File No. 333-22615
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
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
THE FIRST TRUST COMBINED SERIES 272
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : December 29, 2000
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
306,000 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
Note: Part One of the Prospectus may not be distributed unless accompanied by
Part Two and Part Three.
In the opinion of Counsel, interest income to the Trust and to Unit holders,
with certain exceptions, is exempt under existing law from all Federal income
taxes. In addition, the interest income is, in the opinion of Special
Counsel, exempt to the extent indicated from Michigan State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The Michigan Municipal Tax-Free Value Portfolio, Investment Grade Series 34
(the "Trust") is a fixed portfolio of interest-bearing obligations issued by
or on behalf of municipalities and other governmental authorities within the
State of Michigan, counties, municipalities, authorities and political
subdivisions thereof, the interest on which is, in the opinion of recognized
bond counsel to the issuing governmental authorities, exempt from all Federal
income taxes and from Michigan State and local income taxes under existing
law. At November 16, 2000, each Unit represented a 1/306,000 undivided
interest in the principal and net income of the Trust (see "The Fund" in Part
Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by us, Nike Securities L.P. (the Sponsor) in the
secondary market or from the Trustee after having been tendered for
redemption. The profit or loss resulting from the sale of Units will accrue
to us. No proceeds from the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 5.8% of the Public Offering Price (6.157%
of the amount invested). At November 16, 2000, the Public Offering Price per
Unit was $9.9921 plus net interest accrued to date of settlement (three
business days after such date) of $.0015 and $.2226 for the monthly and semi-
annual distribution plans, respectively (see "Market for Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
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.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 5.31% per annum on November 16, 2000, and 5.26% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.41% per annum on November 16, 2000, and 5.35%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the estimated net annual interest income per Unit by the Public
Offering Price. 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 take 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 the Trust. Since the market values and estimated retirements of the Bonds
and the expenses of the Trust will change, there is no assurance that the
present Estimated Current Return and Estimated Long-Term Return indicated
above will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while the Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price. 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. See "What are Estimated Current Return and Estimated Long-
Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $3,060,000
Number of Units 306,000
Fractional Undivided Interest in the Trust per Unit 1/306,000
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,880,270
Aggregate Value of Bonds per Unit $9.4126
Sales Charge 6.157% (5.8% of Public Offering Price) $.5795
Public Offering Price per Unit $9.9921*
Redemption Price and Sponsor's Repurchase Price per Unit
($.5795 less than the Public Offering Price per Unit) $9.4126*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $612,000
</TABLE>
Date Trust Established September 29, 1999
Mandatory Termination Date December 31, 2029
Evaluator's Fee: $459 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.0035
of the Sponsor per Unit annually
Bookkeeping and administrative expenses Maximum of $.0015
payable to the Sponsor per Unit annually
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $.5520 $.5520
Less: Estimated Annual Expense $.0264 $.0214
Estimated Net Annual Interest Income $.5256 $.5306
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $.5256 $.5306
Divided by 12 and 2, Respectively $.0438 $.2653
Estimated Daily Rate of Net Interest Accrual $.0015 $.0015
Estimated Current Return Based on Public
Offering Price 5.26% 5.31%
Estimated Long-Term Return Based on Public
Offering Price 5.35% 5.41%
</TABLE>
Trustee's Annual Fee: $.0141 and $.0096 per Unit for those portions of the
Trust under the monthly and semi-annual distribution plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Combined Series 272, Michigan Municipal Tax-Free
Value Portfolio, Investment Grade Series 34
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 272, Michigan
Municipal Tax-Free Value Portfolio, Investment Grade Series 34 as of August
31, 2000, and the related statements of operations and changes in net assets
for the period from the Initial Date of Deposit, September 29, 1999, to August
31, 2000. These financial statements are the responsibility of the Trust's
Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 272, Michigan Municipal Tax-Free Value Portfolio, Investment Grade
Series 34 at August 31, 2000, and the results of its operations and changes in
its net assets for the period from the Initial Date of Deposit, September 29,
1999, to August 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $2,892,416)
(Note 1) $2,896,919
Accrued interest 33,879
__________
2,930,798
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to
unit holders 12,697
Cash overdraft 8,151
Accrued liabilities 179
__________
21,027
__________
Net assets, applicable to 306,000 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,892,416
Net unrealized appreciation (Note 2) 4,503
Distributable funds 12,852
__________
$2,909,771
==========
Net asset value per unit $9.5091
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon
interest Date of Redemption Rating (b) Principal Market
Name of issuer and title of bond(e) rate maturity provisions(a) (Unaudited) amount value
<S> <C> <C> <C> <C> <C> <C>
The Economic Development Corporation of the Charter
Township of Grand Rapids, Limited Obligation
Revenue (Porter Hills Obligated Group-Cook Value 2009 @ 101
Estates Project), Series 1999 5.45% 7/01/2029 2020 @ 100 S.F. A $500,000 445,670
Michigan State Hospital Finance Authority,
Hospital Revenue and Refunding (Henry Ford 2006 @ 102
Health System), Series 1995A(d) 5.25 11/15/2020 2018 @ 100 S.F. AA- 200,000 181,966
Michigan State Hospital Finance Authority,
Hospital Revenue and Refunding (Henry Ford 2006 @ 102
Health System), Series 1995A(d) 5.25 11/15/2025 2021 @ 100 S.F. AA- 300,000 264,996
Michigan State Hospital Finance Authority, Hospital
Revenue (Sparrow Obligated Group), Series 1996 2006 @ 102
(MBIA Insured) 5.90 11/15/2026 2017 @ 100 S.F. AAA 500,000 502,520
Michigan State Hospital Finance Authority, Revenue
Refunding (Mercy Health Services Obligated Group), 2007 @ 101
1997 Series S (d) 5.50 8/15/2020 2017 @ 100 S.F. AA- 360,000 338,065
Michigan Strategic Fund, Limited Obligation Revenue, 2007 @ 101
Series 1997A (NSF International Project) 5.75 8/01/2019 2012 @ 100 S.F. Aa3(c) 500,000 503,945
Oakridge Public Schools, Counties of Muskegon and
Newaygo, State of Michigan, 1998 School Building
and Site (General Obligation-Unlimited Tax)(FSA 2008 @ 100
Insured) 5.125 5/01/2028 2024 @ 100 S.F. AAA 400,000 364,608
Board of Control of Saginaw Valley State
University (Michigan), General Revenue, Series 1999 2009 @ 100
(AMBAC Insured) 5.625 7/01/2024 2020 @ 100 S.F. Aaa(c) 300,000 295,149
______________________
$3,060,000 2,896,919
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at August 31, 2000. All ratings
are by Standard & Poor's Corporation unless otherwise indicated.
(c) Rating by Moody's Investors Service, Inc.
(d) These Bonds were issued at an original issue discount on the following
dates and at the following percentages of their original principal
amount:
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
Michigan State Hospital Finance
Authority (Henry Ford Health
System):
Due 11/15/2020 12/1/95 94.304
Due 11/15/2025 12/1/95 93.572
Michigan State Hospital Finance
Authority (Mercy Health Services
Obligated Group) 4/15/97 93.767
</TABLE>
(e) The Trust consists of eight obligations of issuers located in Michigan.
