File No. 333-22611
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to Form S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: THE FIRST TRUST COMBINED
SERIES 271
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of 1001 Warrenville Road
Depositor's Principal Lisle, Illinois 60532
Offices:
D. Name and Complete Address NIKE SECURITIES L.P.
of Agents for Service: Attention: James A. Bowen
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN AND CUTLER
Attention: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
E. Title of Securities An indefinite number
Being Registered: of units pursuant to Rule
24f-2 promulgated under
the Investment Company
Act of 1940, as amended.
F. Approximate Date of Proposed
Sale to the Public: As soon as practicable
after the effective date
of the Registration
Statement.
:XXX: Check box if it is proposed that this filing will
become effective on November 13, 1997 at 1:30 p.m.
pursuant to Rule 487.
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 Part I -
Front Cover Page
2. Name and address of Depositor Summary of Essential
Information;
Information as to
Sponsor, Trustee and
Evaluator
3. Name and address of Trustee Summary of Essential
Information
Information as to
Sponsor, Trustee and
Evaluator
4. Name and address of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
5. Organization of Trust What is the First
Trust Combined
Series?
6. Execution and termination of What is the First
Trust Agreement Trust Combined
Series?; Other
Information
7. Changes of name *
8. Fiscal year *
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE
TRUST
10. General information regarding What is the First
Trust's securities Trust Combined
Series?; Public
Offering; Rights of
Unit Holders;
Information as to
Sponsor, Trustee and
Evaluator; Other
Information
11. Type of securities comprising Prospectus Front Cover
units Page; What is the
First Trust Combined
Series?; Portfolio
12. Certain information regarding *
periodic payment certificates
13. (a) Load, fees, expenses, etc. Prospectus Front Cover
Page; Special Trust
Information; What is
the First Trust
Combined Series?;
Rights of Unit
Holders; What are the
Expenses and Charges?
(b) Certain information regard- *
ing periodic payment
certificates
(c) Certain percentages Prospectus Front Cover
Page
Summary of Essential
Information; What is
the First Trust
Combined Series?;
Public Offering
(d) Certain other fees, etc. Rights of Unit Holders
payable by holders
(e) Certain profits receivable Public Offering;
by depositor, principal Portfolio
underwriter, trustee or
affiliated persons
(f) Ratio of annual charges to *
income
14. Issuance of Trust's securities Rights of Unit Holders
15. Receipt and handling of payments *
from purchasers
16. Acquisition and disposition of What is the First
underlying securities Trust Combined
Series?; Information
as Sponsor, Trustee
and Evaluator
17. Withdrawal or redemption Public Offering;
Rights of Unit
Holders
18. (a) Receipt and disposition Prospectus Front Cover
of income Page; Rights of Unit
Holders
(b) Reinvestment of Rights of Unit Holders
distributions
(c) Reserves or special funds What is the First
Trust Combined
Series?; Rights of
Unit Holders
(d) Schedule of distributions *
19. Records, accounts and reports Rights of Unit Holders
20. Certain miscellaneous provisions Information as to
of Trust Agreement Sponsor, Trustee and
Evaluator; Other
Information
21. Loans to security holders *
22. Limitations on liability What is the First
Trust Combined
Series?; Information
as to Sponsor,
Trustee and Evaluator
23. Bonding arrangements Contents of
Registration
Statement
24. Other material provisions of *
Trust Agreement.
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF
DEPOSITOR
25. Organization of Depositor Information as to
Sponsor, Trustee and
Evaluator
26. Fees received by Depositor *
27. Business of Depositor Information as to
Sponsor, Trustee and
Evaluator
28. Certain information as to offi- *
cials and affiliated persons
of Depositor
29. Voting securities of Depositor *
30. Person controlling Depositor *
31. Payments by Depositor for *
certain services rendered to
Trust
32. Payments by Depositor for *
certain services rendered
to Trust
33. Remuneration of employees of *
Depositor for certain services
rendered to Trust
34. Remuneration of other persons *
for certain services rendered
to Trust
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of Trust's securi- Public Offering
ties by states
36. Suspension of sales of Trust's *
securities
37. Revocation of authority to *
distribute
38. (a) Method of distribution Public Offering
(b) Underwriting agreements Public Offering
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) NASD membership of princi- Information as to
pal underwriter Sponsor, Trustee and
Evaluator
40. Certain fees received by *
principal underwriter
41. (a) Business of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) Branch offices of principal *
underwriter
(c) Salesmen of principal *
underwriter
42. Ownership of Trust's securities *
by certain persons
43 Certain brokerage commissions *
received by principal under-
writer
44. (a) Method of valuation Prospectus Front Cover
Summary of Essential Page; What is the
Information First Trust
Combined Series?;
Public Offering
(b) Schedule as to offering *
price
(c) Variation in offering Public Offering
price to certain
persons
45. Suspension of redemption rights *
46. (a) Redemption valuation Rights of Unit Holders
(b) Schedule as to redemption *
price
47. Maintenance of position in Public Offering
underlying securities Rights of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Information as to
Trustee Sponsor, Trustee and
Evaluator
49. Fees and expenses of Trustee What is the First
Trust Combined
Series?
50. Trustee's lien What is the First
Trust Combined
Series?
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of Trust's *
securities
VII. POLICY OF REGISTRANT
52. (a) Provisions of Trust agree- Rights of Unit Holders
ment with respect to selec-
tion or elimination of
underlying securities
(b) Transactions involving *
elimination of underlying
securities
(c) Policy regarding substitu- Rights of Unit Holders
tion or elimination of
underlying securities
(d) Fundamental policy not *
otherwise covered
53. Tax status of Trust What is the First
Trust Combined
Series?
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during *
last ten years
55.
56. Certain information regarding *
periodic payment plan certificates
57.
58.
59. Financial statements (Instruc- Opinion of Independent
tions 1(c) to Form S-6) Auditors; Statement of
Net Assets of the
Trusts
* Inapplicable, answer negative or not required.
Part I of II
NEW YORK INSURED TRUST
SERIES 61-LONG INTERMEDIATE
(The First Trust (registered trademark) Combined Series 271)
Prospectus - Part I
THIS PART I OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY THE PART II OF THE PROSPECTUS DATED NOVEMBER 25, 1997. BOTH PARTS I
AND II OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
New York Insured Trust, Series 61-Long Intermediate (the "New York
Insured Trust"), consists of a portfolio of interest-bearing obligations
issued by or on behalf of the State of New York 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, New York 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 New York Insured Trust consists of five obligations of issuers
located in New York. 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
__________ ___________________ ____________
3 General Obligation 57.18%
2 Health Care 42.82%
Each Bond issue represents 10% or more of the aggregate principal amount
of the Bonds in the Trust. The largest such issue represents
approximately 23%. 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.
Approximately 39% of the aggregate principal amount (approximately 39%
of the aggregate offering price) of the Bonds in the Trust were
purchased at a premium over par value. Certain of these Bonds are
subject to redemption pursuant to call provisions in approximately seven
to nine years after the Initial Date of Deposit. See "What is the First
Trust Combined Series?," "New York Insured Trust, Series 61-Long
Intermediate-Portfolio" contained herein and "Description of Bond
Ratings" in the Information Supplement.
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
_________________ __________________
Financial Guaranty Insurance Company 37.96%
MBIA Insurance Company 23.36%
AMBAC Indemnity Corporation 19.46%
Financial Security Assurance, Inc. 19.22%
____________
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 NOR HAS THE 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 November 25, 1997
Page 1 of 12
SUMMARY OF ESSENTIAL INFORMATION
At the Opening of Business on the Initial Date of Deposit
of the Bonds-November 25, 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 $2,055,000
Number of Units 2,147
Fractional Undivided Interest in the Trust per Unit 1/2,147
Principal Amount (Par Value) of Bonds per Unit (1) $ 957.15
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $2,050,394
Aggregate Offering Price Evaluation per Unit $ 955.00
Sales Charge 4.5% (4.712% of the Aggregate Price Evaluation per Unit) $ 45.00
Public Offering Price per Unit (2) $ 1,000.00
Sponsor's Initial Repurchase Price per Unit (2) $ 955.00
Redemption Price per Unit (3) $ 952.61
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 47.39
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 2.39
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date December 1, 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 the Trust during
the primary offering period.
Mandatory Termination Date December 31, 2045
______________
<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 New York 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) 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.
(3) See "How May Units be Redeemed?" in Part II of this Prospectus.
</FN>
</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.
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 $ 47.58 $ 47.58
Estimated Annual Trust Expense per Unit:
Trustee's Fees $ 1.36 $ .91
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 $ 2.54 $ 2.04
_________ _________
Estimated Net Annual Interest Income per Unit $ 45.04 $ 45.54
Calculation of Interest Distribution per Unit
Divided by 12 and 2, respectively $ 3.75 $ 22.77
Estimated Daily Rate of Net Interest Accrual per Unit $.125111 $.126500
Initial Distribution - December 31, 1997 (2) $ 1.75 $ 1.77
Regular Distribution (2) $ 3.75 $ 22.77
(Commencing) 1/31/98 6/30/98
Estimated Current Return Based on Public Offering Price (3) 4.50% 4.55%
Estimated Long-Term Return Based on Public Offering Price (3) 4.31% 4.36%
CUSIP 3371M5 544 551
_________________
<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.
</FN>
</TABLE>
Page 3 of 12
New York Risk Factors
The financial condition of the State of New York is affected by various
national, economic, social and environmental policies and conditions.
Additionally, constitutional and statutory limitations imposed on the
State and its local governments concerning taxes, bond indebtedness and
other matters may constrain the revenue-generating capacity of the State
and its local governments and, therefore, the ability of the issuers of
the Bonds to satisfy their obligations. Historically, the State has been
one of the wealthiest states in the nation; however, for decades the
State economy has grown more slowly than that of the nation as a whole,
gradually eroding the State's relative economic affluence.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy
the Bonds, are affected by numerous factors. The economy of the State
continues to be influenced by the financial health of the City of New
York, which faces greater competition as other major cities develop
comparable financial and business capabilities. The State has for many
years had a very high state and local tax burden relative to other
states. The burden of State and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or
not locate within, the State.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations. On
January 21, 1994, the State entered into a settlement with Delaware with
respect to State of Delaware v. State of New York. The State made an
immediate $35 million payment and agreed to make a $33 million annual
payment in each of the next five fiscal years. The State has not settled
with other parties to the litigation and will continue to incur
litigation expenses as to those claims.
Moody's rating of the State's general obligation bonds stood at A2 as of
October 7, 1997, and S&P's ratings stood at A as of August 28, 1997.
Further information concerning New York 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.
New York Tax Status
In the opinion of Carter, Ledyard & Milburn, New York, New York, Special
Counsel to the Fund for New York tax matters, under existing law:
The New York Trust is not an association taxable as a corporation and
the income of the Trust will be treated as the income of the Unit
holders under the existing income tax laws of the State and City of New
York in the same manner as for Federal income tax purposes (subject to
differences in accounting for discount and premium to the extent the
State and/or City of New York do not conform to current Federal law);
Individuals holding units of the New York Insured Trust who reside in
New York State or City will not be subject to State and City personal
income tax on interest income which is excludable from Federal gross
income under section 103 of the Internal Revenue Code of 1986 and
derived from any obligation of New York State or a political subdivision
thereof, or of the Government of Puerto Rico or a political subdivision
thereof, or of the Government of Guam or by its authority, although they
will be subject to New York State and City personal income tax with
respect to any gains realized when such obligations are sold, redeemed
or paid at maturity or when any such Units are sold or redeemed; and
For individuals holding units of the New York Insured Trust who reside
in New York State or City, any proceeds paid to the Trustee under the
applicable insurance policies which represent maturing interest on
defaulted obligations held by the Trustee will not be subject to New
York State or City personal income tax if, and to the same extent as,
such interest would not have been subject to New York State or City
personal income tax if paid by the issuer of the defaulted obligations.
For information with respect to the Federal income tax status and other
tax matters, see "What is the Federal Tax Status of Unit Holders?" in
Part II of this Prospectus.
Federal and New York 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 1997 marginal Federal tax rates
and marginal state tax rates currently available and scheduled to be in
effect. The table incorporates increased tax rates for higher-income
Page 4 of 12
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 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
4.00% 4.50% 5.00%
Single Return Joint Return Tax Rate* Taxable Equivalent Yield
_____________ ______________ _________ ______ ______ ______
<C> <C> <S> <C> <C> <C>
$ 0 -24.65 $ 0 -41.20 20.8% 5.05% 5.68 6.31
24.65 -59.75 41.20 -99.60 32.9 5.96 6.71 7.45
59.75 -124.65 99.60 -151.75 35.7 6.22 7.00 7.78
124.65 -271.05 151.75 -271.05 40.4 6.71 7.55 8.39
Over 271.05 Over 271.05 43.7 7.10 7.99 8.88
___________
<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 credit,
(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. Further, the
table does not reflect the New York State supplemental income tax based
upon a taxpayer's New York State taxable income and New York State
adjusted gross income. This supplemental tax results in an increased
marginal State income tax rate to the extent a taxpayer's New York State
adjusted gross income ranges between $100,000 and $150,000.
</FN>
</TABLE>
Page 5 of 12
New York Insured Trust, Series 61-Long Intermediate
Portfolio
Units Rated "AAA"* at the Opening of Business
On the Initial Date of Deposit of the Bonds-November 25, 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>
$ 395,000 Bay Shore Union Free School District, Aaa (4) 2006 @ 101 $ 397,445
Suffolk County, New York, School District
Serial-1997 (General Obligation) (FSA Insured),
5.125%, Due 11/01/2011
400,000 Dormitory Authority of the State of New York, AAA 2004 @ 105 405,212
Millard Fillmore Hospitals, FHA Insured
Mortgage Hospital Revenue, Series 1997
(AMBAC Insured), 5.20%, Due 02/01/2010
480,000 Dormitory Authority of the State of New York, AAA 2007 @ 102 479,573
Beth Israel Medical Center, Revenue, 1997 Series B
(MBIA Insured), 5.00%, Due 11/01/2009
400,000 County of Suffolk, New York, Public AAA 2007 @ 101 395,836
Improvement (Serial), 1997 Series B (General
Obligation) (FGIC Insured), 5.00%, Due 11/01/2012
380,000 Town of Wallkill, Orange County, New York, Public AAA 372,328
Improvement Refunding (Serial), 1997 (General
Obligation) (FGIC Insured), 4.50%, Due 03/01/2008
__________ __________
$2,055,000 $2,050,394
========== ==========
______________
<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?"
For industry concentrations of the Bonds in the Trust, see page 1.
See "Notes to Portfolio" below.
