File No. 33-26316
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 9
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 73
(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 : May 30, 1997
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
March 13, 1997.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
6,713 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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, but may be subject to state and local income taxes. Capital gains, if
any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds, Series 179 (the "Trust") is an
insured and fixed portfolio of interest-bearing obligations issued by or on
behalf of municipalities and other governmental authorities, the interest on
which is, in the opinion of recognized bond counsel to the issuing
governmental authorities, exempt from all Federal income taxes under existing
law. At April 16, 1997, each Unit represented a 1/6,713 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 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 the Sponsor. 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 4.4% of the Public Offering Price (4.603%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $871.61 plus net interest accrued to date of settlement (three
business days after such date) of $10.48 and $29.44 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 6.49% per annum on April 16, 1997, and 6.41% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 2.54% per annum on April 16, 1997, and 2.46%
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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $5,580,000
Number of Units 6,713
Fractional Undivided Interest in the Trust per Unit 1/6,713
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $5,593,702
Aggregate Value of Bonds per Unit $833.26
Sales Charge 4.603% (4.4% of Public Offering Price) $38.35
Public Offering Price per Unit $871.61*
Redemption Price and Sponsor's Repurchase Price per Unit
($38.35 less than the Public Offering Price per Unit) $833.26*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $2,004,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $3,006 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 $.25
of the Sponsor per Unit annually
[FN]
*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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $58.48 $58.48
Less: Estimated Annual Expense $2.58 $1.92
Estimated Net Annual Interest Income $55.90 $56.56
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $55.90 $56.56
Divided by 12 and 2, Respectively $4.66 $28.28
Estimated Daily Rate of Net Interest Accrual $.1553 $.1571
Estimated Current Return Based on Public Offering
Price 6.41% 6.49%
Estimated Long-Term Return Based on Public Offering
Price 2.46% 2.54%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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 73, The First Trust of Insured Municipal
Bonds, Series 179
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust of Insured Municipal Bonds, Series 179 as of January 31, 1997, and the
related statements of operations and changes in net assets for each of the
three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust of Insured Municipal Bonds, Series 179 at January
31, 1997, and the results of its operations and changes in its net assets for
each of the three years in the period then ended in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $5,389,229)
(Note 1) $5,720,103
Accrued interest 136,177
___________
5,856,280
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 12,227
Cash overdraft 31,801
Accrued liabilities 54
___________
44,082
___________
Net assets, applicable to 6,779 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $5,389,229
Net unrealized appreciation (Note 2) 330,874
Distributable funds 92,095
__________
$5,812,198
==========
Net asset value per unit $857.38
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(g) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Beeville, Texas, Water Supply District, 1999 @ 100
Refunding, Series 1989 (MBIA Insured) (c) 7.375% 3/01/2007 2004 @ 100 S.F. AAA $975,000 1,032,521
Illinois Health Facilities Authority, Revenue,
Series 1987 (Northern Illinois Medical 1997 @ 102
Center), McHenry, Illinois (AMBAC Insured) (c) 7.875 9/01/2014 2006 @ 100 S.F. AAA 170,000 176,692
Illinois Health Facilities Authority, Revenue,
Series 1987 (The University of Chicago
Hospitals Project) (BIG Insured) (c)(f) 8.10 8/01/2014 1997 @ 102 AAA 275,000 286,159
Louisiana Public Facilities Authority, Health
and Education Capital Facilities Revenue
(Our Lady of the Lake Regional Medical Center), 1998 @ 102
Series 1985C (BIG Insured) (c) 8.20 12/01/2015 2001 @ 100 S.F. AAA 1,000,000 1,072,430
Metropolitan Fair and Exposition Authority
(Illinois), Dedicated State Tax Revenue,
Series 1986A (BIG Insured) (c) (f) 7.00 6/01/2011 1997 @ 102 AAA 85,000 87,550
Mississippi Housing Finance Corporation, Single
Family Mortgage Purchase Revenue 1998 @ 102
Refunding, Series A (FGIC Insured) (c) 7.80 10/15/2016 2009 @ 100 S.F. AAA 190,000 196,059
The City of New York, General Obligation, Fiscal
1987 Series D (BIG Insured) (c) 8.00 8/01/2006 1997 @ 102 AAA 45,000 46,608
Piedmont Municipal Power Agency (South
Carolina), Electric Revenue, 1988 Refunding
Series (AMBAC Insured) (c) - (d) 1/01/2013 2008 @ 68.373 S.F. AAA 300,000 122,352
Piedmont Municipal Power Agency (South
Carolina), Electric Revenue, 1988 Refunding
Series A (AMBAC Insured) (c) - (e) 1/01/2009 AAA 200,000 104,724
Provo City, Utah, Energy System Revenue, 1988
Series A (FGIC Insured) (c)(f) 7.625 11/01/2012 1999 @ 100 AAA 485,000 526,419
City of San Antonio, Texas, Electric and Gas
Systems, Revenue Improvement, New
Series 1988 (FGIC Insured) (c)(f) 8.00 2/01/2016 1998 @ 102 AAA 35,000 36,838
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
PORTFOLIO (continued) - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(g) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Washington Health Care Facilities Authority,
Revenue, Refunding Series 1988
(Multicare Medical Center, Tacoma) 1998 @ 102
(FGIC Insured) (c) 7.875% 8/15/2011 2001 @ 100 S.F. AAA $980,000 1,047,414
State of West Virginia, West Virginia Board of
Regents, Registration Fee Revenue, 1989
Series B (MBIA Insured) (c)(f) 7.40 4/01/2009 1999 @ 102 AAA 910,000 984,337
______________________
$5,650,000 5,720,103
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
NOTES TO PORTFOLIO
January 31, 1997
(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) except for zero coupon bonds
which are redeemable at prices based on the issue price plus the amount
of original issue discount accreted to the redemption date plus, if
applicable, some premium, the amount of which will decline in subsequent
years. "S.F." indicates a sinking fund is established with respect to
an issue of bonds. In addition, certain bonds 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. Approximately 91% of the aggregate principal amount of
the Bonds in the Trust is subject to call within five years.
(b) The ratings shown are those effective at January 31, 1997.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on March 23, 1988 at a price of 15.204% of their original
principal amount.
(e) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The bonds were issued at an original issue
discount on November 22, 1988 at a price of 22.314% of their original
principal amount.
(f) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
NOTES TO PORTFOLIO (continued)
January 31, 1997
(g) The Trust consists of thirteen obligations of issuers located in nine
states. One of the Bonds in the Trust, representing approximately 1% of
the aggregate principal amount of the 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, 4; Utility, 2;
Water, 1; University and School, 1; Electric, 2; Single Family Housing,
1; and Miscellaneous, 1. Approximately 43% and 3% of the aggregate
principal amount of the Bonds consist of health care revenue bonds and
single family residential mortgage revenue bonds, respectively. Each of
four Bond issues represents 10% or more of the aggregate principal
amount of the Bonds in the Trust or a total of approximately 68%. The
largest such issue represents approximately 18%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $450,633 520,355 626,322
Expenses:
Trustee's fees and related expenses (10,670) (10,652) (12,016)
Evaluator's fees (3,006) (3,006) (3,006)
Supervisory fees (1,865) (1,949) (2,339)
________________________________
Investment income - net 435,092 504,748 608,961
Net gain (loss) on investments:
Net realized gain (loss) 67,756 13,847 56,416
Change in net unrealized appreciation
or depreciation (274,620) 151,552 (669,832)
________________________________
(206,864) 165,399 (613,416)
________________________________
Net increase (decrease) in net assets
resulting from operations $228,228 670,147 (4,455)
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $435,092 504,748 608,961
Net realized gain (loss) on investments 67,756 13,847 56,416
Change in net unrealized appreciation or
depreciation on investments (274,620) 151,552 (669,832)
__________________________________
228,228 670,147 (4,455)
Distributions to unit holders:
Investment income - net (448,590) (502,093) (598,965)
Principal from investment transactions (931,042) (26,805) (95,971)
__________________________________
(1,379,632) (528,898) (694,936)
Unit redemptions (681, 336 and 1,694 in
1997, 1996 and 1995, respectively):
Principal portion (618,710) (335,625) (1,674,200)
Net interest accrued (11,090) (8,312) (36,618)
__________________________________
(629,800) (343,937) (1,710,818)
__________________________________
Total increase (decrease) in net assets (1,781,204) (202,688) (2,410,209)
Net assets:
At the beginning of the year 7,593,402 7,796,090 10,206,299
__________________________________
At the end of the year (including
distributable funds applicable to
Trust units of $92,095, $116,004 and
$123,435 at January 31, 1997, 1996
and 1995, respectively) $5,812,198 7,593,402 7,796,090
==================================
Trust units outstanding at the end of
the year 6,779 7,460 7,796
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
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 the
Sponsor. 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 Date of Deposit, February 2, 1989. 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 which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Prior to September
1, 1995, the Trustee was United States Trust Company of New York; effective
September 1, 1995, The Chase Manhattan Bank succeeded United States Trust
Company of New York as Trustee. Additionally, a fee of $3,006 annually is
payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $335,323
Unrealized depreciation (4,449)
________
$330,874
========
</TABLE>
<PAGE>
3. Insurance
All issues of bonds in the Trust are insured under insurance obtained by the
issuers of the bonds (see Note (c) to Portfolio). Such insurance continues in
force so long as the bonds are outstanding and the insurers remain in
business.