One of the Bonds in the Trust, representing approximately 13% of the
aggregate principal amount of Bonds in the Trust, is a general
obligation of a governmental entity. The remaining issues are revenue
bonds payable from the income of a specific project or authority and are
divided by purpose of issue as follows: Health Care, 5; University and
School, 1; and Miscellaneous, 1. Approximately 61% of the aggregate
principal amount of the Bonds in the Trust consist of health care
revenue bonds. Each of five Bond issues represents 10% or more of the
aggregate principal amount of the Bonds in the Trust or a total of
approximately 74%. The three largest such issues represent
approximately 16% each.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
STATEMENT OF OPERATIONS
Period from the Initial Date of Deposit,
September 29 1999, to August 31, 2000
<TABLE>
<S> <C>
Interest income $151,029
Expenses:
Trustee's fees and related expenses (2,745)
Evaluator's fees (425)
Supervisory fees (894)
Administrative fees (255)
________
Investment income - net 146,710
Net gain (loss) on investments:
Net realized gain (loss) -
Change in net unrealized appreciation
or depreciation 4,503
________
4,503
________
Net increase (decrease) in net assets
resulting from operations $151,213
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
STATEMENT OF CHANGES IN NET ASSETS
Period from the Initial Date of Deposit,
September 29 1999, to August 31, 2000
<TABLE>
<S> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $146,710
Net realized gain (loss) on investments -
Change in net unrealized appreciation
or depreciation on investments 4,503
__________
151,213
Distributions to unit holders:
Investment income - net (133,858)
Principal from investment
transactions -
__________
(133,858)
Units issued (153,000 units) 1,439,239
Unit redemptions:
Principal portion -
Net interest accrued -
__________
-
__________
Total increase (decrease) in net assets 1,456,594
Net assets:
At the beginning of the period
(representing 153,000 units
outstanding) 1,453,177
__________
At the end of the period
(including distributable
funds applicable to Trust units
of $12,852 at August 31, 2000) $2,909,771
==========
Trust units outstanding at
the end of the period 306,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of ours. The
bond values are based on (1) current bid prices for the bonds obtained from
dealers or brokers who customarily deal in bonds comparable to those held by
the Trust, (2) current bid prices for comparable bonds, (3) appraisal or (4)
any combination of the above.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Initial Date of Deposit and any supplemental dates of deposit. The
premium or discount (including original issue discount) existing at the Date
of Deposit is not being amortized. Realized gain (loss) from bond
transactions is reported on an identified cost basis. Sales and redemptions
of bonds are recorded on the trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to The Chase Manhattan Bank which is
based on $.0141 and $.0096 per Unit for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Additionally, a fee
of $459 annually is payable to the Evaluator and the Trust pays all related
expenses of the Trustee, recurring financial reporting costs, an annual
supervisory fee payable to an affiliate of ours and an annual administrative
fee payable to us.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized appreciation $20,884
Unrealized depreciation (16,381)
_______
$4,503
=======
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 3.9% of the public offering price which is equivalent to
approximately 4.058% of the net amount invested.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period
from the
Initial
Date of
Deposit,
Sept. 29,
Type of 1999, to
distribution Aug. 31,
plan 2000
<S> <C>
Monthly $.4541*
Semi-annual .4586
</TABLE>
*Excludes $.0073 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit and the supplemental dates of deposit,
totaling $36,713, plus interest accruing to the first settlement date and the
settlement dates of the supplemental dates of deposit, totaling $2,234 were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $.0161 and $.0162 per unit for those portions of the
Trust under the monthly and semi-annual distribution plans, respectively, was
paid on October 31, 1999 to all unit holders of record on October 15, 1999.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period
from the
Initial
Date of
Deposit,
Sept. 29,
1999, to
Aug. 31,
2000
<S> <C>
Interest income $.5204
Expenses (.0149)
_______
Investment income - net .5055
Distributions to unit holders:
Investment income - net (.4635)
Principal from investment transactions -
Net gain (loss) on investments (.0308)
_______
Total increase (decrease) in net assets .0112
Net assets:
Beginning of the period 9.4979
_______
End of the period $9.5091
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 272
MICHIGAN MUNICIPAL TAX-FREE VALUE PORTFOLIO,
INVESTMENT GRADE SERIES 34
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a 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 statement and exhibits relating thereto, which the Trust 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.
THE FIRST TRUST COMBINED SERIES
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated December 29, 2000 AND PART THREE
The First Trust Combined Series is a unit investment trust. The First
Trust Combined Series has many separate series. The Part One which
accompanies this Part Two describes one such series of the First Trust
Combined Series. Each series of the First Trust Combined Series consists
of one or more portfolios ("Trust(s)") which invest in tax-exempt
municipal bonds. See Part One and Part Three for a more complete
description of the portfolio for each Trust.
All Parts of the Prospectus Should be Retained for Future Reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
First Trust (R)
1-800-621-9533
Page 1
Table of Contents
The First Trust Combined Series 3
Risk Factors 3
Return Figures 4
Public Offering 4
Distribution of Units 5
The Sponsor's Profits 6
The Secondary Market 6
How We Purchase Units 6
Expenses and Charges 6
Tax Status 7
Rights of Unit Holders 8
Interest and Principal Distributions 9
Redeeming Your Units 10
Removing Bonds from a Trust 11
Amending or Terminating the Indenture 11
Information on the Sponsor, Trustee and Evaluator 12
Other Information 14
Page 2
The First Trust Combined Series
The First Trust Combined Series Defined.
We, Nike Securities L.P. (the "Sponsor"), have created hundreds of
similar yet separate series of a unit investment trust which we have
named the First Trust Combined Series. See Part One for a description of
the series and Trusts for which this Part Two Prospectus relates.
Each Trust was created under the laws of the State of New York by a
Trust Agreement (the "Indenture") dated the Initial Date of Deposit.
This agreement, entered into among Nike Securities L.P., as Sponsor, The
Chase Manhattan Bank as Trustee, First Trust Advisors L.P. as Portfolio
Supervisor and Securities Evaluation Service, Inc. as Evaluator, governs
the operation of the Trusts.
How We Created the Trusts.
On the Initial Date of Deposit for each Trust, we deposited a portfolio
or portfolios of tax-exempt municipal bonds ("Bonds") with the Trustee
and in turn, the Trustee delivered documents to us representing our
ownership of the Trusts in the form of units ("Units").
See "Objectives" in Part Three for each Trust for a specific description
of such Trust's objective.
We cannot guarantee that a Trust will keep its present size and
composition for any length of time. Since the prices of the Securities
will fluctuate daily, the ratio of Securities in the Trusts, on a market
value basis, will also change daily. Securities may periodically be sold
under certain circumstances, and the proceeds from these sales will be
used to meet Trust obligations or distributed to Unit holders, but will
not be reinvested. However, Securities will not be sold to take
advantage of market fluctuations or changes in anticipated rates of
appreciation or depreciation, or if they no longer meet the criteria by
which they were selected. You will not be able to dispose of or vote any
of the Securities in the Trusts. As the holder of the Securities, the
Trustee will vote all of the Securities and will do so based on our
instructions.
Neither we nor the Trustee will be liable for a failure in any of the
Bonds.
Risk Factors
Interest Rate Risk. The value of the municipal bonds in which each Trust
invests will decline with increases in interest rates, not only because
increases in rates generally decrease values, but also because increased
rates may indicate an economic slowdown.
Credit Risk. Credit risk is the risk that an issuer of a bond or an
insurer is unable to meet its obligation to make interest and principal
payments. The value of the Bonds will fluctuate with changes in
investors' perceptions of an issuer's financial condition, general
economic conditions or the general conditions of the municipal bond
market, with changes in inflation rates or when political or economic
events affecting the issuers occur.
Because the Trusts are not managed, the Trustee will not sell Bonds in
response to or in anticipation of market fluctuations, as is common in
managed investments. As with any investment, we cannot guarantee that
the performance of any Trust will be positive over any period of time or
that you won't lose money. Units of the Trusts are not deposits of any
bank and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Interest. There is no guarantee that the issuers of the Bonds will be
able to satisfy their interest payment obligations to the Trust over the
life of a Trust.
Municipal Bonds. Each Trust invests in tax-exempt municipal bonds.
Municipal bonds are debt obligations issued by states or political
subdivisions or authorities of states. Municipal bonds are typically
designated as either general obligation bonds or revenue bonds. Each
Trust will invest in both general obligation and revenue bonds. General
obligation bonds are general obligations of a governmental entity that
are backed by the taxing power of such entity. Revenue bonds are payable
from the income of a specific project or authority and are not supported
by the issuer's power to levy taxes. For instance, a Trust may be
considered to be concentrated in healthcare revenue bonds which are
obligations of issuers whose revenues are derived from services provided
by hospitals or other health care facilities. Revenues from these
issuers are subject to certain risks including increased governmental
regulation, fluctuating occupancy levels and increased competition.
Page 3
Municipal bonds are long-term fixed rate debt obligations that generally
decline in value with increases in interest rates, when an issuer's
financial condition worsens or when the rating on a bond is decreased.