</FN>
</TABLE>
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from November 21, 1997 to November 24, 1997. All contracts to
purchase Bonds are expected to be settled on or prior to December 1,
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>
New York Insured Trust,
Series 61-Long Intermediate $2,050,394 $2,045,005 $5,389 $2,045,256 $ - $102,144
</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.
Page 6 of 12
(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. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption 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 "New York Tax Status."
(4) Ratings by Moody's Investors Service, Inc. Such ratings were
obtained from a municipal bond information reporting service.
Page 7 of 12
New York Insured Trust, Series 61-Long Intermediate
Statement of Net Assets
(The First Trust Combined Series 271)
At the Opening of Business on the Initial Date of Deposit
November 25, 1997
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $2,050,394
Accrued interest on underlying bonds (2)(3)(4) 17,458
__________
2,067,852
Less distributions payable (4) 17,458
__________
Net assets $2,050,394
==========
Outstanding units 2,147
ANALYSIS OF NET ASSETS
Cost to investors (5) $2,147,009
Less gross underwriting commissions (5) 96,615
__________
Net assets $2,050,394
==========
</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>
New York Insured Trust,
Series 61-Long Intermediate $2,100,000 $2,068,475 $2,050,394 $17,458 $623
</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 December 1, 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 4.5% 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 271
New York Insured Trust, Series 61-Long Intermediate
We have audited the accompanying statement of net assets, including the
portfolio, of New York Insured Trust, Series 61-Long Intermediate ("the
Trust"), included in The First Trust Combined Series 271, as of the
opening of business on November 25, 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 November 25,
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 New York
Insured Trust, Series 61-Long Intermediate, included in The First Trust
Combined Series 271, at the opening of business on November 25, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 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)
NEW YORK INSURED TRUST
SERIES 61-LONG INTERMEDIATE
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.
November 25, 1997
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 12 of 12
Part II of II
THE FIRST TRUST COMBINED SERIES
Prospectus Part II
Dated November 25, 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 NOR HAS THE 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 are 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
increased competition, deregulation, increased fuel costs and other
Page 4
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; or
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
Page 5
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Investors should be aware that many of the Bonds in the Trusts are
subject to continuing requirements such as the actual use of Bond
proceeds or manner of operation of the project financed from Bond
proceeds that may affect the exemption of interest on such Bonds from
Federal income taxation. Although at the time of issuance of each of the
Bonds in the Trusts an opinion of bond counsel was rendered as to the
exemption of interest on such obligations from Federal income taxation,
there can be no assurance that the respective issuers or other obligors
on such obligations will fulfill the various continuing requirements
established upon issuance of the Bonds. A failure to comply with such
requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from
the date of issuance of such Bonds, thereby reducing the value of the
Bonds and subjecting Unit holders to unanticipated tax liabilities.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions,
special or extraordinary redemption provisions or otherwise. See
"Portfolio" in each Part I of this Prospectus for the earliest scheduled
call date and the initial redemption price for each Bond. A bond subject
to optional call is one which is subject to redemption or refunding
prior to maturity at the option of the issuer. A bond subject to sinking
fund redemption is one which is subject to partial call from time to
time at par or, in the case of a zero coupon bond, at the accreted value
from a fund accumulated for the scheduled retirement of a portion of an
issue prior to maturity. Special or extraordinary redemption provisions
may provide for redemption at par (or for original issue discount bonds
at issue price plus the amount of original issue discount accreted to
redemption date plus, if applicable, some premium) of all or a portion
of an issue upon the occurrence of certain circumstances specified in a
Bond's "Official Statement." The exercise of redemption or call
provisions will (except to the extent the proceeds of the called Bonds
are used to pay for Unit redemptions) result in the distribution of
principal and may result in a reduction in the amount of subsequent
interest distributions; it may also affect the long-term return and the
current return on Units of each Trust. Redemption pursuant to call
provisions is more likely to occur, and redemption pursuant to sinking
fund provisions may occur, when the Bonds have an offering side
valuation which represents a premium over par or for original issue
discount bonds a premium over the accreted value. Unit holders may
recognize capital gain or loss upon any redemption or call.
The contracts to purchase Bonds delivered to the Trustee represent an
obligation by issuers or dealers to deliver Bonds to the Sponsor for
deposit in each Trust. Contracts are typically settled and the Bonds
delivered within a few business days subsequent to the Initial Date of
Deposit. The percentage of the aggregate principal amount of the Bonds
of each Trust relating to "when, as and if issued" Bonds or other Bonds
with delivery dates after the date of settlement for a purchase made on
the Initial Date of Deposit, if any, is indicated in "Portfolio"
appearing in each Part I of this Prospectus. Interest on "when, as and
if issued" and delayed delivery Bonds begins accruing to the benefit of
Unit holders on their dates of delivery. Because "when, as and if
issued" Bonds have not yet been issued, as of the Initial Date of
Deposit each Trust is subject to the risk that the issuers thereof might
decide not to proceed with the offering of such Bonds or that the
delivery of such Bonds or the delayed delivery Bonds may be delayed. If
such Bonds, or replacement bonds described below, are not acquired by a
Trust or if their delivery is delayed, the Estimated Long-Term Return
and the Estimated Current Return (if applicable) shown in "Special Trust
Information" appearing in each Part I of this Prospectus for that Trust
may be reduced.
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
expenses and sales charge associated with each Unit of a Trust. Since
Page 7
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 may 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 Trusts. 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, see "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.
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 a 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.
The following additional charges are or may be incurred by a Trust: all
legal expenses of the Trustee incurred by or in connection with its
responsibilities under the Indenture; the expenses and costs of any
action undertaken by the Trustee to protect a 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 a 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 a Trust; all taxes and other government charges
imposed upon the Bonds or any part of a Trust (no such taxes or charges
are being levied or made or, to the knowledge of the Sponsor
contemplated). The above expenses and the Trustee's annual fee, when
paid or owing to the Trustee, are secured by a lien on a Trust. In
addition, the Trustee is empowered to sell Bonds of a Trust in order to
Page 9
make funds available to pay all these amounts if funds are not otherwise
available in the Interest and Principal Accounts of a 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
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
Page 10
such market value cannot be predicted.
The following summary information relating to the listed insurance
companies has been obtained from publicly available information:
<TABLE>
<CAPTION>
Financial Information
as of December 31, 1996
(in millions of dollars)
_________________________
Date Admitted Policyholders
Name Established Assets Surplus
____ _________ ________ _____________
<S> <C> <C> <C>
AMBAC Indemnity Corporation 1970 $2,585 $ 899
Capital Markets Assurance Corporation 1987 321 194
Connie Lee Insurance Company 1987 233 110
Financial Guaranty Insurance Company 1984 2,392 1,093
Financial Security Assurance, Inc. 1984 1,155 449
MBIA Insurance Corporation 1986 4,476 1,274
</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?"
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
Page 11
Municipal Bonds-Multi-State and/or The First Trust Advantage other than
a Long Intermediate Trust. A Long Intermediate Trust consists of Trusts
so designated.
<TABLE>
<CAPTION>
Initial Offering Period (1)
Sales Charge
__________________________
Percentage Percentage
of Public of Net
Offering Amount
Series of the Fund Price Invested
__________________ __________ __________
<S> <C> <C>
National Trusts and State Trusts 4.9% 5.152%
Long Intermediate Trusts 4.5% 4.712%
__________________
<FN>
(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?"
</FN>
</TABLE>
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. Employees,
officers and directors (including their immediate family members,
defined as spouses, children, grandchildren, parents, grandparents,
siblings, 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, related companies of the Sponsor,
broker/dealers and their affiliates 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
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
Page 12
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.
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
Page 13
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
and $34 per Unit for a Long Intermediate Trust. 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) and 4.5% of the Public
Offering Price of the Units for a Long Intermediate Trust (4.712% 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.
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
Page 14
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, State or Long Intermediate Trust)
or redeemed. The secondary market public offering price of Units may be
greater or less than the cost of such Units to the Sponsor.
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.
Unit holders may elect to hold their Units in uncertificated form. The
Trustee will maintain an account for each such Unit holder and will
credit each such account with the number of Units purchased by that Unit
holder. Within two business days of the issuance or transfer of Units
held in uncertificated form, the Trustee will send to the registered
owner of Units a written initial transaction statement containing a
description of their respective Trust; the number of Units issued or
transferred; the name, address and taxpayer identification number, if
any, of the new registered owner; a notation of any liens and
restrictions of the issuer and any adverse claims to which such Units
are or may be subject or a statement that there are no such liens,
restrictions or adverse claims; and the date the transfer was
registered. Uncertificated Units are transferable through the same
procedures applicable to Units evidenced by certificates (described
above), except that no certificate need be presented to the Trustee and
no certificate will be issued upon the transfer unless requested by the
Unit holder. A Unit holder may at any time request the Trustee to issue
certificates for Units.
Page 15
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust after deduction of amounts sufficient to
reimburse the Trustee, without interest, for any amounts advanced and
paid to FGIC and/or AMBAC or to the Sponsor as the Unit holder of record
as of the First Settlement Date will be distributed on or shortly after
the last day of each month on a pro rata basis to Unit holders of record
as of the preceding Record Date who are entitled to distributions at
that time under the plan of distribution chosen. All distributions for a
Trust will be net of applicable expenses for such Trust.
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. It is anticipated that an amount equal to
approximately one-half of the amount of net annual interest income per
Unit will be distributed on or shortly after each Distribution Date to
Unit holders of record on the preceding Record Date. See "Special Trust
Information" appearing in each Part I of this Prospectus.
Record Dates for monthly distributions of interest are the fifteenth day
of each month. The Distribution Dates for distributions of interest
under the monthly plan is the last day of each month in which the
related Record Date occurs. All Unit holders will receive the first
distribution of interest regardless of the plan of distribution chosen
and all Unit holders will receive such distributions, if any, from the
Principal Account as are made as of the Record Dates for monthly
distributions. PURCHASERS OF UNITS WHO DESIRE TO RECEIVE DISTRIBUTIONS
ON A SEMI-ANNUAL BASIS MAY ELECT TO DO SO AT THE TIME OF PURCHASE DURING
THE INITIAL PUBLIC OFFERING PERIOD. THOSE NOT SO INDICATING WILL BE
DEEMED TO HAVE CHOSEN THE MONTHLY DISTRIBUTION PLAN.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating may so indicate on the card and return
same, together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on or
shortly after the last day of each month. Proceeds from the disposition
of any of the Bonds of such Trust (less any premiums due with respect to
Bonds for which the Trustee has exercised the right to obtain Permanent
Insurance) received after such Record Date and prior to the following
Distribution Date will be held in the Principal Account of such Trust
and not distributed until the next Distribution Date. The Trustee is not
required to make a distribution from the Principal Account of a Trust
unless the amount available for distribution shall equal at least $1.00
per Unit.
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
Page 16
the Interest Account of such Trust on the ensuing Record Date. Persons
who purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date after
the purchase under the applicable plan of distribution. The Trustee is
not required to pay interest on funds held in the Principal or Interest
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in a
Universal Distribution Option which permits a Unit holder to direct the
Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an existing account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income or
principal on the participant's Units to, among other investment
vehicles, a Unit holder's checking, bank savings, money market,
insurance, reinvestment or any other account. All such distributions, of
course, are subject to the minimum investment and sales charges, if any,
of the particular investment vehicle to which distributions are
directed. The Trustee will notify the participant of each distribution
pursuant to the Universal Distribution Option. The Trustee will
distribute directly to the Unit holder any distributions which are not
accepted by the specified investment vehicle. A participant may at any
time, by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive directly
future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into an
arrangement with Oppenheimer Management Corporation which permits any
Unit holder of a Trust to elect to have each distribution of interest
income or principal on his Units automatically reinvested in shares of
either the Oppenheimer Intermediate Tax-Exempt Bond Fund (the
"Intermediate Series") or the Oppenheimer Insured Tax-Exempt Bond Fund
(the "Insured Series"). Oppenheimer Management Corporation is the
investment 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.
Page 17
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for income
tax purposes.
What is the Federal Tax Status of Unit Holders?
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for the opinions rendered in connection
therewith. 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. (Such gain does not include any amounts received in
respect of accrued interest or accrued original issue discount, if any.)
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.
For purposes of the following opinions, it is assumed that each asset of
a Trust is debt, the interest on which is excluded for Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(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 (the "Code") will retain its status for Federal income tax
purposes when received by a Trust and when distributed to a Unit holder;
however, such interest may be taken into account in computing the
alternative minimum tax and the additional tax on branches of foreign
corporations. 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 such 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 such Trust involved including
his pro rata portion of all the Bonds represented by the Unit. The
Taxpayer Relief Act of 1997 (the "1997 Act") includes provisions that
treat certain transactions designed to reduce or eliminate the risk of
loss and opportunities for gain (e.g., short sales, offsetting notional
principal contracts, futures or forward contracts or similar
transactions) as constructive sales for purposes of recognition of gain
(but not loss) and for purposes of determining the holding period. 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 such 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
Page 18
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 accrued original issue discount and
amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trusts 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 Bonds 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 Bonds provided that, at the time such policies are purchased,
the amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer of the Bonds,
rather than the insurer, will pay debt service on the Bonds.
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.
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
Page 19
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
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, 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
either 28% or 20%, depending upon the holding period of the capital
assets. Capital loss is long-term if the holding period for the asset is
more than one year, and is short-term if the holding period for the
asset is one year or less. Generally, capital gains realized from assets
held for more than one year but not more than 18 months are taxed at a
maximum marginal stated tax rate of 28% and capital gains realized from
assets (with certain exclusions) held for more than 18 months are taxed
at a maximum marginal stated tax rate of 20% (10% in the case of certain
taxpayers in the lowest tax bracket). Further, capital gains realized
from assets held for one year or less are taxed at the same rates as
ordinary income. Legislation is currently pending that provides the
appropriate methodology that should be applied in netting the realized
capital gains and losses. Such legislation is proposed to be effective
retroactively for tax years ending after May 6, 1997. 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 for taxable years
Page 20
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 the AMTI of a corporation (other than an S
Corporation, Regulated Investment Company, Real Estate Investment Trust,
or REMIC) is an amount equal to 75% of the excess of such corporation's
"adjusted current earnings" over an amount equal to its AMTI (before
such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all Bonds in the Trusts. Under 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 a Trust. Unit holders should consult their tax advisors with
respect to the particular tax consequences to them, including the
corporate alternative minimum 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 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 tax purposes 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
Page 21
of the Bonds in their Trust furnished to it by the Evaluator.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the third day following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the Trustee of
such tender of Units. The "date of tender" is deemed to be the date on
which Units are received by the Trustee, except that as regards Units
received after the close of trading on the New York Stock Exchange, the
date of tender is the next day on which such Exchange is open for
trading and such Units will be deemed to have been tendered to the
Trustee on such day for redemption at the redemption price computed on
that day. Units so redeemed shall be cancelled.