4. 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 4.9% of the public offering price which is equivalent to
approximately 5.152% of the net amount invested.
Distributions of net interest income -
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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $62.35 66.03 67.26
Semi-annual 62.97 66.57 67.93
</TABLE>
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $62.68 67.76 69.31
Expenses (2.16) (2.03) (1.92)
_____________________________
Investment income - net 60.52 65.73 67.39
Distributions to unit holders:
Investment income - net (62.64) (66.21) (67.49)
Principal from investment transactions (129.98) (3.51) (10.25)
Net gain (loss) on investments (28.40) 21.86 (65.12)
_____________________________
Total increase (decrease) in net assets (160.50) 17.87 (75.47)
Net assets:
Beginning of the year 1,017.88 1,000.01 1,075.48
_____________________________
End of the year $857.38 1,017.88 1,000.01
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 179
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.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
3,640 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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 Minnesota State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Minnesota Trust,
Series 15 (the "Trust") is an insured and fixed portfolio of interest-bearing
obligations issued by or on behalf of municipalities and other governmental
authorities within the State of Minnesota, 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 Minnesota State and
local income taxes under existing law. At April 16, 1997, each Unit
represented a 1/3,640 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 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 the Sponsor. 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 3.0% of the Public Offering Price (3.093%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $602.24 plus net interest accrued to date of settlement (three
business days after such date) of $7.20 and $20.46 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_____________________________________________________________________________
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 5.93% per annum on April 16, 1997, and 5.86% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.29% per annum on April 16, 1997, and 4.21%
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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $2,195,000
Number of Units 3,640
Fractional Undivided Interest in the Trust per Unit 1/3,640
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,126,370
Aggregate Value of Bonds per Unit $584.17
Sales Charge 3.093% (3.0% of Public Offering Price) $18.07
Public Offering Price per Unit $602.24*
Redemption Price and Sponsor's Repurchase Price per Unit
($18.07 less than the Public Offering Price per Unit) $584.17*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,094,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $1,641 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 $.25
of the Sponsor per Unit annually
[FN]
*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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $38.04 $38.04
Less: Estimated Annual Expense
Excluding Insurance $2.33 $1.92
Annual Premium on Portfolio Insurance $.39 $.39
Estimated Net Annual Interest Income $35.32 $35.73
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $35.32 $35.73
Divided by 12 and 2, Respectively $2.94 $17.87
Estimated Daily Rate of Net Interest Accrual $.0981 $.0992
Estimated Current Return Based on Public
Offering Price 5.86% 5.93%
Estimated Long-Term Return Based on Public
Offering Price 4.21% 4.29%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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 73, The First Trust of
Insured Municipal Bonds - Multi-State,
Minnesota Trust, Series 15
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust of Insured Municipal Bonds - Multi-State, Minnesota Trust, Series 15 as
of January 31, 1997, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust of Insured Municipal Bonds - Multi-State, Minnesota
Trust, Series 15 at January 31, 1997, and the results of its operations and
changes in its net assets for each of the three years in the period then ended
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $1,973,340)
(Notes 1 and 3) $2,171,855
Accrued interest 32,759
Cash 10,758
Receivable from investment transaction 535,000
__________
2,750,372
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 6,176
Accrued liabilities 37
__________
6,213
__________
Net assets, applicable to 3,671 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $1,973,340
Net unrealized appreciation (Note 2) 198,515
Distributable funds 572,304
__________
$2,744,159
==========
Net asset value per unit $747.52
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(g) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
City of Minneapolis, Minnesota, Hospital
Facilities Refunding Revenue (LifeSpan Inc.
Issue), Series 1988-A (f) 7.875% 12/01/2014 1997 @ 102 AAA $360,000 379,249
Northern Municipal Power Agency (Minnesota),
Electric System Revenue, Refunding -(d) 1/01/2011 AAA 275,000 127,946
Series 1989 A (AMBAC Insured) (c)(f) 7.40 1/01/2018 1999 @ 102 AAA 660,000 710,641
City of Robbinsdale, Minnesota, Hospital
Refunding Revenue (North Memorial Medical
Center Project), Series 1989 (AMBAC
Insured) (c) (f) 7.375 1/01/2019 1999 @ 102 AAA 710,000 762,802
Southern Minnesota Municipal Power Agency,
Power Supply System Revenue, Series 1997 @ 100
1986 C (e) 5.00 1/01/2017 2016 @ 100 S.F. A+ 210,000 191,217
______________________
$2,215,000 2,171,855
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
NOTES TO PORTFOLIO
January 31, 1997
(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. Approximately 82% of
the aggregate principal amount of the Bonds in the Trust is subject to
call within five years.
(b) The ratings shown are those effective at January 31, 1997.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on February 2, 1989 at a price of 20.13% of their original
principal amount.
(e) These Bonds were issued at an original issue discount on November 15,
1986 at a price of 74.029% of their original principal amount.
(f) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(g) The Trust consists of four obligations of issuers located in Minnesota.
None of the Bonds in the Trust are general obligations of a governmental
entity. All issues are revenue bonds payable from the income of a
specific project or authority and are divided by purpose of issue as
follows: Electric 2; and Health Care 2. Approximately 52% and 48% of
the aggregate principal amount of the Bonds consist of electric revenue
bonds and health care revenue bonds, respectively. Each of three Bond
issues represents 10% or more of the aggregate principal amount of the
Bonds in the Trust or a total of approximately 91%. The largest such
issue represents approximately 42%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $195,795 298,288 347,233
Expenses:
Trustee's fees and related expenses (5,761) (6,787) (7,170)
Insurance expense (Note 3) (1,824) (1,931) (2,647)
Evaluator's fees (1,641) (1,641) (1,641)
Supervisory fees (1,027) (1,127) (1,272)
________________________________
Investment income - net 185,542 286,802 334,503
Net gain (loss) on investments:
Net realized gain (loss) 10,679 (23,547) 22,013
Change in net unrealized appreciation
or depreciation (105,293) 84,909 (365,823)
________________________________
(94,614) 61,362 (343,810)
________________________________
Net increase (decrease) in net assets
resulting from operations $90,928 348,164 (9,307)
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $185,542 286,802 334,503
Net realized gain (loss) on investments 10,679 (23,547) 22,013
Change in net unrealized appreciation or
depreciation on investments (105,293) 84,909 (365,823)
__________________________________
90,928 348,164 (9,307)
Distributions to unit holders:
Investment income - net (198,053) (285,485) (343,580)
Principal from investment transactions (416,366) (564,483) (5,293)
__________________________________
(614,419) (849,968) (348,873)
Unit redemptions (437, 410 and 621 in
1997, 1996 and 1995, respectively):
Principal portion (340,961) (404,684) (613,063)
Net interest accrued (5,608) (8,571) (8,998)
__________________________________
(346,569) (413,255) (622,061)
__________________________________
Total increase (decrease) in net assets (870,060) (915,059) (980,241)
Net assets:
At the beginning of the year 3,614,219 4,529,278 5,509,519
__________________________________
At the end of the year (including
distributable funds applicable to
Trust units of $572,304, $52,816 and
$52,996 at January 31, 1997, 1996
and 1995, respectively) $2,744,159 3,614,219 4,529,278
==================================
Trust units outstanding at the end
of the year 3,671 4,108 4,518
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
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 the
Sponsor. 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 (see Note 3).
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, February 2, 1989. 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 -
In addition to insurance coverage acquired by the Trust (see Note 3), the
Trust pays a fee for Trustee services which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Prior to
September 1, 1995, the Trustee was United States Trust Company of New York;
effective September 1, 1995, The Chase Manhattan Bank succeeded United States
Trust Company of New York as Trustee. Additionally, a fee of $1,641 annually
is payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $198,515
Unrealized depreciation -
________
$198,515
========
</TABLE>
<PAGE>
3. Insurance
The issuers of two bond issues in the Trust acquired insurance coverage which
provides for the payment, when due, of all principal and interest on those
bonds (see Note (c) to portfolio); the Trust has acquired similar insurance
coverage on all other bonds in its portfolio. While insurance coverage
acquired by an issuer of bonds continues in force so long as the bonds are
outstanding and the insurer remains in business, insurance coverage acquired
by the Trust is effective only while the bonds are owned by the Trust and, in
the event of disposition of such a bond by the Trustee, the insurance
terminates as to such bond on the date of disposition. Pursuant to an
irrevocable commitment of Financial Guaranty Insurance Company, in the event
of a sale of a bond from the portfolio which is covered by the insurance
acquired by the Trust, the Trustee has the right to obtain permanent insurance
for such bond upon the payment of a single predetermined insurance premium
from the proceeds of the sale of such bond. Annual insurance premiums payable
by the Trust in future years, assuming no change in the portfolio, would be
$1,490.
The valuation of bonds does not include any amount attributable to the
insurance acquired by the Trust as there has been no default in the payment of
principal or interest on the bonds in the portfolio as of the date of these
financial statements and, in the opinion of the Sponsor, the bonds are being
quoted in the market at a value which does not reflect a significant risk of
such default.