Many municipal bonds may be called or redeemed prior to their stated
maturity, an event which is more likely to occur when interest rates
fall. In such an occurrence, you may not be able to reinvest the money
you receive in a similar investment with as high a yield or as long a
maturity.
Many municipal bonds are subject to continuing requirements as to the
actual use of the 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. The market for municipal bonds
is generally less liquid than for other securities and therefore the
price of municipal bonds may be more volatile and subject to greater
price fluctuations than securities with greater liquidity. In addition,
an issuer's ability to make income distributions generally depends on
several factors including the financial condition of the issuer and
general economic conditions. Any of these factors may negatively impact
the price of municipal bonds held by a Trust and would therefore impact
the price of both the Bonds and the Units.
Alternative Minimum Tax. While distributions of interest from a Trust
are generally exempt from federal income taxes, a portion of such
interest from certain revenue bonds held by the Trusts may be taken into
account in computing the alternative minimum tax.
Legislation/Litigation. From time to time, various legislative
initiatives are proposed which may have a negative impact on the prices
of certain of the municipal bonds represented in a Trust. In addition,
litigation regarding any of the issuers of the municipal bonds, such as
litigation affecting the validity of certain municipal bonds or the tax-
free nature of the interest thereon, may negatively impact the prices of
these Bonds. While we are unaware of any current legislation or
litigation which could adversely affect the Bonds or their issuers, we
cannot predict what impact any future legislation or litigation will
have on the prices of the Bonds or of the issuers.
Return Figures
The Current and Long-Term Returns set forth in the "Summary of Essential
Information" in Part One of this prospectus are estimates and are
designed to be comparative rather than predictive. We cannot predict
your actual return, which will vary with unit price, how long you hold
your investment and with changes in the portfolio, interest income and
expenses. In addition, neither rate reflects the true return you will
receive, which will be lower, because neither includes the effect of
certain delays in distributions. Estimated Current Return equals the
estimated annual interest income to be received from the Bonds in a
Trust less estimated annual Trust expenses, divided by the Public
Offering Price per Unit (which includes the maximum sales charge).
Estimated Long-Term Return is a measure of the estimated return over the
estimated life of a Trust and is calculated using a formula which (1)
factors in the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of the Bonds, and (2) takes into account a compounding
factor, the sales charge and expenses. Unlike Estimated Current Return,
Estimated Long-Term Return reflects maturities, discounts and premiums
of the Bonds in a Trust. It is an average of the yields to maturity (or
in certain cases, to an earlier call date) of the individual Bonds in a
Trust, adjusted to reflect a Trust's maximum sales charge and estimated
expenses. We calculate the average yield for a Trust by weighting each
Bond's yield by its market value and the time remaining to the call or
maturity date.
Yields on individual bonds depend on many factors including general
conditions of the bond markets, the size of a particular offering and
the maturity and quality rating of the particular issues. Yields can
vary among bonds with similar maturities, coupons and ratings.
Public Offering
The Public Offering Price.
You may buy Units at the Public Offering Price, the price per Unit of
which is comprised of the following:
- The aggregate underlying value of the Bonds;
- The amount of any cash in the Interest and Principal Accounts;
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- Net interest accrued but unpaid on the Units after the First
Settlement Date to the date of settlement; and
- The sales charge.
The price you pay for your Units will differ from the amount stated
under "Summary of Essential Information" in Part One of this prospectus
due to various factors, including fluctuations in the prices of the
Bonds, changes in the value of the Interest and/or Principal Accounts
and the accrual of interest on the Bonds.
Although you are not required to pay for your Units until three business
days following your order (the "date of settlement"), you may pay before
then. You will become the owner of Units ("Record Owner") on the date of
settlement if payment has been received. If you pay for your Units
before the date of settlement, we may use your payment during this time
and it may be considered a benefit to us, subject to the limitations of
the Securities Exchange Act of 1934.
Accrued Interest.
Accrued interest represents unpaid interest on a bond from the last day
it paid interest. Interest on the Bonds generally is paid semiannually,
although the Trusts accrue such interest daily. Because a Trust always
has an amount of interest earned but not yet collected, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. You will receive the amount,
if any, of accrued interest you paid for on the next distribution date.
In addition, if you sell or redeem your Units you will be entitled to
receive your proportionate share of accrued interest from the purchaser
of your Units.
Sales Charges.
The maximum sales charge is determined based upon the number of years
remaining to the maturity of each Bond in a Trust. For purposes of
computation, Bonds will be deemed to mature either on their expressed
maturity dates, or an earlier date if: (a) they have been called for
redemption or funds have been placed in escrow to redeem them on an
earlier call date; or (b) such Bonds are subject to a "mandatory
tender." The effect of this method of sales charge computation will be
that different sales charge rates will be applied to each of the Bonds.
See Part Three "Public Offering" for additional information for each
Trust.
Distribution of Units
We intend to qualify Units of the Trusts for sale as listed in Part
Three "Distribution of Units." All Units will be sold at the then
current Public Offering Price.
Dealer Concessions.
Dealers will receive concessions on the sale of Units in the amounts set
forth in Part Three of this prospectus. We reserve the right to change
the amount of concessions or agency commissions from time to time.
Certain commercial banks may be making Units of the Trusts available to
their customers on an agency basis. A portion of the sales charge paid
by these customers is kept by or given to the banks in the amounts shown
above.
Award Programs.
From time to time we may sponsor programs which provide awards to a
dealer's registered representatives who have sold a minimum number of
Units during a specified time period. We may also pay fees to qualifying
dealers for services or activities which are meant to result in sales of
Units of the Trusts. In addition, we will pay to dealers who sponsor
sales contests or recognition programs that conform to our criteria, or
participate in our sales programs, amounts equal to no more than the
total applicable sales charge on Units sold by such persons during such
programs. We make these payments out of our own assets and not out of
Trust assets. These programs will not change the price you pay for your
Units.
Investment Comparisons.
From time to time we may compare the estimated returns of the Trusts
(which may show performance net of the expenses and charges the Trusts
would have incurred) and returns over specified periods of other similar
trusts we sponsor in our advertising and sales materials, with (1)
returns on other taxable investments such as the common stocks
comprising various market indexes, corporate or U.S. Government bonds,
bank CDs and money market accounts or funds, (2) performance data from
Morningstar Publications, Inc. or (3) information from publications such
as Money, The New York Times, U.S. News and World Report, BusinessWeek,
Forbes or Fortune. The investment characteristics of each Trust differ
from other comparative investments. You should not assume that these
performance comparisons will be representative of a Trust's future
performance.
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The Sponsor's Profits
We will receive a gross sales commission equal to the maximum sales
charge per Unit of a Trust less any reduced sales charge as stated in
Part Three of this prospectus. In maintaining a market for the Units,
any difference between the price at which we purchase Units and the
price at which we sell or redeem them will be a profit or loss to us.
The Secondary Market
Although not obligated, we intend to maintain a market for the Units and
continuously offer to purchase Units at prices based on the Redemption
Price per Unit.
We will pay all expenses to maintain a secondary market, except the
Evaluator fees, Trustee costs to transfer and record the ownership of
Units and costs incurred in annually updating each Trust's registration
statement. We may discontinue purchases of Units at any time. IF YOU
WISH TO DISPOSE OF YOUR UNITS, YOU SHOULD ASK US FOR THE CURRENT MARKET
PRICES BEFORE MAKING A TENDER FOR REDEMPTION TO THE TRUSTEE.
How We Purchase Units
The Trustee will notify us of any tender of Units for redemption. If our
bid at that time is equal to or greater than the Redemption Price per
Unit, we may purchase the Units. You will receive your proceeds from the
sale no later than if they were redeemed by the Trustee. We may tender
Units that we hold to the Trustee for redemption as any other Units. If
we elect not to purchase Units, the Trustee may sell tendered Units in
the over-the-counter market, if any. However, the amount you will
receive is the same as you would have received on redemption of the Units.
Expenses and Charges
The estimated annual expenses of each Trust are set forth under "Summary
of Essential Information" in Part One of this prospectus. If actual
expenses of a Trust exceed the estimate, that Trust will bear the
excess. The Trustee will pay operating expenses of a Trust from the
Income Account of such Trust if funds are available, and then from the
Capital Account. The Income and Capital Accounts are noninterest-bearing
to Unit holders, so the Trustee may earn interest on these funds, thus
benefiting from their use.