Accrued interest to the settlement date paid on redemption shall be
withdrawn from the Interest Account of the Trust or, if the balance
therein is insufficient, from the Principal Account of such Trust. All
other amounts paid on redemption shall be withdrawn from the Principal
Account of the Trust.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Bonds in the Trust as of the close of trading on the New York Stock
Exchange on the date any such determination is made. On the Initial Date
of Deposit the Public Offering Price per Unit (which is based on the
offering prices of the Bonds in the Trust and includes the sales charge)
exceeded the Unit value at which Units could have been redeemed (based
upon the current bid prices of the Bonds in such Trust) by the amount
shown under "Summary of Essential Information" in each Part I of this
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
Page 22
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before 1:00 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. In the event the
Sponsor does not purchase Units, the Trustee may sell Units tendered for
redemption in the over-the-counter market, if any, as long as the amount
to be received by the Unit holder is equal to the amount he would have
received on redemption of the Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then effective
prospectus describing such 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.
Page 23
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 FT Series (formerly known as The First Trust Special
Situations Trust), The First Trust Insured Corporate Trust, The First
Trust of Insured Municipal Bonds, The First Trust GNMA, 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, 1996, the total
partners' capital of Nike Securities L.P. was $9,005,203 (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 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.
Page 24
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor or the Trustee, in which event the Sponsor
and the Trustee are to use their best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor Evaluator. If upon
resignation of the Evaluator no successor has accepted appointment
within thirty days after notice of resignation, the Evaluator may apply
to a court of competent jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
determined in good faith by the Sponsor and the Trustee), provided that
the Indenture is not amended to increase the number of Units of any
Trust issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
of any Trust initially deposited in a Trust, except for the substitution
of certain refunding securities for Bonds or New Bonds for Failed Bonds.
In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of the Unit
holders of such Trust or by the Trustee when the value of such Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds deposited in the Trust during the primary offering
period or by the Trustee in the event that Units of a Trust not yet sold
aggregating more than 60% of the Units of such Trust are tendered for
redemption by the underwriters, including the Sponsor. If a Trust is
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.
Page 25
Experts
The statements of net assets, including the portfolios, of the Trusts on
the Initial Date of Deposit appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing in
each Part I of this Prospectus and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
Supplemental Information
Upon written or telephonic request to the Trustee, investors will
receive at no cost to the investor supplemental information about this
Series, which has been filed with the Securities and Exchange Commission
and is hereby incorporated by reference. The supplemental information
includes more detailed information concerning certain of the Bonds
included in the Trusts and more specific risk information concerning the
individual state Trusts.
Page 26
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Page 27
CONTENTS:
What is the First Trust Combined Series? 1
What are Certain General Matters Relating to the Trust? 2
Risk Factors 3
What are Estimated Long-Term and
Estimated Current Return? 7
How is Accrued Interest Treated? 8
What are the Expenses and Charges? 8
Why and How are the Insured Trusts Insured? 10
Public Offering:
How is the Public Offering Price Determined? 11
How are Units Distributed? 13
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? 22
How May Units be Purchased by the Sponsor? 23
How May Bonds be Removed from the Fund? 23
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 24
Who is the Trustee? 24
Limitations on Liabilities of Sponsor and Trustee 24
Who is the Evaluator? 25
Other Information:
How May the Indenture be Amended or
Terminated? 25
Legal Opinions 25
Experts 26
Supplemental Information 26
_________________
This Prospectus does not constitute an offer to sell, or solicitation of
an offer to buy, securities in any jurisdiction to any person to whom it
is not lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statements and exhibits relating thereto, which the Fund
has filed with the Securities and Exchange Commission, Washington, D.C.
under the Securities Act of 1933 and the Investment Company Act of 1940,
and to which reference is hereby made.
FIRST TRUST (registered trademark)
THE FIRST TRUST COMBINED SERIES
Prospectus
Part II
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, IL 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
November 25, 1997
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 28
THE FIRST TRUST (REGISTERED TRADEMARK) COMBINED SERIES 271
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 November 25, 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 - New York 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,
Page 1
if interest rates rise, the prepayment risk of higher yielding, premium
bonds and the prepayment benefit for lower yielding, discount bonds will
be reduced. A discount bond held to maturity will have a larger portion
of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond
newly issued at current market rates. 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.
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
Page 2
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
taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial
Page 3
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
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
Page 4
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
Assurance Corporation ("AMBAC Assurance" 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 Assurance 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 Assurance 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 Assurance 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,
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.
Page 7
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 June 30, 1997, the total capital and
surplus of Financial Guaranty was approximately $1,164,694,536. 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 Assurance Corporation. Effective July 14, 1997, AMBAC Indemnity
Corporation changed its name to AMBAC Assurance Corporation ("AMBAC
Assurance"). The Insurance Policy of AMBAC Assurance 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 Assurance, in the event of a sale of a Bond
covered by the AMBAC Assurance 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 Assurance agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by AMBAC Assurance which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
Page 8
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 Assurance will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by AMBAC Assurance 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
Assurance 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 Assurance 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 Assurance or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, AMBAC Assurance 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 Assurance all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
AMBAC Assurance 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 $2,735,772,668 (unaudited) and statutory capital of
$1,547,693,950 (unaudited) as of June 30, 1997. Statutory capital
consists of AMBAC Assurance's policyholders' surplus and statutory
contingency reserve. AMBAC Assurance is a wholly owned subsidiary of
AMBAC Financial Group, 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 Assurance.
Copies of AMBAC Assurance's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Assurance.
The address of AMBAC Assurance'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 Assurance contained above has been
furnished by AMBAC Assurance. 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
Assurance has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
Page 9
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 Assurance and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor AMBAC Assurance 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
Assurance. 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 50 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 June 30, 1997, MBIA had admitted assets of $5.4 billion
(unaudited) and total liabilities of $2.4 billion (unaudited) determined
in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. As of December 31, 1996,
MBIA had admitted assets of $4.5 billion (audited), total liabilities of
$3.0 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. Copies of
MBIA's financial statements prepared in accordance with statutory
accounting practices are available from MBIA. The address of MBIA is 113
King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now known as MBIA Insurance Corp. of Illinois.
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG 1," both designated to be of the highest
quality. Standard & Poor's rates all new issues insured by MBIA "AAA."
Capital Guaranty Insurance Company. On December 20, 1995, Capital
Guaranty Corporation ("CGC") merged with a subsidiary of Financial
Security Assurance Holdings Ltd. and Capital Guaranty Insurance Company,
CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly-
Page 10
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
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
Page 11
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 June 30, 1997, CapMAC had statutory capital and surplus of
approximately $271.6 million, up from $266.2 million at March 31, 1997
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 and Puerto Rico.
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 June 30, 1997, 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 $711,154,000 (unaudited) and $401,251,000
(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 $861,209,000 (audited), and $461,203,000
(audited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York,
New York, 10022, Attention Communications Department. Financial
Security's telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries
(including FSA Maryland) are reinsured among such companies on an agreed-
upon percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security and FSA Maryland reinsure a portion of
their liabilities under certain of their financial guaranty insurance
policies with other reinsurers under various quota share treaties and on
a transaction-by-transaction basis. Such reinsurance is utilized as a
risk management device and to comply with certain statutory and rating
agency requirements; it does not alter or limit the obligations of
Financial Security or FSA Maryland under any financial guaranty
insurance policy.
Page 12
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, 1997, the total policyholders' surplus of Connie Lee was
$118,286,837 (unaudited) and total admitted assets were $234,959,025
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin in Connie Lee's financial statements prepared in accordance
with statutory accounting principles applicable to insurance companies.
Copies of these financial statements are available from Connie Lee upon
request.
CCLIA's consolidated annual (audited) and quarterly (unaudited)
financial statements prepared in accordance with generally accepted
accounting principles are filed periodically with the Nationally
Recognized Municipal Securities Information Repositories designated
under Rule 15c2-12 of the Securities and Exchange Commission. The
information contained in these financial statements is incorporated
herein by reference. Copies of these financial statements are available
from Connie Lee upon request.
Standard & Poor's has rated the claims-paying ability of Connie Lee "AAA".
Connie Lee makes no representation regarding the Bonds or the
advisability of investing in the Bonds. The above rating is not a
recommendation to buy, sell or hold the Connie Lee insured Bonds and
such rating is subject to the revision or withdrawal at any time by the
rating agency. Any downward revision or withdrawal of the rating may
have an adverse effect on the market price of the Connie Lee insured
Bonds.
The address of Connie Lee's administrative offices and its telephone
number are 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and
(202) 835-0090.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the
market value of each Insured Trust or the Units of such Trust. Standard
Page 13
& 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.
DESCRIPTION OF BOND RATINGS*
* As published by the ratings companies.
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
Page 14
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.**
** Bonds insured by Financial Guaranty Insurance Company, AMBAC
Assurance 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.
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.
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
Page 15
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
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 16
APPENDIX A
NEW YORK DISCLOSURE
The New York Trust includes obligations issued by New York State (the
"State"), by its various public bodies (the "Agencies"), and/or by other
entities located within the State, including the City of New York (the
"City").
Some of the more significant events and conditions relating to the
financial situation in New York are summarized below. This section
provides only a brief summary of the complex factors affecting the
financial situation in New York and is derived from sources that are
generally available to investors and is believed to be accurate. It is
based in part on Official Statements and prospectuses issued by, and on
other information reported by the State, the City, and the Agencies in
connection with the issuance of their respective securities.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local
government finances generally, will not adversely affect the market
value of New York Municipal Obligations held in the portfolios of the
Trusts or the ability of particular obligors to make timely payments of
debt service on (or relating to) those obligations.
(1) The State: The State has historically been one of the wealthiest
states in the nation. For decades, however, the State economy has grown
more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent
to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the
relative success that the South and the West have had in attracting
people and business. The City has also had to face greater competition
as other major cities have developed financial and business capabilities
which make them less dependent on the specialized services traditionally
available almost exclusively in the City.
The State has for many years had a very high state and local tax burden
relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation,
has contributed to the decisions of some businesses and individuals to
relocate outside, or not locate within, the State. However, the State's
1995-96 budget reflected significant actions to reduce the burden of
State taxation, including adoption of a 3-year, 20% reduction in the
State's personal income tax. During 1996-97, New York led the nation in
tax cuts, at 54.1%, bringing the total value of tax reductions in effect
for the 1997 year to over $6 billion. When measured as a percentage of
personal income, state-imposed taxes in New York should be below the
national median in 1997. The budget for fiscal year 1997-98 reflects an
additional $170 million in tax reductions.
Slowdown of Regional Economy. A national recession commenced in mid-
1990. The downturn continued throughout the State's 1990-91 fiscal year
and was followed by a period of weak economic growth during the 1991
calendar year. Economic recovery started considerably later in the State
than in the nation as a whole due in part to the significant
retrenchment in the banking and financial services industries,
downsizing by several major corporations, cutbacks in defense spending,
and an oversupply of office buildings. In the last few years, New York
has shown signs of economic resurgence. Since 1994, New York has jumped
from 15th to 6th in terms of total private sector employment growth
compared to other states, gaining 140,000 private sector jobs since
December 1994, despite banking layoffs and closure of a major automotive
plant. Overall employment growth was close to 0.7%, almost 60,000 jobs,
for 1996. National employment growth in 1996 was 2.0%. The New York
economy in 1997 is expected to grow at about the same rate as in 1996.
Many uncertainties exist in forecasts of both the national and State
economies and there can be no assurance that the State economy will
perform at a level sufficient to meet the State's projections of
receipts and disbursements.
1997-98 Fiscal Year. The Governor presented the recommended Executive
Budget for the 1997-98 fiscal year in January, 1997. The 1997-98 budget
gap is smaller than the previous two fiscal year projections. The
baseline budget forecast produced an estimated $2.3 billion budget
imbalance, before reflecting any actions taken by the Governor to
produce a balanced 1997-98 Financial Plan. Projections of baseline
revenue growth showed a decline of almost $2 billion, reflecting the
loss of non-recurring receipts used in 1996-97 and implementation of
previously enacted tax reduction programs.
The 1996-97 surplus of $943 million reduced the 1997-98 budget gap to
Page A-1
$1.3 billion. Proposals included in the Executive Budget for 1997-98
close this remaining gap, reducing State spending for the third straight
year, and permitting three new tax reduction proposals: the $1.7
billion, multi-year property tax reduction portion of STAR (School Tax
Relief initiative); a three-year phased reduction in the estate and gift
tax; and a $50 million reserve for additional targeted job-creating tax
reductions. The budget also makes a significant investment in school aid-
a proposed increase of $302 million on a school year basis as the first
step toward implementing the $1.7 billion school aid portion of STAR.
The 1997-98 Financial Plan includes approximately $66 million in non-
recurring resources, or only 0.2% of the General Fund budget-the lowest
level in more than a decade. As compared to 1996-97, non-recurring
resources are a much smaller component of the budget: down over $1
billion from last year's adopted budget. The loss of these resources in
future years is more than offset by recommendations which provide higher
annualized savings in 1998-99 and beyond.
Assuming these gap-closing actions, the Financial Plan projects receipts
of $32.9 billion and spending of $32.8 billion in fiscal year 1997-98,
with a required deposit of $15 million to the Tax Stabilization Reserve
Fund (TSRF) and an increase of $24 million in the Contingency Reserve
Fund (CRF). The closing fund balance in the General Fund is projected to
be $332 million, the largest amount ever on deposit.
1996-97 Fiscal Year. The 1996-97 State Financial Plan projected General
Fund receipts and transfers from other funds at $32.966 billion and
disbursements and transfers to other funds at $32.895 billion. The 1996-
97 General Fund Financial Plan continues to be balanced, with a
projected surplus of $1.3 billion. This will be the second consecutive
material budget surplus generated by the Governor's administration. Of
this amount, $250 million is being used to accelerate the last portion
of the Governor's personal income tax cut through changes to the 1997
withholding tables. This raises taxpayers' current take-home pay rather
than issuing larger refunds in 1998. Of the remainder, $943 million is
being used to help close the projected 1997-98 budget gap, and $65
million is being deposited into the Tax Stabilization Reserve Fund (the
State's "rainy day" fund) as provided by the Constitution. This is the
maximum amount that can be deposited, and increases the size of that
fund to $332 million by the end of 1997-98, the highest balance ever
achieved.
The surplus results primarily from growth in projected receipts. As
compared to the enacted budget, revenues increased by more than $1
billion, while disbursements fell by $228 million. These changes from
original Financial Plan projections reflect actual results through
December 1996 as well as modified economic and caseload projections for
the balance of the fiscal year.