4. 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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $50.72 64.96 67.95
Semi-annual 51.30 65.63 68.52
</TABLE>
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $50.18 67.32 68.82
Expenses (2.63) (2.59) (2.52)
_____________________________
Investment income - net 47.55 64.73 66.30
Distributions to unit holders:
Investment income - net (50.97) (65.16) (68.21)
Principal from investment transactions (105.00) (136.04) (1.04)
Net gain (loss) on investments (23.86) 13.77 (66.65)
_____________________________
Total increase (decrease) in net assets (132.28) (122.70) (69.60)
Net assets:
Beginning of the year 879.80 1,002.50 1,072.10
_____________________________
End of the year $747.52 879.80 1,002.50
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MINNESOTA TRUST, SERIES 15
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.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
4,333 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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 Pennsylvania State and local
income taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust,
Series 23 (the "Trust") is an insured and fixed portfolio of interest-bearing
obligations issued by or on behalf of municipalities and other governmental
authorities within the State of Pennsylvania, 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 Pennsylvania State
and local income taxes under existing law. At April 16, 1997, each Unit
represented a 1/4,333 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 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 the Sponsor. 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 3.0% of the Public Offering Price (3.093%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $644.54 plus net interest accrued to date of settlement (three
business days after such date) of $6.27 and $19.42 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 6.12% per annum on April 16, 1997, and 6.05% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 3.92% per annum on April 16, 1997, and 3.85%
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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $2,855,000
Number of Units 4,333
Fractional Undivided Interest in the Trust per Unit 1/4,333
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,708,990
Aggregate Value of Bonds per Unit $625.20
Sales Charge 3.093% (3.0% of Public Offering Price) $19.34
Public Offering Price per Unit $644.54*
Redemption Price and Sponsor's Repurchase Price per Unit
($19.34 less than the Public Offering Price per Unit) $625.20*
Discretionary Liquidation Amount of the Trust (20% of
the original principal amount of Bonds in the Trust) $1,005,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $1,508 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 $.25
of the Sponsor per Unit annually
[FN]
*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 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $41.15 $41.15
Less: Estimated Annual Expense
Excluding Insurance $2.15 $1.68
Estimated Net Annual Interest Income $39.00 $39.47
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $39.00 $39.47
Divided by 12 and 2, Respectively $3.25 $19.74
Estimated Daily Rate of Net Interest Accrual $.1083 $.1096
Estimated Current Return Based on Public
Offering Price 6.05% 6.12%
Estimated Long-Term Return Based on Public
Offering Price 3.85% 3.92%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Combined Series 73, The First Trust of
Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 23
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust, Series 23
as of January 31, 1997, and the related statements of operations and changes
in net assets for each of the three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust of Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 23 at January 31, 1997, and the results of its
operations and changes in its net assets for each of the three years in the
period then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $2,507,240)
(Note 1) $2,756,280
Accrued interest 54,689
__________
2,810,969
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 6,676
Cash overdraft 9,179
Accrued liabilities 37
__________
15,892
__________
Net assets, applicable to 4,371 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $2,507,240
Net unrealized appreciation (Note 2) 249,040
Distributable funds 38,797
__________
$2,795,077
==========
Net asset value per unit $639.46
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(f) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Charleroi Area School Authority (Washington
County, Pennsylvania), Guaranteed School
Revenue, Series 1989 (MBIA Insured) (c)(d) 7.35 % 2/01/2014 1999 @ 100 AAA $500,000 528,925
Delaware County Regional Water Quality, Control
Authority (Delcora), Delaware County,
Pennsylvania, Sewer Revenue, 1989-A Series 1999 @ 100
(MBIA Insured) (c) 7.00 5/01/2012 2005 @ 100 S.F. AAA 500,000 523,330
Pennsylvania Turnpike Commission, Pennsylvania 7.625 12/01/2017 1998 @ 102 AAA 200,000 216,304
Turnpike Revenue, Series C (FGIC Insured) (c)(d) 7.625 12/01/2017 1998 @ 102 AAA 455,000 492,091
The Philadelphia Municipal Authority, Philadelphia,
Pennsylvania, Criminal Justice Center Refunding
Revenue, Series of 1988 (FGIC Insured) (c)(d) 7.80 4/01/2018 2000 @ 100 AAA 740,000 808,793
Municipal Authority of Westmoreland County
(Westmoreland County, Pennsylvania), Municipal
Service Revenue, Series K (FGIC Insured) (c) -(e) 7/01/2013 AAA 475,000 186,837
______________________
$2,870,000 2,756,280
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
NOTES TO PORTFOLIO
January 31, 1997
(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. Approximately 83% of
the aggregate principal amount of the Bonds in the Trust is subject to
call within five years.
(b) The ratings shown are those effective at January 31, 1997.
(c) Insurance has been obtained by the Bond issuer. No insurance premium is
payable by the Trust.
(d) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(e) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on June 15, 1987 at a price of 10.883% of their original
principal amount.
(f) The Trust consists of five obligations of issuers located in
Pennsylvania. None of the Bonds in the Trust are general obligations of
a governmental entity. All issues are revenue bonds payable from the
income of a specific project or authority and are divided by purpose of
issue as follows: Transportation, 1; Sewer, 1; University and School,
1; and Miscellaneous, 2. Approximately 23% of the aggregate principal
amount of the Bonds in the Trust consists of transportation revenue
bonds. Each of the Bond issues represents 10% or more of the aggregate
principal amount of the Bonds in the Trust. The largest such issue
represents approximately 26%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $192,546 272,479 356,157
Expenses:
Trustee's fees and related expenses (5,722) (6,650) (7,183)
Evaluator's fees (1,508) (1,508) (1,508)
Supervisory fees (1,139) (1,220) (1,263)
________________________________
Investment income - net 184,177 263,101 346,203
Net gain (loss) on investments:
Net realized gain (loss) (27,301) (105,179) (14,151)
Change in net unrealized appreciation
or depreciation (61,870) 191,506 (316,318)
________________________________
(89,171) 86,327 (330,469)
________________________________
Net increase in net assets resulting
from operations $95,006 349,428 15,734
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $184,177 263,101 346,203
Net realized gain (loss) on investments (27,301) (105,179) (14,151)
Change in net unrealized appreciation
or depreciation on investments (61,870) 191,506 (316,318)
__________________________________
95,006 349,428 15,734
Distributions to unit holders:
Investment income - net (193,191) (277,692) (350,807)
Principal from investment transactions (644,122) (904,091) -
__________________________________
(837,313) (1,181,783) (350,807)
Unit redemptions (186, 322 and 188 in
1997, 1996 and 1995, respectively):
Principal portion (121,311) (272,381) (185,026)
Net interest accrued (2,755) (6,369) (5,034)
__________________________________
(124,066) (278,750) (190,060)
__________________________________
Total increase (decrease) in net assets (866,373) (1,111,105) (525,133)
Net assets:
At the beginning of the year 3,661,450 4,772,555 5,297,688
__________________________________
At the end of the year (including
distributable funds applicable
to Trust units of $38,797, $42,838
and $68,334 at January 31,
1997, 1996 and 1995, respectively) $2,795,077 3,661,450 4,772,555
==================================
Trust units outstanding at the end
of the year 4,371 4,557 4,879
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
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 the
Sponsor. 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 Date of Deposit, February 2, 1989. 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 which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Prior to September
1, 1995, the Trustee was United States Trust Company of New York; effective
September 1, 1995, The Chase Manhattan Bank succeeded United States Trust
Company of New York as Trustee. Additionally, a fee of $1,508 annually is
payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $249,040
Unrealized depreciation -
________
$249,040
========
</TABLE>
<PAGE>
3. Insurance
All issues of bonds in the portfolio are insured under insurance obtained by
the issuers of the bonds (see Note (c) to portfolio). Such insurance coverage
continues in force so long as the bonds are outstanding and the insurers
remain in business.