As Sponsor, we will be compensated for providing bookkeeping and other
administrative services to the Trusts, and will receive brokerage fees
when a Trust uses us (or an affiliate of ours) as agent in buying or
selling Bonds. Legal, typesetting, electronic filing and regulatory
filing fees and expenses associated with updating those Trusts'
registration statements yearly are also now chargeable to such Trusts.
Historically, we paid these fees and expenses. First Trust Advisors
L.P., an affiliate of ours, acts as Portfolio Supervisor to the Trusts
and will receive the fees set forth under "Summary of Essential
Information" in Part One of this prospectus for providing portfolio
supervisory services to the Trusts. In providing portfolio supervisory
services, the Portfolio Supervisor may purchase research services from a
number of sources, which may include underwriters or dealers of the
Trusts.
The fees payable to us, the Portfolio Supervisor, and the Trustee are
based on the largest aggregate number of Units of a Trust outstanding at
any time during the calendar year. The fees payable to the Evaluator are
based on the largest principal amount of Bonds in a Trust during the
initial offering period. These fees may be adjusted for inflation
without Unit holders' approval, but in no case will the annual fees paid
to us or our affiliates for providing a given service to all unit
investment trusts for which we provide such services be more than the
actual cost of providing such services in such year.
In addition to a Trust's operating expenses and those fees described
above, each Trust may also incur the following charges:
- License fees payable by a Trust for the use of certain trademarks and
trade names associated with such Trust, if any;
- All legal and annual auditing expenses of the Trustee according to its
responsibilities under the Indenture;
- The expenses and costs incurred by the Trustee to protect a Trust and
your rights and interests;
- Fees for any extraordinary services the Trustee performed under the
Indenture;
- Payment for any loss, liability or expense the Trustee incurred
without negligence, bad faith or willful misconduct on its part, in
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connection with its acceptance or administration of a Trust;
- Payment for any loss, liability or expenses we incurred without
negligence, bad faith or willful misconduct in acting as Depositor of a
Trust; and/or
- All taxes and other government charges imposed upon the Bonds or any
part of a Trust.
The above expenses and the Trustee's annual fee are secured by a lien on
each Trust. We cannot guarantee that interest income on the Bonds will
be sufficient to meet any or all expenses of a Trust. If there is not
enough cash in the Interest or Principal Accounts of a Trust, the
Trustee has the power to sell Bonds to make cash available to pay these
charges. These sales may result in capital gains or losses to you. See
"Tax Status."
Each Trust will be audited annually. We will bear the cost of these
annual audits to the extent the costs exceed $0.0050 per Unit.
Otherwise, each Trust will pay for the audit. You can request a copy of
the audited financial statements from the Trustee.
Tax Status
Federal Tax Status.
This section summarizes some of the main U.S. federal income tax
consequences of owning Units of the Trust. This section is current as of
the date of this prospectus. Tax laws and interpretations change
frequently, and these summaries do not describe all of the tax
consequences to all taxpayers. For example, these summaries generally do
not describe your situation if you are a non-U.S. person, a
broker/dealer, or other investor with special circumstances. In
addition, this section does not describe your state or foreign taxes. As
with any investment, you should consult your own tax professional about
your particular consequences.
Trust Status and Distributions.
The Trust will not be taxed as a corporation for federal income tax
purposes. As a Unit owner, you will be treated as the owner of a pro
rata portion of the Bonds and other assets held by the Trust, and as
such you will be considered to have received a pro rata share of income
(i.e., interest, accruals of original issue discount and market
discount, and capital gains, if any) from each Bond when such income is
considered to be received by the Trust. This is true even if you elect
to have your distributions automatically reinvested into another
existing investment account.
Your Tax Basis and Income or Loss upon Disposition.
If your Trust disposes of Bonds, you will generally recognize gain or
loss. If you dispose of your Units or redeem your Units for cash, you
will also generally recognize gain or loss. To determine the amount of
this gain or loss, you must subtract your tax basis in the related Bonds
from your share of the total proceeds received in the transaction. You
can generally determine your initial tax basis in each Bond or other
Trust asset by apportioning the cost of your Units, generally including
sales charges, among each Bond or other Trust asset ratably according to
their value on the date you purchase your Units. In certain
circumstances, however, you may have to adjust your tax basis after you
purchase your Units (for example, in the case of original issue
discount, premium and accrued interest, as discussed below).
If you are an individual, the maximum marginal federal tax rate for net
capital gain is generally 20% (10% for certain taxpayers in the lowest
tax bracket). Net capital gain equals net long-term capital gain minus
net short-term capital loss for the taxable year. Capital gain or loss
is long-term if the holding period for the asset is more than one year
and is short-term if the holding period for the asset is one year or
less. You must exclude the date you purchase your Units or the date the
Trust purchases a Bond to determine the holding period of your Units.
The tax rates for capital gains realized from assets held for one year
or less are generally the same as for ordinary income. The tax code may,
however, treat certain capital gains as ordinary income in special
situations (for example, in the case of gain attributable to market
discount).
Discount, Accrued Interest and Premium.
Some Bonds may have been sold with original issue discount. This
generally means that the Bonds were originally issued at a price below
their face (or par) value. Original issue discount accrues on a daily
basis and generally is treated as interest income for federal income tax
purposes. The basis of your Units and of each Bond which was issued with
original issue discount must be increased as original issue discount
accrues.
Some Bonds may have been purchased at a market discount. Market discount
is generally the excess of the stated redemption price at maturity for
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the Bond over the purchase price of the Bond (not including unaccrued
original issue discount). Market discount can arise based on the price
the Trust pays for a Bond or on the price you pay for your Units. Market
discount is taxed as ordinary income. You will recognize this income
when the Trust receives principal payments on the Bond, when the Bond is
sold or redeemed, or when you sell or redeem your Units. Alternatively,
you may elect to include market discount in taxable income as it
accrues. Whether or not you make this election will affect how you
calculate your basis and the timing of certain interest expense
deductions.
Alternatively, some Bonds may have been purchased at a premium.
Generally, if the tax basis of your pro rata portion of any Bond exceeds
the amount payable at maturity, such excess is considered premium. You
may elect to amortize bond premium. If you make this election, you may
reduce your interest income received on the Bond by the amount of the
premium that is amortized and your tax basis will be reduced.
If the price of your Units included accrued interest on a Bond, you must
include the accrued interest in your tax basis in that Bond. When the
Trust receives this accrued interest, you must treat it as a return of
capital and reduce your tax basis in the Bond.
This discussion provides only the general rules with respect to the tax
treatment of original issue discount, market discount and premium. The
rules, however, are complex and special rules apply in certain
circumstances. For example, the accrual of market discount or premium
may differ from the discussion set forth above in the case of Bonds that
were issued with original issue discount.
Limitations on the Deductibility of Trust Expenses and Your Interest
Expenses.
Generally, for federal income tax purposes, you must take into account
your full pro rata share of the Trust's income, even if some of that
income is used to pay Trust expenses. You may deduct your pro rata share
of each expense paid by the Trust to the same extent as if you directly
paid the expense. You may, however, be required to treat some or all of
the expenses of the Trust as miscellaneous itemized deductions.
Individuals may only deduct certain miscellaneous itemized deductions to
the extent they exceed 2% of adjusted gross income.
Foreign, State and Local Taxes.
The Trust has been created under the laws of the State of New York.
Under the existing income tax laws of the State and City of New York,
the Trust will not be taxed as a corporation, and the income of the
Trust will be treated as the income of the Unit holders in the same
manner as for federal income tax purposes. You should consult your tax
advisor regarding potential foreign, state or local taxation with
respect to your Units.
Rights of Unit Holders
Unit Ownership.
The Trustee will treat as Record Owner of Units persons registered as
such on its books. It is your responsibility to notify the Trustee when
you become Record Owner, but normally your broker/dealer provides this
notice. You may elect to hold your Units in either certificated or
uncertificated form.
