquidate
budget deficits and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. An
intergovernmental cooperation agreement between Philadelphia and PICA
was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8,1992. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA
on April 30, 1996 in which Philadelphia projects a balanced budget in
each of the five years (fiscal years 1997 through 2001) covered by the
plan.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue Bonds
(the "1992 Bonds") to provide financial assistance to Philadelphia and
to liquidate the cumulative General Fund balance deficit. PICA issued
$643,430,000 in July 1993 and $178,675,000 in August 1993 of Special Tax
Revenue Bonds (the "1994 Bonds") to refund certain general obligation
bonds of the City and to fund additional capital projects. In December
1994, PICA issued $122,020,000 of Special Tax Revenue Bonds to fund
additional capital projects. In May 1996, PICA issued $343,030,000 of
Special Tax Revenue Refunding Bonds to (i) advance refund the 1992 Bonds
Page A-2
and the 1994 Bonds; (ii) pay the premium for a surety bond to satisfy
the Debt Service Reserve Fund Requirement for the 1996 Bonds; and (iii)
pay the costs of issuing the 1996 Bonds.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Baa by
Moody's and BBB- by S&P. Any explanation concerning the significance of
such ratings must be obtained from the rating agencies. There is no
assurance that any ratings will continue for any period of time or that
they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds in the Pennsylvania
Trust are subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which are
not within the control of the issuers of Bonds, could have an adverse
impact on the financial condition of the State and various agencies and
political subdivisions located in the State. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Pennsylvania Trust to pay interest on or principal of the Bonds.
Page A-3
MEMORANDUM
Re: The First Trust Combined Series 271
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 270, which is the current fund, and
The First Trust Combined Series 271, 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 270 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 271, 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 February 28, 1997.
THE FIRST TRUST COMBINED SERIES 271
(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 ) February 28, 1997
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 271 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