4. 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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $43.15 59.14 70.55
Semi-annual 43.70 59.65 71.10
</TABLE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $42.98 57.47 71.56
Expenses (1.87) (1.98) (2.00)
___________________________
Investment income - net 41.11 55.49 69.56
Distributions to unit holders:
Investment income - net (43.36) (59.30) (70.95)
Principal from investment transactions (142.12) (189.16) -
Net gain (loss) on investments (19.65) 18.27 (65.96)
___________________________
Total increase (decrease) in net assets (164.02) (174.70) (67.35)
Net assets:
Beginning of the year 803.48 978.18 1,045.53
___________________________
End of the year $639.46 803.48 978.18
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 23
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.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
5,554 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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 Kansas State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust Advantage, Kansas Trust, Series 3 (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 Kansas,
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 Kansas
State and local income taxes under existing law. At April 16, 1997, each Unit
represented a 1/5,554 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 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 the Sponsor. 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 3.0% of the Public Offering Price (3.093%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $931.12 plus net interest accrued to date of settlement (three
business days after such date) of $10.40 and $32.25 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 7.06% per annum on April 16, 1997, and 6.99% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 1.87% per annum on April 16, 1997, and 1.79%
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 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $5,010,000
Number of Units 5,554
Fractional Undivided Interest in the Trust per Unit 1/5,554
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $5,016,332
Aggregate Value of Bonds per Unit $903.19
Sales Charge 3.093% (3.00% of Public Offering Price) $27.93
Public Offering Price per Unit $931.12*
Redemption Price and Sponsor's Repurchase Price per Unit
($27.93 less than the Public Offering Price per Unit) $903.19*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,190,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $1,785 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 $.25
of the Sponsor. per unit annually
[FN]
*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 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $67.42 $67.42
Less: Estimated Annual Expense $2.38 $1.71
Estimated Net Annual Interest Income $65.04 $65.71
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $65.04 $65.71
Divided by 12 and 2, Respectively $5.42 $32.86
Estimated Daily Rate of Net Interest Accrual $.1807 $.1825
Estimated Current Return Based on Public
Offering Price 6.99% 7.06%
Estimated Long-Term Return Based on Public
Offering Price 1.79% 1.87%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 73, The First Trust Advantage,
Kansas Trust, Series 3
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust Advantage, Kansas Trust, Series 3 as of January 31, 1997, and the
related statements of operations and changes in net assets for each of the
three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust Advantage, Kansas Trust, Series 3 at January 31,
1997, and the results of its operations and changes in its net assets for each
of the three years in the period then ended in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $5,108,248)
(Note 1) $5,120,338
Accrued interest 111,217
__________
5,231,555
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 16,214
Cash overdraft 19,761
Accrued liabilities 66
__________
36,041
__________
Net assets, applicable to 5,611 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $5,108,248
Net unrealized appreciation (Note 2) 12,090
Distributable funds 75,176
__________
$5,195,514
==========
Net asset value per unit $925.95
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon
interest Date of Redemption Principal Market
Name of issuer and title of bond(f) rate maturity provisions(a) Rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
City of Chanute, Kansas, Electric Light,
Water and Gas Systems Revenue Refunding,
Series 1988 (MBIA Insured) (c) 7.35% 5/01/2004 1998 @ 101 AAA $900,000 944,496
Kansas City, Kansas, Industrial Revenue
(Fresh Start Bakeries, Inc. Project) (c) 10.50 12/01/1998 AAA 950,000 1,055,440
City of Manhattan, Kansas, General Obligation,
Series 181 6.00 11/01/2006 1998 @ 100 Aa (e) 100,000 102,520
6.00 11/01/2007 1998 @ 100 Aa (e) 100,000 102,352
6.00 11/01/2008 1998 @ 100 Aa (e) 70,000 71,237
Unified School District No. 265, Sedgwick County,
Kansas (Goddard), General Obligation
Refunding and Improvement, Series 1988
(FGIC Insured) (c) 7.40 12/01/2003 1998 @ 100 AAA 425,000 450,848
Shawnee County, Kansas, Health Care Facility
Revenue, The Menninger Foundation, 1997 @ 102
Series 1987 6.80 8/15/2007 2003 @ 100 S.F. AA- 1,605,000 1,659,858
City of Wichita, Kansas, Hospital Facilities
Improvement and Refunding Revenue
(St. Francis Regional Medical Center, Inc.),
Refunding, Series III-B 1987 (MBIA Insured) (c) 8.25 10/01/2017 1997 @ 102 AAA 620,000 650,460
City of Wichita, Kansas, Single Family Mortgage
Revenue (Multiple Originators and Servicers),
1984 Series A (MBIA Insured) -(d) 3/01/2016 2007 @ 37.341 S.F. AAA 270,000 35,999
General Obligation School, Series 1989 of Unified
School District No. 203, Wyandotte County,
Kansas (Piper) (c) 7.40 9/01/2008 1998 @ 100 NR 45,000 47,128
______________________
$5,085,000 5,120,338
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
NOTES TO PORTFOLIO
January 31, 1997
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year or, if
currently redeemable, the redemption price at January 31, 1997. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value), except for zero coupon
bonds which are redeemable at prices based on the issue price plus the
amount of original issue discount accreted to the redemption date plus,
if applicable, some premium, the amount of which will decline in
subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of bonds. In addition, certain bonds 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. Approximately 95% of the aggregate
principal amount of the Bonds in the Trust is subject to call, or will
mature, within five years.
(b) The ratings shown are those effective at January 31, 1997. All ratings
are by Standard & Poor's Corporation unless otherwise indicated ("NR"
indicates no rating).
(c) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on September 25, 1984 at a price of 3.205% of their original
principal amount.
(e) Rating by Moody's Investors Service, Inc.
(f) The Trust consists of eight obligations of issuers located in Kansas.
Three of the Bonds in the Trust, representing approximately 15% of the
aggregate principal amount of the Bonds in the Trust, are general
obligations 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, 2; Utility, 1;
Single Family Housing, 1; and Miscellaneous, 1. Approximately 44% and
5% of the aggregate principal amount of the Bonds consist of health care
revenue bonds and single family residential mortgage revenue bonds,
respectively. Each of four Bond issues represents 10% or more of the
aggregate principal amount of the Bonds in the Trust or a total of
approximately 80%. The largest such issue represents approximately 32%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $383,487 399,043 409,442
Expenses:
Trustee's fees and related expenses (6,936) (8,732) (8,826)
Evaluator's fees (1,785) (1,785) (1,785)
Supervisory fees (1,451) (1,501) (1,522)
________________________________
Investment income - net 373,315 387,025 397,309
Net gain (loss) on investments:
Net realized gain (loss) 3,970 9,901 36,870
Change in net unrealized appreciation or
depreciation (159,212) 75,080 (468,002)
________________________________
(155,242) 84,981 (431,132)
________________________________
Net increase (decrease) in net assets
resulting from operations $218,073 472,006 (33,823)
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $373,315 387,025 397,309
Net realized gain (loss) on investments 3,970 9,901 36,870
Change in net unrealized appreciation
or depreciation on investments (159,212) 75,080 (468,002)
__________________________________
218,073 472,006 (33,823)
Distributions to unit holders:
Investment income - net (371,471) (386,549) (407,750)
Principal from investment transactions - - (248,168)
__________________________________
(371,471) (386,549) (655,918)
Unit redemptions (195, 201 and 88 in 1997,
1996 and 1995, respectively):
Principal portion (180,019) (188,829) (83,266)
Net interest accrued (2,832) (2,921) (1,443)
__________________________________
(182,851) (191,750) (84,709)
__________________________________
Total increase (decrease) in net assets (336,249) (106,293) (774,450)
Net assets:
At the beginning of the year 5,531,763 5,638,056 6,412,506
__________________________________
At the end of the year
(including distributable funds
applicable to Trust units of
$75,176, $69,888 and $69,356
at January 31, 1997, 1996 and
1995, respectively) $5,195,514 5,531,763 5,638,056
==================================
Trust units outstanding at the
end of the year 5,611 5,806 6,007
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
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 the
Sponsor. 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 Date of Deposit, February 2, 1989. 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 which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under
the monthly and semi-annual distribution plans, respectively. Prior to
September 1, 1995, the Trustee was United States Trust Company of New York;
effective September 1, 1995, The Chase Manhattan Bank succeeded United States
Trust Company of New York as Trustee. Additionally, a fee of $1,785 annually
is payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $175,795
Unrealized depreciation (163,705)
________
$12,090
========
</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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $64.74 64.70 67.08
Semi-annual 65.40 65.28 67.62
</TABLE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $67.07 67.07 67.62
Expenses (1.78) (2.02) (2.00)
___________________________
Investment income - net 65.29 65.05 65.62
Distributions to unit holders:
Investment income - net (65.04) (65.04) (67.38)
Principal from investment transactions - - (40.73)
Net gain (loss) on investments (27.07) 14.18 (71.02)
___________________________
Total increase (decrease) in net assets (26.82) 14.19 (113.51)
Net assets:
Beginning of the year 952.77 938.58 1,052.09
___________________________
End of the year $925.95 952.77 938.58
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 3
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.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
4,429 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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 North Carolina State and local
income taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust Advantage, North Carolina Trust, Series 6 (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 North
Carolina, 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 North Carolina State and local income taxes under existing law. At
April 16, 1997, each Unit represented a 1/4,429 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 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 the Sponsor. 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 3.0% of the Public Offering Price (3.093%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $980.55 plus net interest accrued to date of settlement (three
business days after such date) of $12.28 and $33.75 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 6.57% per annum on April 16, 1997, and 6.51% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.97% per annum on April 16, 1997, and 4.91%
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 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $4,090,000
Number of Units 4,429
Fractional Undivided Interest in the Trust per Unit 1/4,429
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $4,212,575
Aggregate Value of Bonds per Unit $951.13
Sales Charge 3.093% (3.0% of Public Offering Price) $29.42
Public Offering Price per Unit $980.55*
Redemption Price and Sponsor's Repurchase Price per Unit
($29.42 less than the Public Offering Price per Unit) $951.13*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,003,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $1,505 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 $.25
of the Sponsor per Unit annually
[FN]
*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 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $66.23 $66.23
Less: Estimated Annual Expense $2.38 $1.80
Estimated Net Annual Interest Income $63.85 $64.43
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $63.85 $64.43
Divided by 12 and 2, Respectively $5.32 $32.22
Estimated Daily Rate of Net Interest Accrual $.1774 $.1790
Estimated Current Return Based on Public
Offering Price 6.51% 6.57%
Estimated Long-Term Return Based on Public
Offering Price 4.91% 4.97%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Combined Series 73, The First Trust
Advantage, North Carolina Trust, Series 6
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust Advantage, North Carolina Trust, Series 6 as of January 31, 1997, and
the related statements of operations and changes in net assets for each of the
three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust Advantage, North Carolina Trust, Series 6 at
January 31, 1997, and the results of its operations and changes in its net
assets for each of the three years in the period then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $3,928,455)
(Note 1) $4,258,422
Accrued interest 53,432
Cash 22,567
Receivable from investment transactions 10,000
__________
4,344,421
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 8,361
Accrued liabilities 27
__________
8,388
__________
Net assets, applicable to 4,439 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $3,928,455
Net unrealized appreciation (Note 2) 329,967
Distributable funds 77,611
__________
$4,336,033
==========
Net asset value per unit $976.80
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(g) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
The Charlotte-Mecklenburg Hospital Authority
(North Carolina), Health Care System Revenue,
Series H (f) 8.00 % 10/01/2018 1998 @ 102 AAA $470,000 508,544
Certificates of Participation, City of
Greensboro, North Carolina, Lease/Purchase
Agreement with Greensboro Center City
Corporation (f) 7.90 7/01/2009 1998 @ 102 AAA 710,000 761,808
North Carolina Eastern Municipal Power Agency,
Power System Revenue, Refunding Series 1989 A - (d) 1/01/2003 BBB+ 75,000 56,002
7.25(c)(f) 1/01/2023 1999 @ 102 BBB+ 885,000 950,507
North Carolina Housing Finance Agency, Single 1998 @ 102
Family Revenue, Series E (1985 Resolution) 8.125 9/01/2019 2016 @ 100 S.F. A+ 140,000 144,200
North Carolina Housing Finance Agency, Single 1998 @ 102
Family Revenue, Series G 7.80 3/01/2021 2011 @ 100 S.F. A+ 315,000 325,023
North Carolina Medical Care Commission, Hospital
Revenue Refunding, Series 1987A (Carolina
Medicorp Project) (f) 7.875 5/01/2015 1997 @ 102 AAA 525,000 540,561
North Carolina Municipal Power Agency Number 1, 1998 @ 100
Catawba Electric Revenue, Series 1988 6.00(e) 1/01/2015 2014 @ 100 S.F. A- 970,000 971,777
______________________
$4,090,000 4,258,422
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
NOTES TO PORTFOLIO
January 31, 1997
(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. Approximately 98% of
the aggregate principal amount of the Bonds in the Trust is subject to
call within five years.