Certificated Units. When you purchase your Units you can request that
they be evidenced by certificates, which will be delivered shortly after
your order. Certificates will be issued in fully registered form,
transferable only on the books of the Trustee in denominations of one
Unit or any multiple thereof. You can transfer or redeem your
certificated Units by endorsing and surrendering the certificate to the
Trustee, along with a written instrument of transfer. You must sign your
name exactly as it appears on the face of the certificate with your
signature guaranteed by an eligible institution. In certain cases the
Trustee may require additional documentation before they will transfer
or redeem your Units.
You may be required to pay a nominal fee to the Trustee for each
certificate reissued or transferred, and to pay any government charge
that may be imposed for each transfer or exchange. If a certificate gets
lost, stolen or destroyed, you may be required to furnish indemnity to
the Trustee to receive replacement certificates. You must surrender
mutilated certificates to the Trustee for replacement.
Uncertificated Units. You may also choose to hold your Units in
uncertificated form. If you choose this option, the Trustee will
establish an account for you and credit your account with the number of
Units you purchase. Within two business days of the issuance or transfer
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of Units held in uncertificated form, the Trustee will send you:
- A written initial transaction statement containing a description of
the Trust;
- A list of the number of Units issued or transferred;
- Your name, address and Taxpayer Identification Number ("TIN");
- A notation of any liens or restrictions of the issuer and any adverse
claims; and
- The date the transfer was registered.
Uncertificated Units may be transferred the same way as certificated
Units, except that no certificate needs to be presented to the Trustee.
Also, no certificate will be issued when the transfer takes place unless
you request it. You may at any time request that the Trustee issue
certificates for your Units.
Unit Holder Reports.
In connection with each distribution, the Trustee will provide you with
a statement detailing the per Unit amount of interest (if any)
distributed. After the end of each calendar year, the Trustee will
provide you with the following information:
- The amount of interest received by your Trust less deductions for
payment of applicable taxes, fees and Trust expenses, redemption of
Units and the balance remaining on the last business day of the calendar
year;
- The dates Bonds were sold and the net proceeds received from such
sales less deduction for payment of applicable taxes, fees and Trust
expenses, redemption of Units and the balance remaining on the last
business day of the calendar year;
- The Bonds held and the number of Units outstanding on the last
business day of the calendar year;
- The Redemption Price per Unit on the last business day of the
calendar year; and
- The amounts actually distributed during the calendar year from the
Interest and Principal Accounts, separately stated.
You may request from the Trustee copies of the evaluations of the Bonds
as prepared by the Evaluator to enable you to comply with federal and
state tax reporting requirements.
Interest and Principal
Distributions
You will begin receiving distributions on your Units only after you
become a Record Owner. The Trustee will credit interest received on your
Trust's Bonds to the Interest Account of such Trust. All other receipts,
such as return of capital, are credited to the Principal Account of your
Trust.
The Trustee will distribute an amount substantially equal to your pro
rata share of the balance of the Interest Account calculated on the
basis of one-twelfth (one-half in the case of Unit holders electing semi-
annual distributions) of the estimated annual amount of interest
received in the Income Account after deducting estimated expenses on or
near the Distribution Dates to Unit holders of record on the preceding
Distribution Record Date. See "Summary of Essential Information" in Part
One of this prospectus for your Trust. Because interest is not received
by a Trust at a constant rate throughout the year, the distributions you
receive may be more or less than the amount credited to the Interest
Account as of the Distribution Record Date. In order to minimize
fluctuations in distributions, the Trustee is authorized to advance such
amounts as may be necessary to provide distributions of approximately
equal amounts. The Trustee will be reimbursed, without interest, for any
such advances from funds in the Interest Account at the next
Distribution Record Date. The Trustee will distribute amounts in the
Principal Account on the last day of each month to Unit holders of
record on the fifteenth day of each month provided the amount equals at
least $1.00 per 100 Units. If the Trustee does not have your TIN, it is
required to withhold a certain percentage of your distribution and
deliver such amount to the Internal Revenue Service ("IRS"). You may
recover this amount by giving your TIN to the Trustee, or when you file
a tax return. However, you should check your statements to make sure the
Trustee has your TIN to avoid this "back-up withholding."
You will receive interest distributions monthly unless you elect to
receive them semi-annually. Your plan of distribution will remain in
effect until changed. The Trustee will provide you with information on
how to change your distribution election.
Within a reasonable time after your Trust is terminated you will receive
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the pro rata share of the money from the disposition of the Bonds.
The Trustee may establish reserves (the "Reserve Account") within a
Trust to cover anticipated state and local taxes or any governmental
charges to be paid out of the Trust.
Universal Distribution Option. You may elect to have your principal and
interest distributions automatically distributed to any other investment
vehicle of which you have an existing account. If you elect this option,
the Trustee will notify you of each distribution made pursuant to this
option. You may elect to terminate your participation at any time by
notifying the Trustee in writing.
Distribution Reinvestment Option. You may elect to have your interest
and/or principal distributions from your Trust automatically reinvested
in shares of certain Oppenheimer Tax-Exempt Bond Funds. Oppenheimer
Management Corporation is the investment advisor of each of these funds
which are open-end, diversified management investment companies. The
objectives and policies of each of these funds, which differ from your
Trust, are described in their prospectuses. If you wish to participate
in this reinvestment option you should contact the Trustee which will
send you the prospectus for each fund along with a form by which you may
elect to participate. After you have made the election, each
distribution of interest and/or principal on your Units will be
automatically used to purchase shares (or fractions thereof) of the fund
you selected without a sales charge. You may elect, at any time, to
terminate your participation in the Distribution Reinvestment Option and
receive future distributions in cash by notifying the Trustee in writing.
You should remember 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.
Redeeming Your Units
You may redeem all or a portion of your Units at any time by sending the
certificates representing the Units you want to redeem to the Trustee at
its unit investment trust office. If your Units are uncertificated, you
need only deliver a request for redemption to the Trustee. In either
case, the certificates or the redemption request must be properly
endorsed with proper instruments of transfer and signature guarantees as
explained in "Rights of Unit Holders-Unit Ownership" (or by providing
satisfactory indemnity if the certificates were lost, stolen, or
destroyed). No redemption fee will be charged, but you are responsible
for any governmental charges that apply. Three business days after the
day you tender your Units (the "Date of Tender") you will receive cash
in an amount for each Unit equal to the Redemption Price per Unit
calculated at the Evaluation Time on the Date of Tender.
The Date of Tender is considered to be the date on which the Trustee
receives your certificates or redemption request (if such day is a day
the NYSE is open for trading). However, if your certificates or
redemption request are received after 4:00 p.m. Eastern time (or after
any earlier closing time on a day on which the NYSE is scheduled in
advance to close at such earlier time), the Date of Tender is the next
day the NYSE is open for trading.
Any amounts paid on redemption representing interest will be withdrawn
from the Interest Account of your Trust if funds are available for that
purpose, or from the Principal Account. All other amounts paid on
redemption will be taken from the Principal Account of the Trust.
The Trustee may sell Bonds to make funds available for redemption. If
Bonds are sold, the size and diversification of a Trust will be reduced.
These sales may result in lower prices than if the Bonds were sold at a
different time.
Your right to redeem Units (and therefore, your right to receive
payment) may be delayed:
- If the NYSE is closed (other than customary weekend and holiday
closings);
- If the SEC determines that trading on the NYSE is restricted or that
an emergency exists making sale or evaluation of the Bonds not
reasonably practical; or
- For any other period permitted by SEC order.
The Trustee is not liable to any person for any loss or damage which may
result from such a suspension or postponement.
The Redemption Price.
The Redemption Price per Unit is determined by the Trustee by:
adding
1. cash in the Income and Capital Accounts of a Trust not designated to
purchase Bonds;
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2. the aggregate value of the Bonds held in a Trust; and
3. accrued interest on the Bonds; and
deducting
1. any applicable taxes or governmental charges that need to be paid out
of a Trust;
2. any amounts owed to the Trustee for its advances;
3. estimated accrued expenses of a Trust, if any;
4. cash held for distribution to Unit holders of record of a Trust as of
the business day before the evaluation being made; and
5. other liabilities incurred by a Trust; and
dividing
1. the result by the number of outstanding Units of a Trust.