The General Fund closing balance is expected to be $358 million at the
end of 1996-97. Of this amount, $317 million will be on deposit in the
TSRF, while another $41 million will remain on deposit in the CRF. The
TSRF has an opening balance of $287 million, supplemented by a required
payment of $15 million and an extraordinary deposit of $65 million from
surplus 1996-97 monies. The $9 million on deposit in the Revenue
Accumulation Fund will be drawn down as planned. The previously planned
deposit of $85 million to the CRF, projected earlier to be received from
contractual efforts to maximize Federal revenue, is not expected to
materialize this year.
On November 16, 1993, the Court of Appeals, the State's highest court,
affirmed the decision of a lower court in three actions, which declared
unconstitutional State actuarial funding methods for determining State
and local contributions to the State employee retirement system.
Following the decision, the State Comptroller developed a plan to phase
in a constitutional funding method and to restore prior funding levels
of the retirement systems over a four-year period. The plan is not
expected to require the State to make additional contributions with
respect to the 1993-94 fiscal year nor to materially and adversely
affect the State's financial condition thereafter. Through fiscal year
1998-99, the State expects to contribute $643 million more to the
retirement plans than would have been required under the prior funding
method.
Future Fiscal Years. There can be no assurance that the State will not
face substantial potential budget gaps in the future resulting from a
significant disparity between tax revenues projected from a lower
recurring receipts base and the spending required to maintain State
programs at current levels. To address any potential budgetary
imbalance, the State may need to take significant actions to align
recurring receipts and disbursements.
Indebtedness. General obligation bond financing of capital projects is
accomplished through the issuance of full faith and credit State bonds
which have been authorized by the voters. The 1997-98 Capital Program
and Financing Plan (the "Capital Plan") assumes the continued use of
Page A-2
nine previously authorized bond acts, five for transportation and four
for environmental and recreation programs. Most of the general
obligation spending over the five years is financed by the 1996 Clean
Water/Clean Air Bond Act, 1988 ACTION bonds (for highways and bridges)
and the 1986 Environmental Quality bonds (primarily for hazardous waste
remediation); the other six bond acts will be virtually depleted by the
end of the Capital Plan period.
Spending supported by general obligation bonds increases to 13% of total
spending in 1997-98, as spending from the 1996 Bond Act accelerates and
spending peaks from 1986 hazardous waste bonds. Thereafter, general
obligation supported spending declines annually to just 3% of capital
spending in 2001-02. This decrease is projected despite the new $1.75
million authorization for the new Clean Water/Clean Air Bond Act, since
remaining authorizations will be mostly spent by 2001-02. No new
authorizations are assumed in these projections, however, general
obligation bond financed spending will increase if new authorizations
are proposed and approved by the voters. Overall, this category accounts
for 8% of capital spending over the five years.
Ratings. Moody's rating of the State's general obligation bonds stood at
A2 as of October 7, 1997, and S&P's rating stood at A as of August 28, 1997.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City
accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number
of steps to assist the City in returning to fiscal stability. Among
other actions, the State Legislature (i) created MAC to assist with long-
term financing for the City's short-term debt and other cash
requirements and (ii) created the State Financial Control Board (the
"Control Board") to review and approve the City's budgets and City four-
year financial plans (the financial plans also apply to certain City-
related public agencies (the "Covered Organizations")).
Over the past three years, the rate of economic growth in the City has
slowed substantially, and the City's economy is currently in recession.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan. The City Comptroller
has issued reports concluding that projected revenues may be less and
future expenditures may be greater than those forecast in the financial plan.
Pursuant to State law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections. The City
is required to submit its financial plans to review bodies, including
the Control Board. If the City were to experience certain adverse
financial circumstances, including the occurrence or the substantial
likelihood and imminence of the occurrence of an annual operating
deficit of more than $100 million or the loss of access to the public
credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to
exercise certain powers, including prior approval of City financial
plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State
experiences revenue shortfalls or spending increases beyond its
projections during its 1996 fiscal year or subsequent years, such
developments could result in reductions in projected State aid to the
City. In addition, there can be no assurance that State budgets in
future fiscal years will be adopted by the April 1 statutory deadline
and that there will not be adverse effects on the City's cash flow and
additional City expenditures as a result of such delays.
The City projections set forth in its financial plan are based on
various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect
the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements. Such assumptions
and contingencies include the timing of any regional and local economic
recovery, the absence of wage increases in excess of the increases
Page A-3
assumed in its financial plan, employment growth, provision of State and
Federal aid and mandate relief, State legislative approval of future
State budgets, levels of education expenditures as may be required by
State law, adoption of future City budgets by the New York City Council,
and approval by the Governor or the State Legislature and the
cooperation of MAC with respect to various other actions proposed in
such financial plan.
The City's ability to maintain a balanced operating budget is dependent
on whether it can implement necessary service and personnel reduction
programs successfully. As discussed above, the City must identify
additional expenditure reductions and revenue sources to achieve
balanced operating budgets for fiscal years 1996 and thereafter. Any
such proposed expenditure reductions will be difficult to implement
because of their size and the substantial expenditure reductions already
imposed on City operations in the past two years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates
the issuance of $9.7 billion of general obligation bonds primarily to
reconstruct and rehabilitate the City's infrastructure and physical
assets and to make capital investments. In addition, the City issues
revenue and tax anticipation notes to finance its seasonal working
capital requirements. The terms and success of projected public sales of
City general obligation bonds and notes will be subject to prevailing
market conditions at the time of the sale, and no assurance can be given
that the credit markets will absorb the projected amounts of public bond
and note sales. Future developments concerning the City and public
discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general
obligation bonds and notes. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its
planned operating and capital expenditures.
1996-99 Financial Plan. On July 11, 1995, the City submitted to the
Control Board the 1996-99 Financial Plan, which relates to the City, the
Board of Education and the City University of New York. The 1996-99
Financial Plan is based on the City's expense and capital budgets for
the City's 1996 fiscal year, which were adopted on June 14, 1995, and
sets forth proposed actions by the City for the 1996 fiscal year to
close substantial projected budget gaps resulting from lower than
projected tax receipts and other revenues and greater than projected
expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated
with the City's labor unions, the 1996-99 Financial Plan reflects a
strategy to substantially reduce spending for entitlements for the 1996
and subsequent fiscal years.
The 1996-99 Financial Plan also sets forth projections for the 1997
through 1999 fiscal years and outlines a proposed gap-closing program to
close projected budget gaps of $888 million, $1.5 billion and $1.4
billion for the 1997, 1998 and 1999 fiscal years, respectively, after
successful implementation of the $3.1 billion gap-closing program for
the 1996 fiscal year. The proposed gap-closing actions, a substantial
number of which are not specified in detail, include various actions
which may be subject to State or Federal approval.
On July 24, 1995, the City Comptroller issued a report on the 1996-99
Financial Plan. The report concluded that the 1996-99 Financial Plan
includes total risks of $749 million to $1.034 billion for the 1996
fiscal year. With respect to the 1997-99 fiscal years, the report noted
that the gap-closing program in the 1996-99 Financial Plan does not
include information about how the City will implement the various gap-
closing programs, and that the entitlement cost containment and revenue
initiatives will require approval of the State legislature. The report
estimated that the 1996-99 Financial Plan includes total risks of $2.0
billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to $3.3
billion in the 1998 fiscal year, and $2.9 billion to $3.4 billion in the
1999 fiscal year.
On December 16, 1994, the City Comptroller issued a report noting that
the capacity of the City to issue general obligation debt could be
greatly reduced in future years due to the decline in value of taxable
real property. The report concluded that the debt incurring power of the
City would likely be curtailed substantially in the 1997 and 1998 fiscal
years.
On July 21, 1995, the staff of the Control Board issued a report on the
1996-99 Financial Plan which identified risks of $873 million, $2.1
billion, $2.8 billion and $2.8 billion for the 1996 through 1999 fiscal
years, respectively.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-99
Financial Plan. The report concluded that there remains a budget gap for
the 1996 fiscal year of $392 million, largely because the City and its
unions have yet to reach an agreement on how to achieve $160 million in
Page A-4
unspecified labor savings and the remaining $100 million in recurring
health insurance savings from last year's agreement. The report further
noted that growth in City revenues is being constrained by the weak
economy in the City, which is likely to be compounded by the slowing
national economy, and that there is a likelihood of a national recession
during the course of the 1996-99 Financial Plan. Moreover, the report
noted that State and Federal budgets are undergoing tumultuous changes,
and that the potential for far-reaching reductions in intergovernmental
assistance is clearly on the horizon, with greater uncertainty about the
impact on City finances and services.
Given the foregoing factors, there can be no assurance that the City
will continue to maintain a balanced budget, or that it can maintain a
balanced budget without additional tax or other revenue increases or
reductions in City services, which could adversely affect the City's
economic base.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional
violations, torts, breaches of contracts, and other violations of law
and condemnation proceedings. While the ultimate outcome and fiscal
impact, if any, on the proceedings and claims are not currently
predictable, adverse determinations in certain of them might have a
material adverse effect upon the City's ability to carry out its
financial plan. As of June 30, 1994, the City estimated its potential
future liability in respect of outstanding claims to be approximately
$2.6 billion. The 1996-99 Financial Plan includes provisions for
judgments and claims of $279 million, $236 million, $251 million and
$264 million for the 1996 through 1999 fiscal years, respectively.
Ratings. As of October 24, 1997, Moody's rating of the City's general
obligation bonds stood at Baa1, and S&P's rating stood at BBB+ as of
July 10, 1995.
On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. S&P stated that "structural budgetary balance remains
elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the
historically volatile financial services sector." Other factors
identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close
projected budget gaps, dependence on unratified labor savings to help
balance financial plans, optimistic projections of additional Federal
and State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels. Fitch
Investors Service, Inc. continues to rate the City general obligations
bond A-. Moody's rating for City general obligation bonds is Baa1.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December
1986, to Baa in November 1983 and to Ba1 in November 1981. S&P had
raised its rating to A- in November 1987, to BBB+ in July 1985 and to
BBB in March 1981.
As of June 30, 1995, the City and MAC had, respectively, $23.258 billion
and $4.033 billion of outstanding net long-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced
substantial financial difficulties which could adversely affect the
ability of such Agencies to make payments of interest on, and principal
amounts of, their respective bonds. The difficulties have in certain
instances caused the State (under so-called "moral obligation"
provisions which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to
appropriate funds on behalf of the Agencies. Moreover, it is expected
that the problems faced by these Agencies will continue and will require
increasing amounts of State assistance in future years. Failure of the
State to appropriate necessary amounts or to take other action to permit
those Agencies having financial difficulties to meet their obligations
could result in a default by one or more of the Agencies. Such default,
if it were to occur, would be likely to have a significant adverse
effect on investor confidence in, and therefore the market price of,
obligations of the defaulting Agencies. In addition, any default in
payment on any general obligation of any Agency whose bonds contain a
moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees
of City and MAC obligations and could thus jeopardize the City's long-
term financing plans.
(4) State Litigation: The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of
routine governmental operations. Such litigation includes, but is not
limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings, and
Page A-5
other alleged violations of State and Federal laws. Included in the
State's outstanding litigation are a number of cases challenging the
constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally
could result in injunctive relief coupled with prospective changes in
patient care which could require substantial increased financing of the
litigated programs in the future.
The State is also engaged in a variety of claims wherein significant
monetary damages are sought. Actions commenced by several Indian nations
claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during
the eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and
punitive damages.
On January 21, 1994, the State entered into a settlement with Delaware
with respect to State of Delaware v. State of New York. The State made
an immediate $35 million payment and agreed to make a $33 million annual
payment in each of the next five fiscal years. The State has not settled
with other parties to the litigation and will continue to incur
litigation expenses as to those claims.
Adverse developments in the foregoing proceedings or new proceedings
could adversely affect the financial condition of the State in the future.
(5) Other Municipalities: Certain localities in addition to New York
City could have financial problems leading to requests for additional
State assistance. The potential impact on the State of such actions by
localities is not included in projections of State receipts and
expenditures in the State's 1996-97 and 1997-98 fiscal years.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the State Legislature to assist Yonkers could
result in allocation of State resources in amounts that cannot yet be
determined.
Certain proposed Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, New York City or any of the Agencies were to
suffer serious financial difficulties jeopardizing their respective
access to the public credit markets, the marketability of notes and
bonds issued by localities within the State, including notes or bonds in
the New York Insured Trust, could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. The
longer-range potential problems of declining urban population,
increasing expenditures, and other economic trends could adversely
affect localities and require increasing State assistance in the future.
(6) Other Issuers of New York Municipal Obligations. There are a number
of other agencies, instrumentalities and political subdivisions of the
State that issue Municipal Obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and
the credit quality of the securities issued by them may vary
considerably from the credit quality of obligations backed by the full
faith and credit of the State.
The foregoing information constitutes only a brief summary of some of
the general factors 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 Bonds held by the New York 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 the Bonds, could affect or could have an
adverse impact on the financial condition of the issuers. The Sponsor is
unable to predict whether or to what extent such factors or other
factors may affect the issuers of the Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of
the Bonds acquired by the New York Trust to pay interest on or principal
of the Bonds.
Page A-6
CONTENTS OF REGISTRATION STATEMENT
Item A. Bonding Arrangements of Depositor
Nike Securities L.P. is covered by a Brokers' Fidelity Bond,
in the total amount of $1,000,000, the insurer being National
Union Fire Insurance Company of Pittsburgh.
Item B.
This Registration Statement on Form S-6 comprises the
following papers and documents:
The Facing Sheet
The Cross-Reference Sheet
The Prospectus
The Signatures
Exhibits
Financial Data Schedules
EXPLANATORY NOTE
This Amendment No. 1 to the Registration Statement contains
multiple separate prospectuses. Each prospectus will relate to
an individual unit investment trust and will consist of a Part I,
a Part II and an Information Supplement, all dated the date of
this Amendment No. 1 to the Registration Statement. Each
prospectus will be identical with the exception of the respective
Part I which will contain the financial information specific to
such underlying unit investment trust.
UNDERTAKINGS
1. With the exception of the information included in the
state specific appendices to the Information Supplement, which
will vary depending upon the make-up of a Fund or updated to
reflect current events, any amendment to a Fund's Information
Supplement will be subject to the review of the staff of the
Securities and Exchange Commission prior to distribution; and
2. The Information Supplement to the Trust will not
include third party financial information.