(b) The ratings shown are those effective at January 31, 1997.
(c) These Bonds were issued at an original issue discount on January 15,
1989 at a price of 94.25% of their original principal amount.
(d) These Bonds have no stated interest rate ("zero coupon bonds"), and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on February 9, 1989 at a price of 36.435% of their original
principal amount.
(e) These Bonds were issued at an original issue discount on February 15,
1988 at a price of 79.414% of their original principal amount.
(f) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(g) The Trust consists of seven obligations of issuers located in North
Carolina. None of the Bonds in the Trust are general obligations of a
governmental entity. All issues are revenue bonds payable from the
income of a specific project or authority and are divided by purpose of
issue as follows: Electric, 2; Health Care, 2; Single Family Housing, 2
and Miscellaneous, 1. Approximately 47%, 24% and 11% of the aggregate
principal amount of the Bonds consist of electric revenue bonds, health
care revenue bonds and single family residential mortgage revenue bonds,
respectively. 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 89%. The largest such issue represents approximately 24%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $312,894 332,213 348,898
Expenses:
Trustee's fees and related expenses (7,128) (6,900) (7,453)
Evaluator's fees (1,505) (1,505) (1,505)
Supervisory fees (1,202) (1,223) (1,257)
________________________________
Investment income - net 303,059 322,585 338,683
Net gain (loss) on investments:
Net realized gain (loss) (2,765) 1,853 191
Change in net unrealized appreciation
or depreciation (118,559) 110,546 (307,683)
________________________________
(121,324) 112,399 (307,492)
________________________________
Net increase in net assets resulting
from operations $181,735 434,984 31,191
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $303,059 322,585 338,683
Net realized gain (loss) on investments (2,765) 1,853 191
Change in net unrealized appreciation
or depreciation on investments (118,559) 110,546 (307,683)
__________________________________
181,735 434,984 31,191
Distributions to unit holders:
Investment income - net (303,613) (321,608) (338,187)
Principal from investment transactions (63,470) (48,068) (120,430)
__________________________________
(367,083) (369,676) (458,617)
Unit redemptions (371, 85 and 141 in
1997, 1996 and 1995, respectively):
Principal portion (361,287) (84,887) (139,604)
Net interest accrued (6,663) (1,536) (2,408)
__________________________________
(367,950) (86,423) (142,012)
__________________________________
Total increase (decrease) in net assets (553,298) (21,115) (569,438)
Net assets:
At the beginning of the year 4,889,331 4,910,446 5,479,884
__________________________________
At the end of the year (including
distributable funds applicable to
Trust units of $77,611, $71,378
and $72,804 at January 31, 1997,
1996 and 1995, respectively) $4,336,033 4,889,331 4,910,446
==================================
Trust units outstanding at the end
of the year 4,439 4,810 4,895
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
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 the
Sponsor. 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 Date of Deposit, February 2, 1989. 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 which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Prior to September
1, 1995, the Trustee was United States Trust Company of New York; effective
September 1, 1995, The Chase Manhattan Bank succeeded United States Trust
Company of New York as Trustee. Additionally, a fee of $1,505 annually is
payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $336,670
Unrealized depreciation (6,703)
________
$329,967
========
</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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $65.29 65.93 67.49
Semi-annual 65.91 66.49 68.00
</TABLE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $67.09 68.33 69.74
Expenses (2.11) (1.98) (2.04)
_____________________________
Investment income - net 64.98 66.35 67.70
Distributions to unit holders:
Investment income - net (65.43) (66.20) (67.64)
Principal from investment transactions (13.68) (9.85) (24.05)
Net gain (loss) on investments (25.56) 23.03 (60.99)
_____________________________
Total increase (decrease) in net assets (39.69) 13.33 (84.98)
Net assets:
Beginning of the year 1,016.49 1,003.16 1,088.14
_____________________________
End of the year $976.80 1,016.49 1,003.16
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
NORTH CAROLINA TRUST, SERIES 6
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.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
3,793 UNITS
PROSPECTUS
Part One
Dated May 23, 1997
Note: Part One of this 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 Virginia State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust Advantage, Virginia Trust, Series 4 (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
Virginia, 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 Virginia State and local income taxes under existing law. At
April 16, 1997, each Unit represented a 1/3,793 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 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 the Sponsor. 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 3.4% of the Public Offering Price (3.520%
of the amount invested). At April 16, 1997, the Public Offering Price per
Unit was $932.01 plus net interest accrued to date of settlement (three
business days after such date) of $11.42 and $32.21 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
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 6.66% per annum on April 16, 1997, and 6.59% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 3.93% per annum on April 16, 1997, and 3.86%
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 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $3,490,000
Number of Units 3,793
Fractional Undivided Interest in the Trust per Unit 1/3,793
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,414,912
Aggregate Value of Bonds per Unit $900.32
Sales Charge 3.520% (3.4% of Public Offering Price) $31.69
Public Offering Price per Unit $932.01*
Redemption Price and Sponsor's Repurchase Price per Unit
($31.69 less than the Public Offering Price per Unit) $900.32*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,049,000
</TABLE>
Date Trust Established February 2, 1989
Mandatory Termination Date December 31, 2038
Evaluator's Fee: $1,574 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 $.25
of the Sponsor per Unit annually
[FN]
*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 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
SUMMARY OF ESSENTIAL INFORMATION AS OF APRIL 16, 1997
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 $63.90 $63.90
Less: Estimated Annual Expense $2.48 $1.84
Estimated Net Annual Interest Income $61.42 $62.06
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $61.42 $62.06
Divided by 12 and 2, Respectively $5.12 $31.03
Estimated Daily Rate of Net Interest Accrual $.1706 $.1724
Estimated Current Return Based on Public
Offering Price 6.59% 6.66%
Estimated Long-Term Return Based on Public
Offering Price 3.86% 3.93%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds 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>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 73, The First Trust Advantage,
Virginia Trust, Series 4
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 73, The First
Trust Advantage, Virginia Trust, Series 4 as of January 31, 1997, and the
related statements of operations and changes in net assets for each of the
three years in the period then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 January 31, 1997,
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 audits provide 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 73, The First Trust Advantage, Virginia Trust, Series 4 at January 31,
1997, and the results of its operations and changes in its net assets for each
of the three years in the period then ended in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 2, 1997
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $3,537,370)
(Note 1) $3,705,071
Accrued interest 45,754
Cash 19,515
__________
3,770,340
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 8,697
Accrued liabilities 26
__________
8,723
__________
Net assets, applicable to 4,045 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $3,537,370
Net unrealized appreciation (Note 2) 167,701
Distributable funds 56,546
__________
$3,761,617
==========
Net asset value per unit $929.94
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
PORTFOLIO - See notes to portfolio.