Removing Bonds from a Trust
The portfolios of the Trusts are not managed. However, we may, but are
not required to, direct the Trustee to dispose of a Bond in certain
limited circumstances, including situations in which:
- The issuer of the Bond has defaulted in the payment of principal or
interest on the Bond;
- Any action or proceeding seeking to restrain or enjoin the payment of
principal or interest on the Bond has been instituted;
- The issuer of the Bond has breached a covenant which would affect the
payment of principal or interest on the Bond, the issuer's credit
standing, or otherwise damage the sound investment character of the Bond;
- The issuer has defaulted on the payment of any other of its
outstanding obligations;
- The Bond is the subject of an advanced refunding;
- Such factors arise which, in our opinion, adversely affect the tax or
exchange control status of the Bond; or
- The price of the Bond has declined to such an extent, or such other
credit factors exist, that in our opinion keeping the Bond would be
harmful to a Trust.
If a Bond defaults in the payment of principal or interest and no
provision for payment is made, the Trustee must notify us of this fact
within 30 days. If we fail to instruct the Trustee whether to sell or
hold the Bond within 30 days of our being notified, the Trustee may, in
its discretion, sell any defaulted Bonds and will not be liable for any
depreciation or loss incurred thereby.
The Trusts may not acquire any bonds or other property other than the
Bonds. The Trustee, on behalf of a Trust, will reject any offer for new
or exchanged bonds or property in exchange for a Bond, except that we
may instruct the Trustee to accept such an offer or to take any other
action with respect thereto as we may deem proper if the issuer is in
default with respect to such Bonds or in our written opinion the issuer
will likely default in respect to such Bonds in the foreseeable future.
Any obligations received in exchange or substitution will be held by the
Trustee subject to the terms and conditions in the Indenture to the same
extent as Bonds originally deposited in a Trust. We may get advice from
the Portfolio Supervisor before reaching a decision regarding the
receipt of new or exchange securities or property. The Trustee may
retain and pay us or an affiliate of ours to act as agent for the Trust
to facilitate selling Bonds, exchanged bonds or property from a Trust.
If we or our affiliate act in this capacity, we will be held subject to
the restrictions under the Investment Company Act of 1940, as amended.
The Trustee may sell Bonds designated by us, or, absent our direction,
at its own discretion, in order to meet redemption requests or pay
expenses. We will maintain a list with the Trustee of which Bonds should
be sold. We may consider sales of units of unit investment trusts which
we sponsor in making recommendations to the Trustee on the selection of
broker/dealers to execute the Trust's portfolio transactions, or when
acting as agent for a Trust in acquiring or selling Bonds on behalf of a
Trust.
Amending or Terminating the Indenture
Amendments. The Indenture may be amended by us and the Trustee without
your consent:
- To cure ambiguities;
- To correct or supplement any defective or inconsistent provision;
- To make any amendment required by any governmental agency; or
- To make other changes determined not to be materially adverse to your
best interests (as determined by us and the Trustee).
Termination. As provided by the Indenture, the Trusts will terminate on
the Mandatory Termination Date as stated in the "Summary of Essential
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Information" in Part One for each Trust. The Trusts may be terminated
earlier:
- Upon the consent of 100% of the Unit holders of a Trust;
- If the value of the Bonds owned by a Trust as shown by any evaluation
is less than 20% of the aggregate principal amount of the Bonds
deposited in such Trust during the initial offering period
("Discretionary Liquidation Amount"); or
- 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
underwriters, including the Sponsor.
Prior to termination, the Trustee will send written notice to all Unit
holders which will specify how you should tender your certificates, if
any, to the Trustee. For various reasons, a Trust may be reduced below
the Discretionary Liquidation Amount and could therefore be terminated
before the Mandatory Termination Date.
Unless terminated earlier, the Trustee will begin to sell Bonds in
connection with the termination of a Trust during the period beginning
nine business days prior to, and no later than, the Mandatory
Termination Date. We will determine the manner and timing of the sale of
Bonds. Because the Trustee must sell the Bonds within a relatively short
period of time, the sale of Bonds as part of the termination process may
result in a lower sales price than might otherwise be realized if such
sale were not required at this time.
You will receive a cash distribution from the sale of the remaining
Bonds, along with your interest in the Income and Principal Accounts,
within a reasonable time after such Trust is terminated. Regardless of
the distribution involved, the Trustee will deduct from the Trusts any
accrued costs, expenses, advances or indemnities provided for by the
Indenture, including estimated compensation of the Trustee and costs of
liquidation and any amounts required as a reserve to pay any taxes or
other governmental charges.
Description of Bond Ratings*
* As published by the rating companies.
Standard & Poor's.
A brief description of the applicable Standard & Poor's rating symbols
and their meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees. The bond rating is
not a recommendation to purchase, sell, or hold a security, inasmuch as
it does not comment as to market price or suitability for a particular
investor. The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for
other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
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
Page 12
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposure to adverse conditions.
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 or
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.
A brief description of the applicable Moody's rating symbols and their
meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
Page 13
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.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
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.
Information on the Sponsor, Trustee and Evaluator
The Sponsor.
We, Nike Securities L.P., specialize in the underwriting, trading and
wholesale distribution of unit investment trusts under the "First Trust"
brand name and other securities. An Illinois limited partnership formed
in 1991, we act as Sponsor for successive series of:
- The First Trust Combined Series
- FT Series (formerly known as The First Trust Special Situations Trust)
- The First Trust Insured Corporate Trust
- The First Trust of Insured Municipal Bonds
- The First Trust GNMA
First Trust introduced the first insured unit investment trust in 1974.
To date we have deposited more than $27 billion in First Trust unit
investment trusts. Our employees include a team of professionals with
many years of experience in the unit investment trust industry.
We are a member of the National Association of Securities Dealers, Inc.
and Securities Investor Protection Corporation. Our principal offices
are at 1001 Warrenville Road, Lisle, Illinois 60532; telephone number
(630) 241-4141. As of December 31, 1999, the total partners' capital of
Nike Securities L.P. was $19,881,035 (audited).
This information refers only to us and not to the Trusts or to any
series of the Trusts or to any other dealer. We are including this
information only to inform you of our financial responsibility and our
ability to carry out our contractual obligations. We will provide more
detailed financial information on request.
Code of Ethics. The Sponsor and the Trusts have adopted a code of ethics
requiring the Sponsor's employees who have access to information on
Trust transactions to report personal securities transactions. The
purpose of the code is to avoid potential conflicts of interest and to
prevent fraud, deception or misconduct with respect to the Trusts.
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. If you have questions regarding the Trusts, you may
call the Customer Service Help Line at 1-800-682-7520. The Trustee is
supervised 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.
The Trustee has not participated in selecting the Securities for the
Trusts; it only provides administrative services.
Page 14
Limitations of Liabilities of Sponsor and Trustee.
Neither we nor the Trustee will be liable for taking any action or for
not taking any action in good faith according to the Indenture. We will
also not be accountable for errors in judgment. We will only be liable
for our own willful misfeasance, bad faith, gross negligence (ordinary
negligence in the Trustee's case) or reckless disregard of our
obligations and duties. The Trustee is not liable for any loss or
depreciation when the Securities are sold. If we fail to act under the
Indenture, the Trustee may do so, and the Trustee will not be liable for
any action it takes in good faith under the Indenture.
The Trustee will not be liable for any taxes or other governmental
charges or interest on the Securities which the Trustee may be required
to pay under any present or future law of the United States or of any
other taxing authority with jurisdiction. Also, the Indenture states
other provisions regarding the liability of the Trustee.
If we do not perform any of our duties under the Indenture or are not
able to act or become bankrupt, or if our affairs are taken over by
public authorities, then the Trustee may:
- Appoint a successor sponsor, paying them a reasonable rate not more
than that stated by the SEC;
- Terminate the Indenture and liquidate the Trusts; or
- Continue to act as Trustee without terminating the Indenture.
The Evaluator.
The Evaluator is Securities Evaluation Service, Inc. The Evaluator's
address is 531 East Roosevelt Road, Suite 200, Wheaton, Illinois 60187.
The Trustee, Sponsor and Unit holders may rely on the accuracy of any
evaluation prepared by the Evaluator. The Evaluator will make
determinations in good faith based upon the best available information,
but will not be liable to the Trustee, Sponsor or Unit holders for
errors in judgment.