S-1
SIGNATURES
The Registrant, The First Trust Combined Series 271, hereby
identifies The First Trust Combined Series 83, The First Trust
Combined Series 198, The First Trust Combined Series 251, The
First Trust Combined Series 248, The First Trust Combined Series
258 and The First Trust Special Situations Trust, Series 18, for
purposes of the representations required by Rule 487 and
represents the following:
(1) that the portfolio securities deposited in the series
as to the securities of which this Registration Statement is
being filed do not differ materially in type or quality from
those deposited in such previous series;
(2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide
essential financial information for, the series with respect to
the securities of which this Registration Statement is being
filed, this Registration Statement does not contain disclosures
that differ in any material respect from those contained in the
registration statements for such previous series as to which the
effective date was determined by the Commission or the staff; and
(3) that it has complied with Rule 460 under the
Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 271, has duly
caused this Amendment of Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
Village of Lisle and State of Illinois on November 25, 1997.
THE FIRST TRUST COMBINED SERIES 271
By: NIKE SECURITIES L.P.
(Depositor)
By: Robert M. Porcellino
Vice President
S-2
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE* DATE
Robert D. Van Kampen Director )
of Nike Securities )
Corporation, the ) November 25, 1997
General Partner of )
Nike Securities L.P. )
)
)
David J. Allen Director of ) Robert M. Porcellino
Nike Securities ) Attorney-in-Fact**
Corporation, the )
General Partner of )
Nike Securities L.P.
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated November 25, 1997
(File No. 333-22611) and related Prospectus of The First Trust
Combined Series 271.
ERNST & YOUNG LLP
Chicago, Illinois
November 25, 1997
CONSENTS OF COUNSEL
The consents of counsel are contained in their respective
opinions filed by this amendment as Exhibits 3.1, 3.2, 3.3, 3.4
and 3.5 to the Registration Statement.
CONSENT OF SECURITIES EVALUATION SERVICE, INC.
The consent of Securities Evaluation Service, Inc. to the use of
its name in the Prospectus included in the Registration Statement
is filed as Exhibit 4.1 to the Registration Statement.
CONSENT OF STANDARD & POOR'S RATINGS SERVICES, A DIVISION OF THE
McGRAW-HILL COMPANIES, INC.
The consent of Standard & Poor's Ratings Services, A Division of
the McGraw-Hill Companies, Inc. to the use of its name in the
Prospectus included in the Registration Statement is filed as
Exhibit 4.2 to the Registration Statement.
S-4
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Combined Series 145 and subsequent Series
effective October 16, 1991, among Nike Securities L.P.,
as Depositor, United States Trust Company of New York,
as Trustee, Securities Evaluation Service, Inc., as
Evaluator and Nike Financial Advisory Services L.P., as
Portfolio Supervisor (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-43289] filed on
behalf of The First Trust Combined Series 145).
1.1.1 Form of Trust Agreement for Series 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).
1.7 Master Agreement Among Underwriters (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
43289] filed on behalf of The First Trust Combined
Series 145).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
on page 2 and incorporated herein by reference).
S-5
3.1 Opinion of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal income tax status of
securities being registered.
3.3 Opinion of counsel as to New York tax status of
securities being registered and opinion of state counsel.
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 Services, A division
of The McGraw-Hill Companies, Inc.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Director listed on
page S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
63483] filed on behalf of The First Trust Combined
Series 258).
EX-27 Financial Data Schedules.
S-6
THE FIRST TRUST COMBINED SERIES 271
TRUST AGREEMENT
Dated: November 13, 1997
This Trust Agreement among Nike Securities L.P., as
Depositor, The Chase Manhattan Bank, as Trustee, Securities
Evaluation Service, Inc., as Evaluator, and First Trust Advisors
L.P., as Portfolio Supervisor, sets forth certain provisions in
full and incorporates other provisions by reference to the
document entitled "Standard Terms and Conditions of Trust for The
First Trust Combined Series 145 and subsequent Series, effective
October 16, 1991" (herein called the "Standard Terms and
Conditions of Trust"), and such provisions as are set forth in
full and such provisions as are incorporated by reference
constitute a single instrument. All references herein to
Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the
Evaluator and Portfolio Supervisor agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the
provisions contained in the Standard Terms and Conditions of
Trust are herein incorporated by reference in their entirety and
shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in
full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed
to:
(a) The Bonds defined in Section 1.01(5) listed in Schedule
A hereto have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of
the Trust Fund represented by each Unit for a Trust on the
Initial Date of Deposit is the amount set forth under the
captions "Summary of Essential Information - Fractional Undivided
Interest in the Trust per Unit" in the Prospectus.
(c) The number of units in a Trust on the Initial Date of
Deposit referred to in Section 2.03 is set forth under the
caption "Summary of Essential Information - Number of Units" in
the Prospectus.
(d) The approximate amount, if any, which the Trustee shall
be required to advance out of its own funds and cause to be paid
to the Depositor pursuant to the second sentence of Section 3.05
shall be the amount per Unit for each Trust that the Trustee
agreed to reduce its fee or pay Trust Fund expenses set forth in
the footnotes to the "Special Trust Information" for each Trust
in the Prospectus times the number of units for such Trust
referred to in Part II (c) of this Trust Agreement.
(e) For each Trust the First General Record Date and the
amount of the second distribution of funds from the Interest
Account shall be the record date for the Interest Account and the
amount set forth under "Special Trust Information-Distributions"
for such Trust in the Prospectus.
(f) For each Trust the "First Settlement Date" is the date
set forth under "Summary of Essential Information-First
Settlement Date" for such Trust in the Prospectus.
(g) The first sentence of Section 3.15. shall be amended to
read as follows:
"As compensation for providing supervisory portfolio
services under this Indenture, the Portfolio Supervisor shall
receive against a statement or statements therefor submitted to
the Trustee monthly or annually an aggregate annual fee in an
amount which shall not exceed the amount set forth under "Summary
of Essential Information-Supervisory Fee" in the Prospectus times
the number of Units outstanding as of January 1 of such year (or,
with respect to the first calendar year of a Trust, the date of
deposit), but in no event shall such compensation when combined
with all compensation received from other series of the Fund for
providing such supervisory services in any calendar year exceed
the aggregate cost to the Portfolio Supervisor for providing such
services (such annual fee to be pro rated for any calendar year
in which the Portfolio Supervisor provides services during less
than the whole of such year)."
(h) Section 1.01(4) shall be amended to read as follows:
"(4) "Portfolio Supervisor" shall mean First Trust Advisors
L.P. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided."
(i) The first four sentences of Section 6.04 shall be
amended in their entirety to read as follows:
"For services performed under this Indenture the Trustee
shall be paid an amount per annum specified in Part II of the
Trust Agreement in respect of which payment is made pursuant
to Section 3.05. The Trustee's compensation shall accrue
daily and be computed on the basis of the greatest number of
Units in each Trust at any time during the period with
respect to which such compensation is being computed (such
period being the period commencing with the next preceding
Distribution Date, or the initial date of deposit, as
appropriate, and running to, but not including, the
Distribution Date on which such computation is made) and
shall be apportioned among the respective plans of
distribution in effect as of January 1 next preceding such
computation. During the first year of a Trust, such
compensation shall be reduced by the amount of interest which
accrues on "when-issued" Bonds and Contract Bonds from the
First Settlement Date, as defined in Part II of the Trust
Agreement, to the respective delivery dates of such Bonds and
Contract Bonds."
(j) The Trustee's annual fee referred to in Section 6.04 is
set forth for each Trust under "Special Trust Information" for
such Trust in the Prospectus.
(k) The first paragraph of Section 3.05 shall be amended to
read as follows:
"The Trustee, as of the "First Settlement Date", as
defined in Part II of the Trust Agreement, shall advance from
its own funds and shall pay to the Depositor the amount of
interest accrued to such date on the Bonds deposited in the
respective Trusts. The Trustee, as of the "First Settlement
Date," as defined in Part II of the Trust Agreement, shall
also advance to the Trust from its own funds and distribute
to the Depositor the amount specified in Part II of the Trust
Agreement, which is the amount by which the Trustee's fee is
reduced and Trust expenses assumed by the Trustee in respect
of interest accrued on "when-issued" Bonds and on Contract
Bonds delivered to the Trustee subsequent to the First
Settlement Date pursuant to Section 6.04. The Trustee shall
be entitled to reimbursement, without interest, for such
advancements from interest received by the Trust. Subsequent
distributions shall be made as hereinafter provided."
(l) Section 2.01 of Article II of the Standard Terms and
Conditions of Trust is hereby amended by inserting "(a)" prior to
the beginning of the text of the paragraph and adding the
following additional paragraphs:
"(b) From time to time following the Initial Date of
Deposit, the Depositor is hereby authorized, in its
discretion, to assign, convey to and deposit with the
Trustee additional Bonds, in bearer form or duly endorsed in
blank or accompanied by all necessary instruments of
assignment and transfer in proper form (or Contract
Obligations relating to such Bonds), to be held, managed and
applied by the Trustee as herein provided. Such deposit of
additional Bonds shall be made, in each case, pursuant to a
Notice of Deposit of Additional Bonds from the Depositor to
the Trustee. The Depositor, in each case, shall ensure that
each deposit of additional Bonds pursuant to this Section
shall be, as nearly as is practicable, in the identical
ratio as the Percentage Ratio for such Bonds as is specified
in the Prospectus for each Trust and the Depositor shall
ensure that such Bonds are identical to those deposited on
the Initial Date of Deposit. The Depositor shall deliver
the additional Bonds which were not delivered concurrently
with the deposit of additional Bonds and which were
represented by Contract Obligations within 10 calendar days
after such deposit of additional Bonds (the "Additional
Bonds Delivery Period"). If a contract to buy such Bonds
between the Depositor and seller is terminated by the seller
thereof for any reason beyond the control of the Depositor
or if for any other reason the Bonds are not delivered to
the Trust by the end of the Additional Bonds Delivery Period
for such deposit, the Trustee shall immediately draw on the
Letter of Credit, if any, in its entirety, apply the monies
in accordance with Section 2.01(d), and the Depositor shall
forthwith take the remedial action specified in
Section 3.14.
(c) In connection with the deposits described in
Section 2.01 (a) and (b), the Depositor has, in the case of
Section 2.01(a) deposits, and, prior to the Trustee
accepting a Section 2.01(b) deposit, will, deposit cash
and/or Letter(s) of Credit (meeting the conditions set forth
in Section 2.07) in an amount sufficient to purchase the
Contract Obligations (the "Purchase Amount") relating to
Bonds which are not actually delivered to the Trustee at the
time of such deposit, the terms of which unconditionally
allow the Trustee to draw on the full amount of the
available Letter of Credit. The Trustee may deposit such
cash or cash drawn on the Letter of Credit in a non-interest
bearing account for the Trust.
(d) In the event that the purchase of Contract
Obligations pursuant to any contract shall not be
consummated in accordance with said contract or if the Bonds
represented by Contract Obligations are not delivered to the
Trust in accordance with Section 2.01(a) or 2.01(b) and the
monies, or, if applicable, the monies drawn on the Letter of
Credit, deposited by the Depositor are not utilized for
Section 3.14 purchases of New Bonds, such funds, to the
extent of the purchase price of Special Bonds for which no
New Bond was acquired pursuant to Section 3.14, plus all
amounts described in the next succeeding two sentences,
shall be credited to the Principal Account and distributed
pursuant to Section 3.05 to Unit holders of record as of the
Record Date next following the failure of consummation of
such purchase. The Depositor shall cause to be refunded to
each Unit holder his pro rata portion of the sales charge
levied on the sale of Units to such Unit holder attributable
to such Failed Contract Obligation. The Depositor shall
also pay to the Trustee, for distribution to the Unit
holders, interest on the amount of the purchase price to the
Trust of the Special Bonds, at the rate of 5% per annum to
the date the Depositor notifies the Trustee that no New Bond
will be purchased or, in the absence of such notification,
to the expiration date for purchase of a New Bond specified
in Section 3.14. Any amounts remaining from monies drawn on
the Letter of Credit which are not used to purchase New
Bonds or are not used to provide refunds to Unit holders
shall be paid to the Depositor.
(e) The Trustee is hereby irrevocably authorized to
effect registration or transfer of the Bonds in fully
registered form to the name of the Trustee or to the name of
its nominee.
(f) In connection with and at the time of any deposit
of additional Bonds pursuant to Section 2.01(b), the
Depositor shall exactly replicate Cash (as defined below)
received or receivable by the Trust as of the date of such
deposit. For purposes of this paragraph, "Cash" means, as
to the Principal Account, cash or other property (other than
Bonds) on hand in the Principal Account or receivable and to
be credited to the Principal Account as of the date of the
deposit (other than amounts to be distributed solely to
persons other than holders of Units created by the deposit)
and, as to the Income Account, cash or other property (other
than Bonds) received by the Trust as of the date of the
deposit or receivable by the Trust in respect of a coupon
date which has occurred or will occur before the Trust will
be the holder of record of a Bond, reduced by the amount of
any cash or other property received or receivable on any
Bonds allocable (in accordance with the Trustee's
calculation of the monthly distribution from the Income
Account pursuant to Section 3.05) to a distribution made or
to be made in respect of a Record Date occurring prior to
the deposit. Such replication will be made on the basis of
a fraction, the numerator of which is the number of Units
created by the deposit and the denominator of which is the
number of Units which are outstanding immediately prior to
the deposit."
(m) Article II of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraph
which shall be entitled Section 2.07.:
"Section 2.07. Letter of Credit. The Trustee shall not
accept any Letter of Credit under this Indenture unless the
stated expiration date of the Letter of Credit is at least
thirty days from the respective date of deposit of Contract
Obligations pursuant to Section 2.01(a) or 2.01(b). The
Trustee is authorized to downpost the amount available under
the Letter of Credit, if any, deposited by the Depositor by
an amount equal to the purchase price of Contract
Obligations representing Bonds delivered to the Trust on the
date of delivery of such Bonds."
(n) Section 3.05 of Article III of the Standard Terms and
Conditions of Trust is hereby amended to include the following
subsection:
"Section 3.05(e) deduct from the Interest Account
or, to the extent funds are not available in such Account,
from the Principal Account and pay to the Depositor the
amount that it is entitled to receive pursuant to Section
3.16.
(o) Article III of the Standard Terms and Conditions of
Trust is hereby amended by inserting the following paragraphs
which shall be entitled Section 3.16.:
"Section 3.16. Bookkeeping and Administrative Expenses.