January 31, 1997
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(e) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Chesapeake Hospital Authority, Hospital
Facility Revenue (Chesapeake General Hospital),
Series 1988 (BIG Insured) (d) 7.50% 7/01/2008 1998 @ 102 AAA $100,000 106,614
Frederick-Winchester Service Authority
(Virginia), Regional Sewer System Refunding
Revenue, Series of 1989 (AMBAC Insured) (d) 7.20 10/01/2008 1999 @ 102 AAA 440,000 480,889
Industrial Development Authority of the City
of Lynchburg, Virginia, Hospital Facilities
Revenue Refunding, Centra Health, Inc.,
Series 1988 (Lynchburg General Hospital and 1998 @ 102
Virginia Baptist Hospital) 8.125 1/01/2016 2009 @ 100 S.F. A+ 950,000 1,001,015
City of Richmond, Virginia, Public Utility
Revenue, Series 1988A (d) 8.00 1/15/2018 1998 @ 102 AAA 610,000 644,934
Virginia Housing Development Authority,
Commonwealth Mortgage, 1988 Series B, 2000 @ 102
Subseries B-3 7.375 7/01/2017 2009 @ 100 S.F. AA+ 345,000 355,284
Virginia Housing Development Authority, 1997 @ 101
Multi-Family Mortgage, 1977 Series A 6.40 11/01/2018 1997 @ 100 S.F. AA 245,000 247,673
Virginia Public Building Authority, State
Building Revenue (Correctional Facilities
Project), Series 1988 A (d) - (c) 8/01/2010 1998 @ 41.559 AAA 325,000 126,883
Virginia Resources Authority, Water and Sewer
System Revenue (Pooled Loan Program),
1986 Series A (d) 7.40 11/01/2013 1999 @ 102 AA 190,000 207,227
Commonwealth Transportation Board, Commonwealth
of Virginia, Transportation Contract
Revenue, Series 1988 (Route 28 Project) (d) 7.80 3/01/2016 1998 @ 102 AAA 505,000 534,552
______________________
$3,710,000 3,705,071
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
NOTES TO PORTFOLIO
January 31, 1997
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year or, if
currently redeemable the redemption price at January 31, 1997. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value) except for zero coupon bonds
which are redeemable at prices based on the issue price plus the amount
of original issue discount accreted to the redemption date plus, if
applicable, some premium, the amount of which will decline in subsequent
years. "S.F." indicates a sinking fund is established with respect to
an issue of bonds. In addition, certain bonds 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. Al1 of the Bonds in the Trust are subject to call within
five years.
(b) The ratings shown are those effective at January 31, 1997.
(c) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on November 1, 1988 at a price of 19.132% of their original
principal amount.
(d) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(e) The Trust consists of nine obligations of issuers located in Virginia.
None of the Bonds in the Trust are general obligations of a governmental
entity. All 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, 2; Utility, 1; Transportation, 1; Single Family
Housing, 1; Sewer, 1; Other Housing, 1; Water and Sewer, 1; and
Miscellaneous, 1. Approximately 28% and 9% of the aggregate principal
amount of the Bonds consist of health care revenue bonds and single
family residential mortgage revenue bonds, respectively. Each of four
Bond issues represents 10% or more of the aggregate principal amount of
the Bonds in the Trust or a total of approximately 68%. The largest
such issue represents approximately 26%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $278,096 315,582 340,761
Expenses:
Trustee's fees and related expenses (6,405) (6,764) (7,330)
Evaluator's fees (1,574) (1,574) (1,574)
Supervisory fees (1,083) (1,192) (1,250)
________________________________
Investment income - net 269,034 306,052 330,607
Net gain (loss) on investments:
Net realized gain (loss) 6,508 15,782 9,815
Change in net unrealized appreciation
or depreciation (110,273) 64,979 (331,709)
________________________________
(103,765) 80,761 (321,894)
________________________________
Net increase in net assets resulting
from operations $165,269 386,813 8,713
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $269,034 306,052 330,607
Net realized gain (loss) on investments 6,508 15,782 9,815
Change in net unrealized appreciation
or depreciation on investments (110,273) 64,979 (331,709)
__________________________________
165,269 386,813 8,713
Distributions to unit holders:
Investment income - net (273,543) (303,726) (330,988)
Principal from investment transactions (275,305) - (4,978)
__________________________________
(548,848) (303,726) (335,966)
Unit redemptions (287, 473 and 196 in 1997,
1996 and 1995, respectively):
Principal portion (264,315) (475,303) (197,172)
Net interest accrued (4,574) (9,181) (3,184)
__________________________________
(268,889) (484,484) (200,356)
__________________________________
Total increase (decrease) in net assets (652,468) (401,397) (527,609)
Net assets:
At the beginning of the year 4,414,085 4,815,482 5,343,091
__________________________________
At the end of the year (including
distributable funds applicable
to Trust units of $56,546, $66,531
and $77,567 at January 31, 1997,
1996 and 1995, respectively) $3,761,617 4,414,085 4,815,482
==================================
Trust units outstanding at the end
of the year 4,045 4,332 4,805
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
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 the
Sponsor. 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 Date of Deposit, February 2, 1989. 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 which is based on $1.05 and $.55 per
$1,000 principal amount of Bonds for those portions of the Trust under the
monthly and semi-annual distribution plans, respectively. Prior to September
1, 1995, the Trustee was United States Trust Company of New York; effective
September 1, 1995, The Chase Manhattan Bank succeeded United States Trust
Company of New York as Trustee. Additionally, a fee of $1,574 annually is
payable to the Evaluator and the Trust pays all related expenses of the
Trustee, recurring financial reporting costs and an annual supervisory fee
payable to an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at January 31, 1997 follows:
<TABLE>
<S> <C>
Unrealized appreciation $171,187
Unrealized depreciation (3,486)
________
$167,701
========
</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 5.5% of the public offering price which is equivalent to
approximately 5.820% 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>
Type of Year ended January 31,
distribution
plan 1997 1996 1995
<S> <C> <C> <C>
Monthly $64.68 66.76 67.14
Semi-annual 65.30 67.29 67.68
</TABLE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended January 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income $65.95 69.01 69.26
Expenses (2.15) (2.08) (2.06)
_____________________________
Investment income - net 63.80 66.93 67.20
Distributions to unit holders:
Investment income - net (64.96) (66.84) (67.31)
Principal from investment transactions (63.55) - (1.02)
Net gain (loss) on investments (24.30) 16.68 (65.09)
_____________________________
Total increase (decrease) in net assets (89.01) 16.77 (66.22)
Net assets:
Beginning of the year 1,018.95 1,002.18 1,068.40
_____________________________
End of the year $929.24 1,018.95 1,002.18
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 73
THE FIRST TRUST ADVANTAGE
VIRGINIA TRUST, SERIES 4
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(registered trademark) Combined Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated May 30, 1997 AND PART THREE
IN THE OPINION OF COUNSEL, INTEREST INCOME TO THE TRUSTS AND TO THE UNIT
HOLDERS, WITH CERTAIN EXCEPTIONS, IS EXEMPT UNDER EXISTING LAW FROM ALL
FEDERAL INCOME TAXES. IN ADDITION, THE INTEREST INCOME TO THE TRUSTS IS,
IN THE OPINION OF SPECIAL COUNSEL, EXEMPT TO THE EXTENT INDICATED FROM
STATE AND LOCAL TAXES WHEN HELD BY RESIDENTS OF THE STATE IN WHICH THE
ISSUERS OF THE BONDS IN SUCH TRUSTS ARE LOCATED. CAPITAL GAINS, IF ANY,
ARE SUBJECT TO TAX.
THE FIRST TRUST COMBINED SERIES (the "Fund") consists of underlying
separate unit investment trusts (the "Trusts"). The various trusts are
collectively referred to herein as the "Trusts" while all Trusts that
are not designated as "The First Trust Advantage" are sometimes
collectively referred to herein as the "Insured Trusts" and a Trust with
the name designation of "The First Trust of Insured Municipal Bonds,
Discount Trust" or "The First Trust Advantage: Discount Trust" is
sometimes referred to herein as a "Discount Trust." Each Trust consists
of a portfolio of interest-bearing obligations, issued by or on behalf
of states and territories of the United States, and political
subdivisions and authorities thereof, the interest on which is, in the
opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income taxes under existing law
although interest on certain Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be a preference item for
purposes of the Alternative Minimum Tax. In addition, the interest
income of each Trust is, in the opinion of Special Counsel, exempt to
the extent indicated from state and local income taxes when held by
residents of the state in which the issuers of the Bonds in such Trust
are located. The securities in a Discount Trust are acquired at prices
which result in a Discount Trust portfolio, as a whole, being purchased
at a deep discount from the aggregate par value of such Securities
although a substantial portion of the Securities in a Discount Trust
portfolio may be acquired at a premium over the par value of such
Securities. All of the Bonds in an Intermediate Trust mature within 8 to
12 years of the Initial Date of Deposit. All of the Bonds in a Short
Intermediate Trust mature within 3 to 6 years of the Initial Date of
Deposit. All of the Bonds in a Long Intermediate Trust mature within 10
to 15 years of the Initial Date of Deposit. The portfolio for each
Trust, essential information based thereon and financial statements,
including a report of independent auditors relating to the series of the
Fund offered hereby, are contained in Part One to which reference should
be made for such information.