Other Information
Legal Opinions.
Our counsel is Chapman and Cutler, 111 W. Monroe St., Chicago, Illinois,
60603. They have passed upon the legality of the Units offered hereby
and certain matters relating to federal tax law. Carter, Ledyard &
Milburn acts as the Trustee's counsel, as well as special New York tax
counsel for the Trusts.
Experts.
Ernst & Young LLP, independent auditors, have audited the Trusts'
statements of net assets, including the schedules of investments,
appearing in each Part One of this prospectus, as set forth in their
report. We've included the Trusts' statements of net assets, including
the schedules of investments, in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
Supplemental Information.
If you write or call the Trustee, you will receive free of charge
supplemental information about this Series, which has been filed with
the SEC and to which we have referred throughout. This information
states more specific details concerning the nature, structure and risks
of this product.
Page 15
FIRST TRUST (R)
THE FIRST TRUST COMBINED SERIES
Prospectus
Part Two
Sponsor:
NIKE SECURITIES L.P.
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
24-Hour Pricing Line:
1-800-446-0132
This prospectus contains information relating to the above-mentioned
unit investment trusts, but does not contain all of the information
about this investment company as filed with the Securities and Exchange
Commission in Washington, D.C. under the:
- Securities Act of 1933 (file no. set forth in Part One for each Trust)
and
- Investment Company Act of 1940 (file no. 811-05903)
Information about the Trusts, including their Codes of Ethics, can be
reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington D.C. Information regarding the operation of
the Commission's Public Reference Room may be obtained by calling the
Commission at 1-202-942-8090.
Information about the Trusts is available on the EDGAR Database on the
Commission's Internet site at
http://www.sec.gov.
To obtain copies at prescribed rates -
Write: Public Reference Section of the Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0102
e-mail address: [email protected]
December 29, 2000
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE
Page 16
First Trust (R)
The First Trust (R) Combined Series
Information Supplement
This Information Supplement provides additional information concerning
the structure, operations and risks of the unit investment trust
contained in The First Trust Combined Series not found in the prospectus
for the Trusts. This Information Supplement is not a prospectus and does
not include all of the information that you should consider before
investing in the Trust. This Information Supplement should be read in
conjunction with the prospectus for the Trust in which you are
considering investing.
This Information Supplement is dated December 29, 2000. Capitalized
terms have been defined in the prospectus.
Table of Contents
Municipal Bonds 3
Healthcare Revenue Bonds 3
Single Family Mortgage Revenue Bonds 4
Multi-Family Mortgage Revenue Bonds 4
Water and Sewerage Revenue Bonds 4
Electric Utility Revenue Bonds 5
Lease Obligation Revenue Bonds 5
Industrial Revenue Bonds 5
Transportation Facility Revenue Bonds 5
Educational Obligation Revenue Bonds 6
Resource Recovery Facility Revenue Bonds 6
Discount Bonds 6
Original Issue Discount Bonds 6
Zero Coupon Bonds 7
Premium Bonds 7
Municipal Bonds.
Certain of the bonds may be general obligations of a governmental entity
that are backed by the taxing power of such entity. Other bonds in the
funds may be revenue bonds payable from the income of a specific project
or authority and are not supported by the issuer's power to levy taxes.
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and
interest. Revenue bonds, on the other hand, are payable only from the
revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other
specific revenue source. There are, of course, variations in the
security of the different bonds in the funds, both within a particular
classification and between classifications, depending on numerous
factors. A description of certain types of revenue bonds follows.
Healthcare Revenue Bonds. Certain of the bonds may be healthcare revenue
bonds. Ratings of bonds issued for healthcare 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 may be single
family mortgage revenue bonds, which are issued for the purpose of
acquiring from originating financial institutions notes secured by
Page 1
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 may be
obligations of issuers whose revenues are primarily derived from
mortgage loans to housing projects for low to moderate income families.
The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income, increases in
taxes, employment and income conditions prevailing in local labor
markets, utility costs and other operating expenses, the managerial
ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies and social and economic
trends affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high rent
levels and income limitations imposed under Federal and state programs.
Like single family mortgage revenue bonds, multi-family mortgage revenue
bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of
other events. Certain issuers of single or multi-family housing bonds
have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In one situation the
New York City Housing Development Corporation, in reliance on its
interpretation of certain language in the indenture under which one of
its bond issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur prior
to 1992.
Water and Sewerage Revenue Bonds. Certain of the bonds 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 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
Page 2
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 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 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 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 fund 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 funds prior
to the stated maturity of such bonds.
Transportation Facility Revenue Bonds. Certain of the bonds 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 may be
obligations of issuers which are, or which govern the operation of,
Page 3
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 funds. General problems relating to college and
university obligations would include the prospect of a declining
percentage of the population consisting of "college" age individuals,
possible inability to raise tuitions and fees sufficiently to cover
increased operating costs, the uncertainty of continued receipt of
Federal grants and state funding and new government legislation or
regulations which may adversely affect the revenues or costs of such
issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Resource Recovery Facility Revenue Bonds. Certain of the bonds 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 funds prior to the stated maturity of the Bonds.
Discount Bonds. Certain of the bonds 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
funds were lower than the current market interest rates for newly issued
bonds of comparable rating and type. If such interest rates for newly
issued comparable bonds increase, the market discount of previously
issued bonds will become greater, and if such interest rates for newly
issued comparable bonds decline, the market discount of previously
issued bonds will be reduced, other things being equal. Investors should
also note that the value of bonds purchased at a market discount will
increase in value faster than bonds purchased at a market premium if
interest rates decrease. Conversely, if interest rates increase, the
value of bonds purchased at a market discount will decrease faster than
bonds purchased at a market premium. In addition, if interest rates
rise, the prepayment risk of higher yielding, premium bonds and the
prepayment benefit for lower yielding, discount bonds will be reduced. A
discount bond held to maturity will have a larger portion of its total
return in the form of taxable income and capital gain and less in the
form of tax-exempt interest income than a comparable bond newly issued
at current market rates. 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 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. 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.
Page 4
Premium Bonds. Certain of the bonds 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 by the fund 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.
Page 5
MICHIGAN TRUST SERIES
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 2000 PART ONE AND PART TWO
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. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
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 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
the Trust is debt the interest on which is excluded from gross income
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 is 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 the Trusts and 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 and the environmental tax if extended by
Congress (the "Superfund Tax"), as noted below. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his Units. If the Unit holder disposes of a Unit, he is deemed thereby
to have disposed of his entire pro rata interest in all assets of the
Trust involved including his pro rata portion of all the Bonds
represented by the Unit. The Taxpayer Relief Act of 1997 (the "1997
Act") includes provisions that treat certain transactions designed to
reduce or eliminate 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 before the date the Trust
acquired ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller) and,
consequently, such Unit holders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unit holder (subject to various non-recognition provisions of the Code).
The amount of any such gain or loss is measured by comparing the Unit
holder's pro rata share of the total proceeds from such disposition with
the Unit holder's basis for his or her fractional interest in the asset
disposed of. In the case of a Unit holder who purchases 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 Trust assets ratably according to value
as of the valuation date nearest the date of acquisition of the Units.
Unit holders should consult their own tax advisers with regard to the
calculation of basis. The tax basis reduction requirements of the 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 paid under individual policies obtained by
issuers of Bonds 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 upon 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 advisers regarding these
rules and their application. See "Portfolio" appearing in Part One for
each Trust for information relating to Bonds, if any, issued at an
original issue discount.
The Revenue Reconciliation Act of 1993 (the "1993 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
Page 2
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 1993 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. The market discount rules are
complex and Unit holders should consult their tax advisers regarding
these rules and their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, 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 certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
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.
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 are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
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 1993 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.
Page 3
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest on
certain private activity bonds (which includes most industrial and
housing revenue bonds) issued on or after August 8, 1986 is included as
an item of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR
CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY
BONDS ISSUED ON OR AFTER THAT DATE.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax
bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the
holding period of the unit. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) 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 of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisers with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisers as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder 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).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
laws of the State and City of New York, substantially to the effect that
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
Page 4
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.