As compensation for providing bookkeeping or other
administrative services of a character described in Section
26(a)(2)(C) of the Investment Company Act of 1940 to the
extent such services are in addition to, and do not
duplicate, the services to be provided hereunder by the
Trustee or the Portfolio Supervisor, the Depositor shall
receive against a statement or statements therefor submitted
to the Trustee monthly or annually an aggregate annual fee
in an amount which shall not exceed that amount set forth
under "Summary of Essential Information" in the Prospectus
times the number of Units outstanding as of January 1 of
such year except for a year or years in which an initial
offering period as determined by Section 4.01 of this
Indenture occurs, in which case the fee for a month is based
on the number of Units outstanding at the end of such month
(such annual fee to be pro rated for any calendar year in
which the Depositor provides service during less than the
whole of such year), but in no event shall such compensation
when combined with all compensation received from other unit
investment trusts for which the Depositor hereunder is
acting as Depositor for providing such bookkeeping and
administrative services in any calendar year exceed the
aggregate cost to the Depositor of providing such services
to such unit investment trusts. Such compensation may, from
time to time, be adjusted provided that the total adjustment
upward does not, at the time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in
consumer prices for services as measured by the United
States Department of Labor Consumer Price Index entitled
"All Services Less Rent of Shelter" or similar index, if
such index should no longer be published. The consent or
concurrence of any Unit holder hereunder shall not be
required for any such adjustment or increase. Such
compensation shall be paid by the Trustee, upon receipt of
invoice therefor from the Depositor, upon which, as to the
cost incurred by the Depositor of providing services
hereunder the Trustee may rely, and shall be charged against
the Interest and Principal Accounts on or before the
Distribution Date following the Monthly Record Date on which
such period terminates. The Trustee shall have no liability
to any Certificateholder or other person for any payment
made in good faith pursuant to this Section.
If the cash balance in the Interest and Principal
Accounts shall be insufficient to provide for amounts
payable pursuant to this Section 3.16, the Trustee shall
have the power to sell (i) Bonds from the current list of
Bonds designated to be sold pursuant to Section 5.02 hereof,
or (ii) if no such Bonds have been so designated, such Bonds
as the Trustee may see fit to sell in its own discretion,
and to apply the proceeds of any such sale in payment of the
amounts payable pursuant to this Section 3.16.
Any moneys payable to the Depositor pursuant to this
Section 3.16 shall be secured by a prior lien on the Trust
Fund except that no such lien shall be prior to any lien in
favor of the Trustee under the provisions of Section 6.04
herein.
(p) All provisions regarding the Distribution Date included
in Section 3.05 of Article III of the Standard Terms and
Conditions of Trust are hereby amended to change the Distribution
Date from the first day of the month following the Record Date to
the last day of the month in which the Record Date occurs.
(q) Section 6.01(i) of the Standard Terms and Conditions of
Trust shall be amended by deleting the first word of such Section
and replacing it with the following:
"Except as provided in Section 3.01, no"
(r) Section 8.04 is hereby amended by inserting the
following at the end of such section:
", except as provided in Section 3.01"
(s) The second sentence of the first paragraph of Section
5.01 of the Standard Terms and Conditions of Trust shall be
amended by deleting the word "and" appearing immediately prior to
subsection (c) of such sentence and inserting the following at
the end of such sentence:
", and (d) amounts representing organizational expenses paid
less amounts representing accrued organizational expenses of a
Trust."
(t) Section 1.01.(2) shall be amended to read as follows:
"(2) "Trustee" shall mean The Chase Manhattan Bank, or any
successor trustee appointed as hereinafter provided."
All references to United States Trust Company of New York in
the Standard Terms and Conditions of Trust shall be amended to
refer to The Chase Manhattan Bank.
(u). Notwithstanding anything to the contrary in Sections
3.15 and 4.05 of the Standard Terms and Conditions of Trust, so
long as Nike Securities L.P. is acting as Depositor, the Trustee
shall have no power to remove the Portfolio Supervisor.
PART III
Notwithstanding any provision to the contrary contained in
the Standard Terms and Conditions of Trust and in lieu of the
receipt of Certificates evidencing ownership of Units of the
Fund, the Sponsor or any Underwriter of the Fund listed under the
caption "Underwriting" in the Prospectus, at its option, may
elect that Units of the Fund owned by it be reflected by book
entry on the books and records of the Trustee. For all purposes
such Sponsor or Underwriter shall be deemed the owner of such
Units as if a Certificate evidencing ownership of Units of the
Fund had actually been issued by the Trustee. The Units
reflected by book entry on the books and records of the Trustee
may be transferable by the registered owner of such Units by
written instrument in form satisfactory to the Trustee. The
registered owner of Units reflected by book entry on the books
and records of the Trustee shall have the right at any time to
obtain Certificates evidencing ownership of such Units.
IN WITNESS WHEREOF, Nike Securities L.P., The Chase
Manhattan Bank, Securities Evaluation Service, Inc. and First
Trust Advisors L.P. have each caused this Trust Agreement to be
executed and the respective corporate seal to be hereto affixed
and attested (if applicable) by authorized officers; all as of
the day, month and year first above written.
NIKE SECURITIES L.P.,
Depositor
By Robert M. Porcellino
Vice President
THE CHASE MANHATTAN BANK, Trustee
(SEAL) By Thomas Porrazzo
Vice President
Attest:
Rosalia A. Raviele
Second Vice President
SECURITIES EVALUATION SERVICE,
INC., Evaluator
(SEAL) By Jerome G. Klaas
Vice President
Attest:
James G. Prince
Vice President and
Assistant Secretary
FIRST TRUST ADVISORS L.P.,
Portfolio Supervisor
By Robert M. Porcellino
Vice President
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
THE FIRST TRUST COMBINED SERIES 271
(Note: Incorporated herein and made a part hereof is the
"Portfolio" as set forth for each Trust in the
Prospectus.)
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
November 25, 1997
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 271
Gentlemen:
We have served as counsel for Nike Securities L.P., as
Sponsor and Depositor of The First Trust Combined Series 271, in
connection with the preparation, execution and delivery of a
Trust Agreement dated November 12, 1997 among Nike Securities
L.P., as Depositor, The Chase Manhattan Bank, as Trustee,
Securities Evaluation Service, Inc., as Evaluator, and First
Trust Advisors L.P., as Portfolio Supervisor, pursuant to which
the Depositor has delivered to and deposited the Bonds listed in
Schedule A to the Trust Agreement with the Trustee and pursuant
to which the Trustee has issued to or on the order of the
Depositor a certificate or certificates representing units of
fractional undivided interest in and ownership of the Fund
created under said Trust Agreement.
In connection therewith, we have examined such pertinent
records and documents and matters of law as we have deemed
necessary in order to enable us to express the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and
the execution and issuance of certificates evidencing the Units
in the Fund have been duly authorized; and
2. the certificates evidencing the Units in the Fund when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will
constitute valid and binding obligations of the Fund and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 333-22611)
relating to the Units referred to above, to the use of our name
and to the reference to our firm in said Registration Statement
and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/erg
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
November 25, 1997
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Re: The First Trust Combined Series 271
Gentlemen:
We have served as counsel for Nike Securities L.P.,
Depositor of The First Trust Combined Series 271 (the "Trust") in
connection with the issuance of Units of fractional undivided
interest in said Trust under a Trust Agreement dated November 12,
1997 (the "Indenture") among Nike Securities L.P., as Depositor,
The Chase Manhattan Bank, as Trustee, Securities Evaluation
Service, Inc., as Evaluator, and First Trust Advisors L.P., as
Portfolio Supervisor.
In this connection, we have examined the Registration
Statement, the form of Prospectus proposed to be filed with the
Securities and Exchange Commission, the Indenture and such other
instruments and documents as we have deemed pertinent. For the
purposes of the following opinions, it is assumed that each asset
of the Trust is debt, the interest on which is excluded from
gross income for federal income tax purpose.
Based upon the foregoing, and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing federal income tax law:
(i) Each Trust is not an association taxable as a
corporation but will be governed by the provisions of
Subchapter J (relating to Trusts) of Chapter 1, Internal
Revenue Code of 1986 (the "Code").
(ii) Each Unit holder will be considered as owning a
pro rata share of each asset of the respective Trust in the
proportion that the number of Units of such Trust held by
him bears to the total number of Units outstanding of such
Trust. Under Subpart E, Subchapter J of Chapter 1 of the
Code, income of each Trust will be treated as income of each
Unit holder in the proportion described, and an item of
Trust income will have the same character in the hands of a
Unit holder as it would have in the hands of the Trustee.
Accordingly, to the extent that the income of a Trust
consists of interest and original issue discount excludable
from gross income under Section 103 of the Code, such income
will be excludable from federal gross income of the Unit
holder, except in the case of a Unit holder who is a
substantial user (or a person related to such user) of a
facility financed through issuance of any industrial
development bonds or certain private activity bonds held by
the Trust. In the case of such Unit holder who is a
substantial user (and no other) interest received with
respect to his Units attributable to such industrial
development bonds or such private activity bonds is
includable in his gross income. To the extent a Trust holds
Bonds that are "specified private activity Bonds" within the
meaning of Section 57(a)(5) of the Code, a Unit holder's pro
rata portion of the income on such Bonds will be included as
an item of tax preference in the computation of the
alternative minimum tax applicable to all taxpayers
(including non-corporate taxpayers) subject to the
alternative minimum tax. In the case of certain
corporations, interest on all of the Bonds is included in
computing the alternative minimum tax pursuant to Section
56(c) of the Code, and the branch profits tax imposed by
Section 884 of the Code with respect to U.S. branches of
foreign corporations.
(iii) Gain or loss will be recognized to a Unit
holder upon redemption or sale of his Units. Such gain or
loss is measured by comparing the proceeds of such
redemption or sale with the adjusted basis of the Units
represented by his Certificate. 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. Accordingly,
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 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. In addition, such basis will be
increased by the Unit holder's aliquot share of the accrued
original issue discount (and market discount, if the Unit
holder elects to include market discount in income as it
accrues) with respect to each Bond held by the Trust with
respect to which there was an original issue discount at the
time the Bond was issued (or which was purchased with market
discount) and reduced by the annual amortization of bond
premium, if any, on Bonds held by the Trust.
(iv) If the Trustee disposes of an asset of a Trust
(whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder
and the amount thereof is measured by comparing the Unit
holder's aliquot share of the total proceeds from the
transaction with his basis for his fractional interest in
the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units among each of the
assets of such Trust (as of the date on which his Units were
acquired) ratably according to their values as of the
valuation date nearest the date on which he purchased such
Units. A Unit holder's basis in his Units and of his
fractional interest in each asset of the Trust must be
reduced by the amount of his aliquot share of accrued
interest received by the Trust, if any, on Bonds delivered
after the Unit holders pay for their Units to the extent
that such interest accrued on the Bonds during the period
from the Unit holder's settlement date to the date such
Bonds are delivered to the respective Trust must be reduced
by the annual amortization of bond premium, if any, on Bonds
held by the Trust and must be increased by the Unit holder's
share of the accrued original issue discount (and market
discount, if the Unit holder elects to include market
discount in income as it accrues) with respect to each Bond
which, at the time the Bond was issued, had original issue
discount (or which was purchased with market discount).
(v) In the case of any Bond held by the Trust where
the "stated redemption price at maturity" exceeds the "issue
price", such excess shall be original issue discount. With
respect to each Unit holder, upon the purchase of his Units
subsequent to the original issuance of Bonds held by the
Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original
issue discount upon the purchase of a Bond subsequent to the
Bond's original issue, under certain circumstances. In the
case of any Bond held by the Trust the interest on which is
excludable from gross income under Section 103 of the Code,
any original issue discount which accrues with respect
thereto will be treated as interest which is excludable from
gross income under Section 103 of the Code.
(vi) We have examined the Municipal Bond Unit
Investment Trust Insurance Policies, if any, issued to
certain of the Trusts on the Date of Deposit by AMBAC
Indemnity Corporation, Financial Guaranty Insurance
Corporation or a combination thereof. Each such policy, or
a combination of such policies, insures all Bonds held by
the Trustee for that particular Trust (other than Bonds
described in paragraph (vii)) against default in the prompt
payment of principal and interest. In our opinion, any
amount paid under each said policy, or a combination of said
policies, which represents maturing interest on defaulted
obligations held by the Trust will be excludable from
federal gross income if, and to the same extent as, such
interest would have been so excludable if paid in normal
course by the issuer of the defaulted Bonds provided that at
the time such policies are purchased, the amounts paid for
such policies are reasonable, customary and consistent with
the reasonable expectation that the issuer of the Bonds,
rather than the insurer, will pay debt service on the Bonds.
Paragraph (ii) of this opinion is accordingly applicable to
insurance proceeds representing maturing interest.
(vii) Certain Bonds in the portfolio of the Trust
have been insured by the issuers, underwriters, the Sponsor
or others against default in the prompt payment of principal
and interest (the "Insured Bonds"). Such Bonds are so
designated on the portfolio pages in the Prospectus for each
Trust. Insurance on Insured Bonds is effective so long as
such Insured B remain outstanding. For each of these
Insured Bonds, we have been advised that the aggregate
principal amount of such Insured Bonds listed on the
portfolio page was acquired by the Trust and are part of the
series of such Insured Bonds in the listed aggregate
principal amount. Based upon the assumption that the
Insured Bonds of the Trust are part of a series covered by
an insurance policy, it is our opinion that any amounts
received by the Trust representing maturing interest on such
Insured Bonds will be excludable from Federal gross income
if, and to the same extent as, such interest would have been
so excludable if paid in normal course by the Issuer
provided that, at the time such policies are purchased, the
amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer
of the Insured Bonds, rather than the insurer will pay debt
service on the Insured Bonds. Paragraph (ii) of this
opinion is accordingly applicable to such payment.
Sections 1288 and 1272 of the Code provide a complex set of
rules governing the accrual of original issue discount. These
rules provide that original issue discount accrues either on the
basis of a constant compound interest rate or ratably over the
term of the Bonds, depending on the date the Bond was issued. In
addition, special rules apply if the purchase price of a Bond
exceeds the original issue price plus the amount of original
issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). The application of
these rules will also vary depending on the value of the Bond on
the date a Unit holder acquires his Units, and the price the Unit
holder pays for his Units.
Except with respect to those Trusts that hold "specified
private activity bonds" within the meaning of Section 57(a)(5) of
the Code issued on or after August 8, 1986 as identified in the
Prospectus related hereto (the "AMT Trusts"), the Trusts do not
include any specified private activity bonds and accordingly none
of the interest income of the Trusts (other than the AMT Trusts,
if any) shall be treated as an item of tax preference when
computing the alternative minimum tax. Because the AMT Trusts
include "specified private activity bonds," all or a portion of
the income of the AMT Trusts shall be treated as an item of tax
preference for alternative minimum tax purposes. In the case of
corporations, for taxable years beginning after December 31,
1986, the alternative minimum tax depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment
items used in computing AMTI of a corporation (other than an S
Corporation, Regulated Investment Company, Real Estate Investment
Trust or REMIC) for taxable years beginning after 1989, is an
amount equal to 75% of the excess of such corporation's "adjusted
current earnings" over an amount equal to its AMTI (before such
adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all Bonds in the Trust, and tax-
exempt original issue discount.