INSURANCE GUARANTEEING THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST
ON ALL BONDS IN THE PORTFOLIO OF EACH INSURED TRUST HAS BEEN OBTAINED
FROM FINANCIAL GUARANTY INSURANCE COMPANY AND/OR AMBAC INDEMNITY
CORPORATION BY THE INSURED TRUSTS OR WAS DIRECTLY OBTAINED BY THE BOND
ISSUER, THE UNDERWRITERS, THE SPONSOR OR OTHERS PRIOR TO THE INITIAL
DATE OF DEPOSIT FROM FINANCIAL GUARANTY INSURANCE COMPANY, AMBAC
INDEMNITY CORPORATION, OR OTHER INSURERS (THE "PREINSURED BONDS").
INSURANCE OBTAINED BY AN INSURED TRUST APPLIES ONLY WHILE BONDS ARE
RETAINED IN SUCH TRUST, WHILE INSURANCE ON PREINSURED BONDS IS EFFECTIVE
SO LONG AS SUCH BONDS ARE OUTSTANDING. PURSUANT TO AN IRREVOCABLE
COMMITMENT OF FINANCIAL GUARANTY INSURANCE COMPANY, AND/OR AMBAC
INDEMNITY CORPORATION IN THE EVENT OF A SALE OF A BOND INSURED UNDER AN
INSURANCE POLICY OBTAINED BY AN INSURED TRUST, THE TRUSTEE HAS THE RIGHT
TO OBTAIN PERMANENT INSURANCE FOR SUCH BOND UPON THE PAYMENT OF A SINGLE
PREDETERMINED INSURANCE PREMIUM FROM THE PROCEEDS OF THE SALE OF SUCH
BOND. THE INSURANCE, IN EITHER CASE, RELATES ONLY TO THE BONDS IN THE
INSURED TRUSTS AND NOT TO THE UNITS OFFERED HEREBY. AS A RESULT OF SUCH
INSURANCE, THE UNITS OF EACH INSURED TRUST HAVE RECEIVED A RATING OF
"AAA" BY STANDARD & POOR'S RATINGS GROUP, A DIVISION OF MCGRAW-HILL,
INC. ("STANDARD & POOR'S"). SEE "WHY AND HOW ARE THE INSURED TRUSTS
INSURED?" ON PAGE 12. NO REPRESENTATION IS MADE AS TO ANY INSURER'S
ABILITY TO MEET ITS COMMITMENTS.
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
For convenience the Prospectus is divided into sections which give
general information about the Fund and specific information such as the
public offering price, distributions and tax status for each Trust.
The Objectives of the Fund are conservation of capital through
investment in portfolios of tax-exempt bonds and income exempt from
Federal and applicable state and local income taxes although interest on
certain Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the Federal
Alternative Minimum Tax. ACCORDINGLY, CERTAIN ARKANSAS, IDAHO, KANSAS,
MAINE, MISSISSIPPI AND NEBRASKA TRUSTS MAY BE APPROPRIATE ONLY FOR
INVESTORS WHO ARE NOT SUBJECT TO THE ALTERNATIVE MINIMUM TAX. CERTAIN
BONDS IN THE OKLAHOMA TRUSTS ARE SUBJECT TO OKLAHOMA STATE INCOME TAXES.
The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers, obligors
and/or insurers to meet their respective obligations.
Distributions to Unit holders may be reinvested as described herein. See
"How Can Distributions to Unit Holders be Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain a
market for the Units at prices based upon the aggregate bid price of the
Bonds in the portfolio of each Trust. In the absence of such a market, a
Unit holder will nonetheless be able to dispose of the Units through
redemption at prices based upon the bid prices of the underlying Bonds.
See "How May Units be Redeemed?" With respect to each Insured Trust,
neither the bid nor offering prices of the underlying Bonds or of the
Units, absent situations in which Bonds are in default in payment of
principal or interest or in significant risk of such default, include
value attributable to the portfolio insurance obtained by such Trust.
See "Why and How are the Insured Trusts Insured?"
Page 2
THE FIRST TRUST COMBINED SERIES
What is The First Trust Combined Series?
The First Trust Combined Series (the "Fund") is one of a series of
investment companies created by the Sponsor under the name of The First
Trust Combined Series, all of which are generally similar but each of
which is separate and is designated by a different series number. This
Series consists of underlying separate unit investment trusts (such
Trusts being collectively referred to herein as the "Fund"). Each Series
was created under the laws of the State of New York pursuant to a Trust
Agreement (the "Indenture"), dated the Initial Date of Deposit, with
Nike Securities L.P., as Sponsor, The Chase Manhattan Bank, as Trustee,
Securities Evaluation Service, Inc., as Evaluator and First Trust
Advisors L.P., as Portfolio Supervisor. Only Units of a National Trust
may be offered for sale to residents of the State of Illinois. Only
Units of an Indiana Trust and/or a National Trust may be offered for
sale to residents of the State of Indiana. Only Units of a Virginia
Trust and/or a National Trust may be offered for sale to residents of
the State of Virginia. Only Units of a Washington Trust and/or a
National Trust may be offered for sale to residents of Washington. On
the Initial Date of Deposit, the Sponsor deposited with the Trustee
interest-bearing obligations, including delivery statements relating to
contracts for the purchase of certain such obligations and irrevocable
letters of credit issued by a financial institution in the amounts
required for such purchases (the "Bonds"). The Trustee thereafter
credited the account of the Sponsor for Units of each Trust representing
the entire ownership of the Fund which Units are being offered hereby.
The objectives of the Fund are Federal tax-exempt income and state and
local tax-exempt income and conservation of capital through investment
in portfolios of interest-bearing obligations issued by or on behalf of
the state for which such Trust is named (collectively, the "State
Trusts"), and counties, municipalities, authorities and political
subdivisions thereof, the Commonwealth of Puerto Rico and other
territories or municipalities of the United States, or authorities or
political subdivisions thereof, the interest on which obligations is, in
the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income tax and, where applicable,
state and local taxes under existing law although interest on certain
Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the
Alternative Minimum Tax and certain Bonds in the Oklahoma Trusts are
subject to Oklahoma State Income Taxes. The current market value of
certain of the obligations in a Discount Trust were significantly below
face value when the obligations were acquired by such Trust. The prices
at which the obligations are acquired result in a Discount Trust's
portfolio, as a whole, being purchased at a deep discount from the
aggregate par value of such Securities although a substantial portion of
the Securities in a Discount Trust portfolio may be acquired at a
premium over the par value of such Securities. Insurance guaranteeing
the scheduled payment of all principal and interest on Bonds in the
Trusts with the name designation of "The First Trust of Insured
Municipal Bonds," "The First Trust of Insured Municipal Bonds-
Intermediate" or "The First Trust of Insured Municipal Bonds-Multi-
State" (the "Insured Trusts") has been obtained by such Trusts from
Financial Guaranty Insurance Company ("Financial Guaranty") and/or AMBAC
Indemnity Corporation ("AMBAC Indemnity") or was obtained directly by
the Bond issuer, the underwriters, the Sponsor or others prior to the
Initial Date of Deposit from Financial Guaranty, AMBAC Indemnity, or
other insurers (the "Preinsured Bonds"). NO PORTFOLIO INSURANCE POLICY
HAS BEEN OBTAINED BY THE TRUSTS WITH THE NAME DESIGNATION OF "THE FIRST
TRUST ADVANTAGE" (THE "ADVANTAGE TRUSTS"). The portfolio insurance
obtained by the Insured Trusts is effective only while the Bonds thus
insured are held in such Trusts, while insurance on Preinsured Bonds is
effective so long as such Bonds are outstanding. See "Why and How are
the Insured Trusts Insured?" THERE IS, OF COURSE, NO GUARANTEE THAT THE
FUND'S OBJECTIVES WILL BE ACHIEVED. AN INVESTMENT IN THE FUND SHOULD BE
MADE WITH AN UNDERSTANDING OF THE RISKS WHICH AN INVESTMENT IN FIXED
RATE LONG-TERM DEBT OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE
VALUE OF THE UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of an Insured Trust nor
any evaluation of such Units for purposes of repurchases or redemptions
reflects any element of value for the insurance obtained by such Trust
unless Bonds are in default in payment of principal or interest or in
significant risk of such default. See "Public Offering-How is the Public
Offering Price Determined?" On the other hand, the value of insurance
Page 3
obtained by the Bond issuer, the Sponsor or others is reflected and
included in the market value of such Bonds.
Insurance obtained by an Insured Trust or by the Bond issuer, the
Sponsor or others is not a substitute for the basic credit of an issuer,
but supplements the existing credit and provides additional security
therefor. If an issue is accepted for insurance, a noncancelable policy
for the scheduled payment of interest and principal on the Bonds is
issued by the insurer. A single premium is paid by the Bond issuer, the
underwriters, the Sponsor or others for Preinsured Bonds and a monthly
premium is paid by each Insured Trust for the insurance obtained by such
Trust except for Bonds in such Trust which are insured by the Bond
issuer, the underwriters, the Sponsor or others in which case no
premiums for insurance are paid by such Trust. Upon the sale of a Bond
insured under the insurance policy obtained by an Insured Trust, the
Trustee has the right to obtain permanent insurance from Financial
Guaranty and/or AMBAC Indemnity with respect to such Bond upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust of the
Fund is eligible to be sold on an insured basis. Standard & Poor's and
Moody's Investors Service, Inc. have rated the claims-paying ability of
Financial Guaranty and AMBAC Indemnity "AAA" and "Aaa," respectively.
See "Why and How are the Insured Trusts Insured?"