All statements in the Prospectus concerning exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
Michigan Tax Status of Unit Holders
At the time of the closing for each Michigan Trust, Special Counsel to
the Fund for Michigan tax matters rendered an opinion under then
existing Michigan income tax law applicable to taxpayers whose income is
subject to Michigan income taxation substantially to the effect that:
Each Michigan Trust and the owners of Units will, in our opinion, be
treated for purposes of the Michigan income tax laws and the Single
Business Tax in substantially the same manner as they are for purposes
of the Federal income tax laws, as currently enacted. Accordingly,
Special Counsel has relied upon the opinion of Messrs. Chapman and
Cutler as to the applicability of Federal income tax laws under the
Internal Revenue Code of 1986, as currently amended, to a Michigan Trust
and the Unit holders.
Under the income tax laws of the State of Michigan, a Michigan Trust is
not an association taxable as a corporation; the income of a Michigan
Trust will be treated as the income of the Unit holders of a Michigan
Trust and be deemed to have been received by them when received by a
Michigan Trust. Interest on the Bonds in a Michigan Trust which is
exempt from tax under the Michigan income tax laws when received by a
Michigan Trust will retain its status as tax exempt interest to the Unit
holders of a Michigan Trust.
For purposes of the Michigan income tax laws, each Unit holder of a
Michigan Trust will be considered to have received his pro rata share of
interest on each Bond in a Michigan Trust when it is received by a
Michigan Trust, and each Unit holder will have a taxable event when a
Michigan Trust disposes of a Bond (whether by sale, exchange, redemption
or payment at maturity) or when the Unit holder redeems or sells his
Unit, to the extent the transaction constitutes a taxable event for
Federal income tax purposes. The tax cost of each Unit to a Unit holder
will be established and allocated for purposes of the Michigan income
tax laws in the same manner as such cost is established and allocated
for Federal income tax purposes.
Under the Michigan Intangibles Tax, a Michigan Trust is not taxable and
the pro rata ownership of the underlying bonds, as well as the interest
thereon, will be exempt to the Unit holders to the extent a Michigan
Trust consists of obligations of the State of Michigan or its political
subdivisions or municipalities, or of obligations of possessions of the
United States. The Intangible Tax is being phased out, with reductions
of twenty-five (25%) in 1994 and 1995, fifty percent (50%) in 1996 and
seventy-five percent (75%) in 1997, with total repeal effective January
1, 1998.
The Michigan Single Business Tax replaced the tax on corporate and
financial institution income under the Michigan Income Tax, and the
intangible tax with respect to those intangibles of persons subject to
the Single Business Tax the income from which would be considered in
computing the Single Business Tax. Persons are subject to the Single
Business Tax only if they are engaged in "business activity," as defined
in the Act. Under the Single Business Tax, both interest received by a
Michigan Trust on the underlying Bonds and any amount distributed from a
Michigan Trust to a Unit holder, if not included in determining taxable
income for Federal income tax purposes, is also not included in the
adjusted tax base upon which the Single Business Tax is computed, of
either a Michigan Trust or the Unit holders. If a Michigan Trust or the
Unit holders have a taxable event for Federal income tax purposes when a
Michigan Trust disposes of a Bond (whether by sale, exchange, redemption
or payment at maturity) or the Unit holder redeems or sells his Unit, an
amount equal to any gain realized from such taxable event which was
included in the computation of taxable income for Federal income tax
purposes (plus an amount equal to any capital gain of an individual
realized in connection with such event but excluded in computing that
individual's Federal taxable income) will be included in the tax base
against which, after allocation, apportionment and other adjustments,
the Single Business Tax is computed. The tax base will be reduced by an
amount equal to any capital loss realized from such a taxable event,
whether or not the capital loss was deducted in computing Federal
taxable income in the year the loss occurred. Unit holders should
consult their tax advisor as to their status under Michigan law.
Page 5
Any proceeds paid under an insurance policy issued to the Trustee of the
Fund, or paid under individual policies obtained by issuers of Bonds, or
by the underwriter of the Bonds, or the Sponsor or others which, when
received by the Unit holders, represent maturing interest on defaulted
obligations held by the Trustee, will be excludable from the Michigan
income tax laws and the Single Business Tax if, and to the same extent
as, such interest would have been so excludable if paid by the issuer of
the defaulted obligations. While treatment under the Michigan
Intangibles Tax is not premised upon the characterization of such
proceeds under the Internal Revenue Code, the Michigan Department of
Treasury should adopt the same approach as under the Michigan income tax
laws and the Single Business Tax.
As the Tax Reform Act of 1986 eliminates the capital gain deduction for
tax years beginning after December 31, 1986, the Federal adjusted gross
income, the computation base for the Michigan Income Tax, of a Unit
holder will be increased accordingly to the extent such capital gains
are realized when a Michigan Trust disposes of a Bond or when the Unit
holder redeems or sells a Unit, to the extent such transaction
constitutes a taxable event for Federal income tax purposes.
For information with respect to the Federal income tax status and other
tax matters, see "What is the Federal Tax Status of Unit Holders?"
Certain Considerations
Economic Outlook. Investors should be aware that the economy of the
State of Michigan has, in the past, proven to be cyclical, due primarily
to the fact that the leading sector of the state's economy is the
manufacturing of durable goods. Since the mid-1990s, Michigan has made
an effort to diversify its economy and expand sectors other than durable
goods manufacturing, allowing the state to experience its best economic
performance in a generation. Since 1994, the state unemployment rate has
remained below the national average, overall employment has risen
steadily, and business relocations and expansions in the state have
increased dramatically. While Michigan's efforts to diversify its
economy have proven successful, durable goods manufacturing still
represents a sizable portion of the state's economy. The Michigan
economy could continue to be affected by changes in the auto industry,
notably consolidation and plant closings resulting from competitive
pressures and over-capacity. Such actions could adversely affect state
revenues, and the financial impact on local units of government could be
more severe in the areas where plants are closed. As a result, any
substantial national economic downturn is likely to have an adverse
effect on the economy and revenues of the state and some of its local
governmental units.
Revenues and Expenditures. Michigan's Budget Stabilization Fund (BSF),
also known as the "Rainy Day Fund," was established in 1977 to assist in
stabilizing revenue and employment during economic downturns and to
maintain the state's credit rating. At the end of FY 1998, the BSF
contained $1.05 billion, including a $49 million deposit and $65 million
interest earned.
The Michigan Constitution of 1963 limits the amount of total revenues
raised from taxes and certain other sources to a level for each fiscal
year equal to a percentage of the state's personal income for the prior
calendar year. In the event that the state's total revenues exceed the
limit by 1% or more, the Constitution requires that the excess be
refunded to taxpayers. These limits on taxes could hurt the value of
Michigan bonds in the portfolio or make it more difficult for Michigan's
local governments to pay their debt service.
Debt Management. Michigan's borrowings fall into two main categories:
general obligation debt and revenue dedicated debt. This second type is
issued with the provision that repayment will only be made from specific
dedicated revenue sources and is not a general obligation of the state.
The state's long-term general obligation debt can only be issued with
the approval of the voters or for the purpose of making loans to school
districts. Short-term general obligation debt, which must be repaid
within the fiscal year it is borrowed, may be issued with the approval
of the legislature but may not exceed 15% of undedicated revenues in the
prior year.
Ratings. On January 21, 1998, Standard & Poor's Ratings Service
increased its rating for State of Michigan general obligation bonds to
AA+. Moody's Investors Service, Inc. upgraded Michigan general
obligation bonds to Aa1 from its previous rating of Aa2 on October 16,
1998. Fitch IBCA, Inc. also upgraded its rating of AA to AA+ on April
15, 1998.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
Page 6
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Michigan Trusts 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 Michigan Trusts to pay interest on or
principal of the Bonds.
Page 7
Michigan Trust Series
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A 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 TRUST
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.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 8
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 272, certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment of its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the
Village of Lisle and State of Illinois on December 29, 2000.
THE FIRST TRUST COMBINED SERIES 272
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title* Date
David J. Allen Sole Director of )
Nike Securities )
Corporation, ) December 29, 2000
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated December 11, 2000 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated
December 27, 2000.
ERNST & YOUNG LLP
Chicago, Illinois
December 26, 2000