Effective for tax returns filed after December 31, 1987, all
taxpayers are required to disclose to the Internal Revenue
Service the amount of tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each
taxable year of 100% of the otherwise deductible interest on
indebtedness incurred or continued by financial institutions, to
which either Section 585 or Section 593 of the Code applies, to
purchase or carry obligations acquired after August 7, 1986, the
interest on which is exempt from federal income taxes for such
taxable year. Under rules prescribed by Section 265, the amount
of interest otherwise deductible by such financial institutions
in any taxable year which is deemed to be attributable to tax-
exempt obligations acquired after August 7, 1986, will generally
be the amount that bears the same ratio to the interest deduction
otherwise allowable (determined without regard to Section 265) to
the taxpayer for the taxable year as the taxpayer's average
adjusted basis (within the meaning of Section 1016) of tax-exempt
obligations acquired after August 7, 1986, bears to such average
adjusted basis for all assets of the taxpayer. The U.S. Treasury
Department has proposed extending the financial institution rules
to all corporation.
We also call attention to the fact that, under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units is not deductible for federal income tax
purposes. Under rules used by the Internal Revenue Service for
determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase
of Units may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of Units. However, these rules generally do not apply
to indebtedness incurred for expenditures of a personal nature
such as a mortgage incurred to purchase or improve a personal
residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
subjects tax-exempt bonds to the market discount rules of the
Code effective for bonds purchased after April 30, 1993. In
general, market discount is the amount (if any) by which the
stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued)
subject to a statutory de minimis rule. Market discount can
arise based on the price a Trust pays for Bonds or the price a
Certificateholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law, the accretion had been treated as capital gain.
Market discount that accretes while a Trust holds a Bond would be
recognized as ordinary income by the 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
his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues.
Chapman and Cutler has expressed no opinion with respect to
taxation under any other provisions of Federal law. Ownership of
the Units may result in collateral Federal income tax
consequences to certain taxpayers. Prospective investors should
consult their tax advisors as to the applicability of any such
collateral consequences.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 333-22611)
relating to the Units referred to above and to the use of our
name and to the reference of our firm in said Registration
Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/erg
CARTER, LEDYARD & MILBURN
2 WALL STREET
NEW YORK, NEW YORK 10005
November 25, 1997
The Chase Manhattan Bank
as Trustee of The First Trust Combined
Series 271
4 New York Plaza - 6th Floor
New York, New York 10004
Re: The First Trust Combined Series 271
Dear Sirs:
We have acted as special counsel for The First Trust
Combined Series 271 consisting of The First Trust of Insured
Municipal Bonds--Multi-State: New York Trust, Series 61 (the
"Insured New York Trust"),for purposes of determining the
applicability of certain New York State and New York City
taxes under the circumstances hereinafter described. We have
not examined any of the obligations to be deposited into the
Insured New York Trust and express no opinion herein as to
whether the interest on any such obligations would in fact be
exempt from Federal, New York State and New York City income
taxes if directly received by a Unit holder, nor have we made
any review of the proceedings relating to the issuance of such
obligations or the basis for bond counsel opinion as to the
tax-exempt character of the interest thereon.
As a basis for rendering our opinion, we have
reviewed the Trust Agreement for the Insured New York Trust,
dated as of today (the "Date of Deposit"), among Nike
Securities L.P. (the "Depositor"), Securities Evaluation
Service, Inc., as Evaluator, First Trust Advisors L.P., as
Portfolio Supervisor, and The Chase Manhattan Bank, as Trustee
(the "Trustee") which incorporates a certain Standard Terms
and Conditions of Trust dated October 16, 1991 (collectively,
the "Indenture"), and the prospectus dated today to be filed
as an amendment to a registration statement relating to the
Insured New York Trust previously filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended (respectively, the "Prospectus" and the "Registration
Statement").
The Insured New York Trust is created pursuant to the
Indenture and its objectives are to produce income exempt from
Federal, State and local income and property taxation, and to
conserve capital through investment in a portfolio of tax-
exempt bonds.
As more fully set forth in the Indenture and in the
Prospectus, the activities of the Trustee will include the
following:
On the Date of Deposit, the Depositor will deposit
with the Trustee with respect to the Insured New York Trust
the total principal amount of interest bearing obligations
and/or contracts for the purchase thereof together with an
irrevocable letter of credit in the amount required for the
purchase price and accrued interest, if any. In addition,
obligations in the Insured New York Trust have the timely
payment of principal and interest guaranteed by insurance
policies purchased by the issuers, the underwriters, the
Depositor or others as more fully set forth in the Prospectus
and the Registration Statement with respect to the Insured New
York Trust.
We understand that all of the insurance policies
described in the preceding paragraph provide or will provide
that the insurer will pay the amount of principal and interest
due but not paid on any obligation and such payment will in no
event relieve the issuer from its continuing obligation to pay
such defaulted principal and interest in accordance with the
terms of the obligation.
The Trustee will not participate in the selection of
the obligations to be deposited in the Insured New York Trust,
and, upon the receipt thereof, will deliver to the Depositor
certificates for the number of units of fractional undivided
interest (the "Units") representing the entire capital of the
Insured New York Trust as more fully set forth in the
Prospectus and the Registration Statement. The Units, which
are represented by certificates (the "Certificates"), will be
offered to the public by the Prospectus when the Registration
Statement becomes effective.
The duties of the Trustee are ministerial in nature,
and consist primarily of crediting the appropriate accounts
with interest received by, and with the proceeds from the
disposition of obligations held in, the Insured New York Trust
and the distribution of such interest and proceeds to the Unit
holders thereof. The Trustee will also maintain records of
the registered holders of certificates representing an
interest in the Insured New York Trust and administer the
redemption of Units by such certificateholders, and may
perform certain administrative functions with respect to an
automatic reinvestment option.
Generally, obligations held in the Insured New York
Trust may be removed therefrom by the Trustee only upon
redemption prior to their stated maturity, at the direction of
the Depositor in the event of an advance refunding or upon the
occurrence of certain other specified events which adversely
affect the sound investment character of the Insured New York
Trust, such as default by the issuer in payment of interest or
principal on the obligations, where no provision for payment
is made therefor within thirty (30) days either pursuant to
the portfolio insurance, where such is part of the Insured New
York Trust, or otherwise, and the Depositor fails to instruct
the Trustee, within thirty (30) days after notification by the
Trustee, to hold such obligation.
Except as described in the preceding paragraph, prior
to the termination of the Insured New York Trust the Trustee
is empowered to sell obligations designated for such purposes
by the Depositor only to redeem Units tendered to it and to
pay expenses for which funds are not available. The Trustee
does not have the power to vary the investment of any Unit
holder in the Insured New York Trust, and under no
circumstances may the proceeds of sale of any obligations held
by the Insured New York Trust be used to purchase new
obligations to be held therein.
The Trustee will receive an annual fee for its
services based upon the principal amount of the underlying
obligations, plus reimbursement of its reasonably incurred
expenses.
New York State Franchise Tax
Article 9-A of the New York State Tax Law imposes a
franchise tax on business corporations, and, for purposes of
that Article, Section 208(1) defines the term "corporation" to
include, among other things, "any business conducted by a
trustee or trustees wherein interest or ownership is evidenced
by certificate or other written instrument".
The Regulations promulgated under Section 208 provide
as follows:
"The term 'corporation'. includes . . . (2) a
business conducted by a trustee or trustees in which
interest or ownership is evidenced by certificate or
other written instrument... but is not limited to,
an association commonly referred to as a business
trust or Massachusetts trust. In determining
whether a trustee or trustees are conducting a
business, the form of the agreement is of
significance but is not controlling. The actual
activities of the trustee or trustees, not their
purposes and powers, will be regarded as decisive
factors in determining whether a trust is subject to
tax under Article 9-A of the Tax Law. The mere
investment of funds and the collection of income
therefrom, with incidental replacement of securities
and reinvestment of funds, does not constitute the
conduct of a business in the case of a business
conducted by a trustee or trustees." 20 NYCRR 1-
2.5(b)(2) (Amended July 11, 1990; renumbered October
27, 1993).
Additionally, 20 NYCRR 1-3.4(b) provides that the
following corporations are exempt from taxation under Article
9-A of the Tax Law:
"Trusts which are not conducting a business (passive
trusts). Where the functions of a trustee are only
to hold property and collect and distribute income
the trust is not subject to tax under Article 9-A of
the Tax Law. The power to sell, invest and reinvest
must be clearly and expressly limited. For example,
a power to sell stock and reinvest the proceeds if
the bid price of the stock drops below a certain
level will not make the trust taxable."
New York cases dealing with the question of whether a
trust will be subject to the franchise tax have also set out
the general rule that where a trustee merely invests funds
and collects and distributes the income therefrom, the trust
is not engaged in business and is not subject to the franchise
tax. Burrell v. Lynch, 274 App. Div. 347, 84 N.Y.S.2d 171
(3rd Dept. 1948).
In an Opinion of the Attorney General of the State of
New York, 47 N.Y. Att'y. Gen. Rep. 213 (Nov. 24, 1942), it was
held that where the trustee of an unincorporated investment
trust was without authority to reinvest amounts received upon
the sales of securities and could dispose of securities making
up the trust only upon the happening of certain specified
events or the existence of certain specified conditions, the
trust was not subject to the franchise tax.
In an Advisory Opinion of the Commissioner of
Taxation and Finance, Fibreboard Asbestos Compensation Trust,
TSB-A-97(3)C (January 21, 1997), it was held that a trust
established as a settlement fund under Section 468B of the
Internal Revenue Code of 1986, as amended (the "Code"), for
the sole purpose of accumulating funds to satisfy claims
arising from asbestos related litigation, was not subject to
the business corporation franchise tax. The trustees were
primarily responsible for distributing trust assets to
beneficiaries and enhancing and preserving the trust through
prudent, conservative investments. The advisory opinion
stated that "for New York State franchise tax purposes, an
unincorporated entity is not taxed as a corporation unless its
activities are conducted in a manner whereby the entity
presents itself as a corporation, in which case it is deemed
to be a corporation." The advisory opinion then stated that
"the conduct of business is more than the ownership of
property and the collection and distribution of income derived
from that property. (Matter of Smadbeck v. State Tax
Commission, 33 N.Y. 2d 930 (1973); People ex rel Nausss v.
Graves, 283 N.Y. 383, 386 (1940)). It is 'more than the mere
investment of funds and the collection of income therefrom,
with the incidental replacement of securities and the
reinvestment of funds that constitute the corpus, as in the
case of an ordinary trust'.. (Burrell v. Lynch, 274 App. Div.
347, 352 (1948); see also, Matter of City Bank Farmers Trust
Co. v. Graves, 272 N.Y. 1 (1936))."
In another Advisory Opinion of the Commissioner of
Taxation and Finance, Consolidated Edison Company of New York,
Inc., TSB-A-90(24)C (November 30, 1990), it was held that a
trust established as a nuclear decommissioning fund under
Section 468A of the Code for the sole purpose of accumulating
funds for the eventual decommissioning of nuclear plants, was
not subject to the business corporation franchise tax. The
trustee was only responsible for the investment of funds in
government debt securities and bank time or demand deposits
and for the collection of income from the trust and the
incidental replacement and reinvestment of funds in the trust.
In the instant situation, the Trustee is not
empowered to sell obligations contained in the corpus of the
Insured New York Trust and reinvest the proceeds therefrom.
Further, the power to sell such obligations is limited to
circumstances in which the creditworthiness or soundness of
the obligation is in question or in which cash is needed to
pay redeeming Unit holders or to pay expenses, or where the
Insured New York Trust is liquidated pursuant to the
termination of the Indenture. Only in circumstances in which
the issuer of an obligation attempts to refinance it can the
Trustee exchange an obligation for a new security. In
substance, the Trustee will merely collect and distribute
income and will not reinvest any income or proceeds, and the
Trustee has no power to vary the investment of any Unit holder
in the Insured New York Trust.
New York City General Corporation Tax
Section 11-603(1) of the Administrative Code of the
City of New York (the "Administrative Code") imposes a general
corporation tax on domestic and foreign corporations for the
privilege of doing business, employing capital or owning or
leasing property within the City of New York. For this
purpose, Section 11-602(1) of the Administrative Code defines
the term "corporation" to include, among other things, "any
business conducted by a trustee or trustees wherein interest
or ownership is evidenced by certificate or other written
instrument".
The Rules promulgated under Section 11-602 provide
that:
"The term 'corporation'. includes . . . (2)(ii) any
business conducted by a trustee or trustees wherein
interest or ownership is evidenced by certificate or
other written instrument, such as a Massachusetts or
business trust, an investment trust and an entity treated
as a real estate investment trust for Federal tax
purposes." 19 RCNY Section 11-02(2)(ii).
A New York City Department of Finance letter ruling
discussed the application of the General Corporation Tax (and
the Unincorporated Business Tax) to trusts formed in
connection with net long-term lease agreements. Finance
Letter Ruling (93)-GC & UB (August 6, 1984). The Department
of Finance took the position that since the trustee's duties
were "passive" and "ministerial in nature", the trusts were
not taxable as corporations. The Department specifically
described the trustee's duties as follows:
"Under the Trust Agreement, A [the trustee] will have
no power or discretion to manage, control, use, sell or
otherwise transfer title to or dispose of or otherwise
deal with the Vessels or otherwise take or refrain from
taking any action under or in connection with the
transaction, except as expressly required by the terms of
the various agreements.
The duties that A will perform under each Trust
Agreement are ministerial in nature. At the closing, in
its capacity as owner trustee, A will accept the
investments of the owner participants and record such in
the records of each Vessel Trust. It will also execute
the documents that are necessary to effectuate the
purchase, and accept title with respect to the related
Vessels. . . . Once the transaction has closed, A will
only be required to perform specific duties, which are
basically limited to the keeping of appropriate books and
records relating to each Vessel Trust and forwarding or
executing various documents including tax returns,
notices, requests, demands, certificates and the like."
In reaching its decision, the Department of Finance
relied on analogous rulings interpreting Article 9-A of the
New York State Tax Law and pointed out the identicality of
language between the two statutes. Finance Letter Ruling (93)-
GC & UB (August 6, 1984), citing Matter of City Bank Farmers
Trust Co. v. Graves, 272 N.Y. 1 (1936); Matter of Smadbeck v.
State Tax Commission, 33 N.Y. 2d 930 (1973); and Burrell v.
Lynch, 274 App. Div. 347, 84 N.Y.S.2d 171 (3d Dept. 1948).
New York City Unincorporated Business Tax
Section 11-503(a) of the Administrative Code imposes
an unincorporated business tax on the unincorporated business
taxable income of every unincorporated business carried on
within New York City. For purposes of the unincorporated
business tax, section 11-502(a) of the Administrative Code
defines the term "unincorporated business" to mean
". . . any trade, business, profession or occupation
conducted, engaged in or being liquidated by an individual or
unincorporated entity, including a . . . fiduciary . . .".
Section 11-502(b) of the Administrative Code excludes
certain transactions from the applicability of the
unincorporated business tax and provides as follows: "[t]he
performance of services by an individual . . . as a fiduciary,
shall not be deemed an unincorporated business, unless such
services constitute part of a business regularly carried on by
such individual."
Department of Finance Letter Ruling 93 relied on
People ex rel Nauss v. Graves, 283 N.Y. 383 (1940), in which
the Court interpreted language under the former New York State
Unincorporated Business Tax, imposed by Article 16-A of the
Tax Law, similar to the New York City statutory language. The
Finance Letter Ruling quoted from Nauss as follows:
"When used in tax statutes similar to that involved
in the case at bar, 'business'. or 'doing business'.
connotes something more than the ownership of property
and the receipt of income derived from property . . .
Although the very nature of the case does not permit an
exact formula by which to determine when the activities
of a property owner amount to the doing of business,
there has been evolved the principle which distinguishes
between a passive and an active owner or investor. One
who allocates the active administration of the properties
to others and himself performs only such acts as are
appropriate to safeguard his ownership, is to be
distinguished from one who himself actively participates
in administering the management of the properties . . .
Nauss at 386-387."
Finance Letter Ruling 93 concluded that:
"It does not appear that any individual equipment
trust is carrying on an unincorporated business. The
activities of the trustee are passive in nature involving
no discretionary authority nor any responsibility
regarding the operation, maintenance or management of the
equipment. The equipment trust, therefore, will not be
subject to the Unincorporated Business Tax."
Finance Letter Ruling (93)-GC & UB (August 6, 1984).
The Department of Finance, Bureau of Hearings decided
in In the Matter of the Petition of KAL 727/707 1978 Equipment
Trust, et al. (Revised decision, August 1, 1985) that where
the activities of the trustee were passive acts without the
trustee having discretionary authority to manage, control,
use, sell, dispose or otherwise deal with the trust corpus,
the trust did not carry on a taxable unincorporated business
as the activities did not constitute part of a business
regularly carried on within the purview of section S46-2.0(b)
(currently Section 11-502(b)) of the Administrative Code,
citing Nauss.
Section 11-502(c) of the Administrative Code
provides:
"(c) Purchase and sale for own account. - (2)
An individual or other unincorporated entity . . .
shall not be deemed engaged in an unincorporated
business solely by reason of (a) the purchase,
holding and sale for his, her or its own account of
property, . . . or the entry into, assumption,
offset, assignment, or other termination of a
position in any property so defined, or both, . . .
but this subdivision shall not apply if the
unincorporated entity is taxable as a corporation
for Federal income tax purposes."
The above quoted section appears to exclude from the
unincorporated business tax entities whose principal activity
is investing, so long as the investment activities are for the
account of the entity.
New York State and City Individual Income Tax
Under Subpart E of Part I, Subchapter J of Chapter 1
of the Code, the grantor of a trust will be deemed to be the
owner of the trust under certain circumstances, and therefore
taxable on his proportionate interest in the income thereof.
Where this Federal tax rule applies, the income attributed to
the grantor will also be income to him for New York income tax
purposes. Ruling, Department of Taxation and Finance, dated
October 22, 1936.
Article 22 (Personal Income Tax) of the New York Tax
Law imposes a tax on a New York State resident individual's
State adjusted gross income. Such amount is defined by
Section 612(a) as his Federal adjusted gross income, with
certain modifications. One of such modifications is the
addition of interest income on the obligations of a state or
political subdivision of a state other than New York, if
excluded from his Federal adjusted gross income. Title 11,
Chapter 17 imposes a personal income tax on a New York City
resident individual's City adjusted gross income. Such amount
is defined by Section 11-1712(a) of the Administrative Code of
the City of New York as his Federal adjusted gross income,
with certain modifications. One of such modifications is the
addition of interest income on the obligations of a state or
political subdivision thereof of a state other than New York,
if excluded from his Federal adjusted gross income. 48 U.S.C.
Section 745 exempts interest of a bond issued by the
Government of Puerto Rico or by its authority from tax of the
United States, of any State, of the District of Columbia and
of any State's county, municipality, or municipal subdivision
thereof. 48 U.S.C. Section 1423a exempts interest on a bond
issued by the Government of Guam or by its authority from
taxation by the United States, by any State or political
subdivision thereof. The Insured New York Trust will hold
only obligations issued by New York State or a political
subdivision thereof or by the Government of Puerto Rico or a
political subdivision thereof, or by the Government of Guam or
by its authority or a combination of two or more of the above.
Therefore, to the extent that the income of the Insured New
York Trust consists of interest and original issue discount
excludable from gross income under Section 103 of the Code, a
resident individual of New York State or City who is a
certificateholder of such Trust will not be subject to the
State or City personal income tax on his proportionate share
of interest income of such Trust. These exemptions do not
apply to gains on the transfer of the obligations in the
Insured New York Trust. Therefore, such certificateholders
will be subject to such taxes on gains realized, if any, when
the obligations of the Insured New York Trust are sold,
redeemed, or paid at maturity or when Units are sold or
redeemed.
New York State Stock Transfer Tax
Section 270(1) of Article 12 of the New York State
Tax Law imposes a transfer tax on, among other things, the
sale, or agreement to sell, and deliveries or transfers of
shares or certificates of interest in any business conducted
by a trustee or trustees. Section 270(8)(a) of the Tax Law,
however, specifically excludes from the stock transfer tax
"sales, agreements to sell, memoranda of sales, deliveries or
transfers of shares or certificates (a) issued under a
noncorporate investment trust agreement of the fixed type and
no such sale, agreement to sell, memorandum of sale, delivery
or transfer shall result in imposing a tax under this section
on the securities held in such an investment trust. . . ."
Based on the foregoing and on the opinion, dated
today, of Messrs. Chapman and Cutler, counsel for the
Depositor, as to certain Federal income tax matters, upon
which we specifically rely, we are of the opinion that under
existing laws, rulings, and court decisions interpreting the
laws of the State and City of New York:
1. The Insured New York Trust will not
constitute an association taxable as a corporation
or as an unincorporated business under New York
State and City law, and, accordingly, each such
Trust will not be subject to tax on its income under
the New York State franchise tax, the New York City
general corporation tax or the New York City
unincorporated business tax.
2. The income of the Insured New York Trust
will be treated as the income of the Unit holders of
that Trust under the income tax laws of the State
and City of New York in the same manner as for
Federal income tax purposes (subject to differences
in accounting for discount and premium to the extent
that the income tax laws of the State and/or City of
New York do not conform to current Federal law).
3. Resident individuals of New York State and
City who hold Units of the Insured New York Trust
will not be subject to the State or City personal
income taxes on (a) interest income on their
proportionate shares of interest income earned by
the Insured New York Trust on any obligation of New
York State or a political subdivision thereof or of
the Government of Puerto Rico or a political
subdivision thereof or of the Government of Guam or
by its authority, to the extent such income is
excludable from Federal gross income under Code
Section 103, or (b) any proceeds paid under the
applicable insurance policies to the Trustee which
represent maturing interest on defaulted obligations
held by the Trustee if, and to the same extent as,
such interest would not have been subject to New
York State or City personal income tax under clause
(a) hereof if paid by the issuer of the defaulted
obligations.
4. Resident individuals of New York State and
City who hold Units of the Insured New York Trust
will recognize gain or loss, if any, under the State
or City personal income tax law if the Trustee
disposes of an asset of such Trust. The amount of
such gain or loss is measured by comparing the Unit
holder's aliquot share of the total proceeds from
the transaction with his basis for his fractional
interest in the asset disposed of.
5. Resident individuals of New York State and
City who hold Units of the Insured New York Trust
will recognize gain or loss, if any, under the State
or City personal income tax law if the Unit holder
redeems or sells any Units. Such gain or loss is
measured by comparing the proceeds of such
redemption or sale with the adjusted basis of the
Units redeemed or sold.
In addition, we are of the opinion that no New York
State stock transfer tax will be payable in respect of any
transfer of the Certificates by reason of the exemption in
Section 270(8)(a) of the New York State Tax Law.
This opinion is as of the date hereof and we
undertake no, and hereby disclaim any, obligation to advise
you of any change in any matter set forth herein.
We consent to the filing of this opinion as an
exhibit to the Registration Statement (No. 333-22611) filed
with the Securities and Exchange Commission with respect to
the registration of the sale of the Units and to the
references to our name in such Registration Statement and the
preliminary prospectus included therein.
Very truly yours,
Carter, Ledyard & Milburn
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
November 25, 1997
The Chase Manhattan Bank, as Trustee of
The First Trust Combined
Series 271
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Attention: Mr. Paul J. Holland
Vice President
Re: The First Trust Combined Series 271
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank
("Chase") in connection with the execution and delivery of a
Trust Agreement ("the Trust Agreement") dated today's date (which
Trust Agreement incorporates by reference a certain Standard
Terms and Conditions of Trust dated October 16, 1991 and the same
are collectively referred to herein as the "Indenture") among
Nike Securities L.P. as Depositor (the "Depositor"), Securities
Evaluation Service, Inc., as Evaluator, First Trust Advisors
L.P., as Portfolio Supervisor, and Chase, as Trustee (the
"Trustee"), establishing the unit trust or trusts included in
The First Trust Combined Series 271 (each, a "Trust"), and the
confirmation by Chase, as Trustee under the Indenture, that it
has registered on the registration books of the Trust the
ownership by the Depositor of a number of units constituting the
entire interest in the Trust (such aggregate units being herein
called "Units"), each of which represents an undivided interest
in the Trust, which consists of tax-exempt municipal bonds
(including confirmations of contracts for the purchase of certain
bonds not delivered and cash, cash equivalents or an irrevocable
letter of credit or a combination thereof, in the amount required
for such purchase upon the receipt of such bonds), such bonds
being defined in the Indenture as Bonds and referenced in the
Schedule to the Indenture.
We have examined the Indenture, a specimen of the
certificates to be issued thereunder (the "Certificates"), the
Closing Memorandum dated today's date, and such other documents
as we have deemed necessary in order to render this opinion.
Based on the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing corporation
having the powers of a Trust Company under the laws of the State
of New York.
2. The Trust Agreement has been duly executed and
delivered by Chase and, assuming due execution and delivery by
the other parties thereto, constitutes the valid and legally
binding obligation of Chase.
3. The Certificates are in proper form for execution and
delivery by Chase, as Trustee.
4. Chase, as Trustee, has registered on the registration
books of the Trust the ownership of the Units by the Depositor.
Upon receipt of confirmation of the effectiveness of the
registration statement for the sale of the Units filed with the
Securities and Exchange Commission under the Securities Act of
1933, the Trustee may deliver Certificates for such Units, in
such names and denominations as the Depositor may request, to or
upon the order of the Depositor as provided in the Closing
Memorandum.
5. Chase, as Trustee, may lawfully advance to the Trust
amounts as may be necessary to provide periodic interest
distributions of approximately equal amounts, and be reimbursed,
without interest, for any such advances from funds in the
interest account, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered,
among other things, whether the Securities have been duly
authorized and delivered.
Very truly yours,
CARTER, LEDYARD & MILBURN
SES
Securities Evaluation Service, Inc.
Suite 200
531 E. Roosevelt Road
Wheaton, Illinois 60187
November 25, 1997
Nike Securities L.P.
1001 Warrenville Road
Lisle, IL 60532
Re: THE FIRST TRUST COMBINED SERIES 271
Gentlemen:
We have examined the Registration Statement File No.
333-22611 for the above captioned fund. We hereby consent to the
use in the Registration Statement of the references to Securities
Evaluation Service, Inc. as evaluator.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Securities Evaluation Service, Inc.
James R. Couture
President
Standard & Poor's Ratings Services,
A Division of The McGraw-Hill Companies, Inc.
25 Broadway
New York, New York 10004-1064
Telephone 212/208-8287
FAX 212/208-8034
Sanford Bragg
Managing Director
Managed Funds Ratings
November 25, 1997
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 271
(As used in this letter the term "Trust" refers to: New
York Insured Trust Series 61
Pursuant to your request for a Standard & Poor's rating on
the units of the above-captioned trust, SEC # 333-22611, we have
reviewed the information presented to us and have assigned a
'AAA' rating to the units of the trust and a 'AAA' rating to the
securities contained in the trust for as long as they remain in
the trust. The ratings are direct reflections, of the portfolio
of the trust, which will be composed solely of securities covered
by bond insurance policies that insure against default in the
payment of principal and interest on the securities so long as
they remain in the trust. Since such policies have been issued
by one or more insurance companies which have been assigned 'AAA'
claims paying ability ratings by S&P, S&P has assigned a 'AAA'
rating to the units of the trust and to the securities contained
in the trust for as long as they remain in the trust.
STANDARD & POOR'S WILL MAINTAIN SURVEILLANCE ON THE 'AAA'
RATING UNTIL DECEMBER 25, 1998. ON THIS DATE, THE RATING WILL BE
AUTOMATICALLY WITHDRAWN BY STANDARD & POOR'S UNLESS A POST
EFFECTIVE LETTER IS REQUESTED BY THE TRUST.
You have permission to use the name of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
and the above-assigned ratings in connection with your
dissemination of information relating to these units, provided
that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold, or sell the units of the trust
or the securities contained in the trust. Further, it should be
understood the rating on the units does not take into account the
extent to which fund expenses or portfolio asset sales for less
than the fund's purchase price will reduce payment to the unit
holders of the interest and principal required to be paid on the
portfolio assets. S&P reserves the right to advise its own
clients, subscribers, and the public of the ratings. S&P relies
on the sponsor and its counsel, accountants, and other experts
for the accuracy and completeness of the information submitted in
connection with the ratings. S&P does not independently verify
the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. in connection with the rating assigned to the
units in the registration statement or prospectus relating to the
units or the trust. However, this letter should not be construed
as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities
contained in the trust. You are hereby authorized to file a copy
of this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final
prospectus as soon as it becomes available. Should we not
receive them within a reasonable time after the closing or should
they not conform to the representations made to us, we reserve
the right to withdraw the rating.
We are pleased to have had the opportunity to be of service
to you. If we can be of further help, please do not hesitate to
call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
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<LEGEND> This schedule contains summary financial information extracted
from Amendment number 1 to form S-6 and is qualified in its entirety by
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