In selecting Bonds, the following facts, among others, were considered:
(i) the Standard & Poor's rating or Fitch Investors Service, Inc.'s
rating of the Bonds was in no case less than "BBB" in the case of an
Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and "A-"
in the case of other Advantage Trusts, or the Moody's Investors Service,
Inc. rating of the Bonds was in no case less than "Baa" in the case of
an Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and
"A" in the case of other Advantage Trusts, including provisional or
conditional ratings, respectively, or, if not rated, the Bonds had, in
the opinion of the Sponsor, credit characteristics sufficiently similar
to the credit characteristics of interest-bearing tax-exempt obligations
that were so rated as to be acceptable for acquisition by the Fund (see
"Description of Bond Ratings"); (ii) the prices of the Bonds relative to
other bonds of comparable quality and maturity; (iii) with respect to
the Insured Trusts, the availability and cost of insurance of the
principal and interest on the Bonds and (iv) the diversification of
Bonds as to purpose of issue and location of issuer. Subsequent to the
Initial Date of Deposit, a Bond may cease to be rated or its rating may
be reduced below the minimum required as of the Initial Date of Deposit.
Neither event requires elimination of such Bond from the portfolio, but
may be considered in the Sponsor's determination as to whether or not to
direct the Trustee to dispose of the Bond. See "Rights of Unit Holders-
How May Bonds be Removed from the Fund?" The Portfolio appearing in Part
One contains Bond ratings, when available, for the Bonds listed at the
date shown.
Certain of the Bonds in the Trusts may have been acquired at a market
discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in the
Trust were lower than the current market interest rates for newly issued
bonds of comparable rating and type. The market discount of previously
issued bonds will increase when interest rates for newly issued
comparable bonds increase and decrease when such interest rates fall,
other things being equal. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income and
capital gain and less in the form of tax-exempt interest income than a
comparable bond newly issued at current market rates. See "What is the
Federal Tax Status of Unit Holders?" appearing in Part Three for each
Trust.
Certain of the Bonds in the Trusts may be original issue discount bonds.
Under current law, the original issue discount, which is the difference
between the stated redemption price at maturity and the issue price of
the Bonds, is deemed to accrue on a daily basis and the accrued portion
is treated as tax-exempt interest income for Federal income tax
purposes. On sale or redemption, any gain realized that is in excess of
the earned portion of original issue discount will be taxable as capital
gain unless the gain is attributable to market discount in which case
the accretion of market discount is taxable as ordinary income. See
"What is the Federal Tax Status of Unit Holders?" appearing in Part
Three for each Trust. The current value of an original 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.
Certain of the original issue discount bonds may be Zero Coupon Bonds
(including bonds known as multiplier bonds, money multiplier bonds,
Page 4
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 bond features include (1) not paying interest on a
semi-annual basis and (2) providing for the reinvestment of the bond's
semi-annual earnings at the bond's stated yield to maturity. While Zero
Coupon Bonds are frequently marketed on the basis that their fixed rate
of return minimizes reinvestment risk, this benefit can be negated in
large part by weak call protection.
Certain of the Bonds in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the
premium bonds at the time they were purchased and deposited in the
Trusts were higher than the current market interest rates for newly
issued bonds of comparable rating and type. 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. Redemptions are more likely to occur at times when
the Bonds have an offering side valuation which represents a premium
over par, or for original issue discount Bonds, a premium over the
accreted value. To the extent that the Bonds were deposited in the Fund
at a price higher than the price at which they are redeemed, this will
represent a loss of capital when compared to the original Public
Offering Price of the Units. Because premium bonds generally pay a
higher rate of interest than bonds priced at or below par, the effect of
the redemption of premium bonds would be to reduce Estimated Net Annual
Unit Income by a greater percentage than the par amount of such bonds
bears to the total par amount of Bonds in the Trust. Although the actual
impact of any such redemptions that may occur will depend upon the
specific Bonds that are redeemed, it can be anticipated that the
Estimated Net Annual Unit Income will be significantly reduced after the
dates on which such Bonds are eligible for redemption. The Trust may be
required to sell Zero Coupon Bonds prior to maturity (at their current
market price which is likely to be less than their par value) in order
to pay expenses of the Trust or in case the Trust is terminated. See
"Rights of Unit Holders-How May Bonds be Removed from the Fund?" and
"Other Information-How May the Indenture be Amended or Terminated?"
Certain of the Bonds in the Trusts may be general obligations of a
governmental entity that are backed by the taxing power of such entity.
All other Bonds in the Trusts are revenue bonds payable from the income
of a specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds, on the other hand, are payable
only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. There are, of course, variations in
the security of the different Bonds in the Fund, both within a
particular classification and between classifications, depending on
numerous factors.
Certain of the Bonds in the Trusts may be healthcare revenue bonds.
Healthcare revenue bonds are obligations of issuers whose revenues are
primarily derived from services provided by hospitals or other
healthcare facilities, including nursing homes. A healthcare issuer's
ability to make debt service payments on these obligations is dependent
on various factors, including occupancy levels of the facility, demand,
government regulations, wages of employees, overhead expenses,
competition from other similar providers, malpractice insurance costs
and the degree of governmental competition from other similar providers,
malpractice insurance costs and the degree of governmental financial
assistance, including Medicare and Medicaid and other similar third-
party payer programs.
Certain of the Bonds in the Trusts may be housing revenue bonds. Housing
revenue bonds are obligations of issuers whose revenues are primarily
derived from mortgage loans on single family residences or housing
projects for low to moderate income families. Housing revenue bonds are
generally payable at any time and therefore their average life will
ordinarily be less than their stated maturities. The ability of such
issuers to make debt service payments on these obligations is dependent
on various factors, including occupancy levels, rental income, mortgage
default rates, taxes, operating expenses, governmental regulations and
the appropriation of subsidies.
Page 5
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services.
Water and sewerage bonds are generally payable from user fees. Problems
faced by such issuers include the ability to obtain timely and adequate
rate increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering
new supplies of fresh water, the effect of conservation programs and the
impact of "no-growth" zoning ordinances.
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be
charged and the appropriate rate of return. The problems faced by such
issuers include the difficulty in obtaining approval for timely and
adequate rate increases from the governing public utility commission,
the difficulty in financing large construction programs, increased
federal, state and municipal government regulations, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of
future demand for electricity in certain areas of the country, the
difficulty of the capital market in absorbing utility debt, the
difficulty in obtaining fuel at reasonable prices and the effect of
energy conservation.
Certain of the Bonds in the Trusts may be lease obligations issued
primarily by governmental authorities that have no taxing power or other
means of directly raising revenues. Rather, the governmental authorities
are financing vehicles created solely for the construction of buildings
(i.e., schools, administrative offices, convention centers and prisons)
or the purchase of equipment (i.e., police cars and computer systems)
that will be used by a state or local government (the "lessee"). These
obligations are subject to the ability and willingness of the lessee
government to meet its lease rental payments which include debt service
on the obligations. Lease obligations are subject, in almost all cases,
to annual appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments beyond the
current fiscal year, or construction and abatement risk-rental
obligations cease in the event that delays in building, damage,
destruction or condemnation of the project prevents its use by the
lessee.
Certain of the Bonds in the Trusts may be industrial revenue bonds
("IRBs"), tax-exempt securities issued by states, municipalities, public
authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. Debt service
payments on IRBs are dependent on various factors, including the
creditworthiness of the corporate operator of the project and, if
applicable, corporate guarantor, revenues generated from the project
and, if applicable, corporate guarantor, revenues generated from the
project and regulatory and environmental restrictions.
Certain of the Bonds in the Trusts may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities,
convention centers and arenas. The ability of issuers to make debt
service payments on airport obligations is dependent on the capability
of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other
factors, many airlines may have difficulty meeting their obligations
under these use agreements. Similarly, payment on Bonds related to other
facilities is dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues
due to such factors as increased cost of maintenance, decreased use of a
facility, lower cost of alternative modes of transportation, scarcity of
fuel and reduction or loss of rents.
Certain of the Bonds in the Trusts may be obligations of issuers which
govern the operation of schools, colleges and universities and whose
revenues are derived mainly from ad valorem taxes. 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.
Certain of the Bonds in the Trusts may be obligations which are payable
from and secured by revenues derived from the operation of resource
recovery facilities. Resource recovery facilities are designed to
Page 6
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.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore, the
economy is largely dependent for its development upon U.S. policies and
programs that are being reviewed and may be eliminated.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source of semi-
finished manufactured articles on which further manufacturing operations
are performed in Puerto Rico. Since World War II the economic importance
of agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled
sugar monopoly remains an important economic factor and is largely
dependent upon Federal maintenance of sugar prices, the discontinuation
of which could severely affect Puerto Rico sugar production. The level
of tourism is affected by various factors including the strength of the
U.S. dollar. During periods when the dollar is strong, tourism in
foreign countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
Internal Revenue Code provides for a credit against Federal income taxes
for U.S. companies operating on the island if certain requirements are
met. The Omnibus Budget Reconciliation Act of 1993 imposes limits on
such credit, effective for tax years beginning after 1993. In addition,
from time to time proposals are introduced in Congress which, if enacted
into law, would eliminate some or all of the benefits of Section 936.
Although no assessment can be made at this time of the precise effect of
such limitation, it is expected that the limitation of Section 936
credits would have a negative impact on Puerto Rico's economy.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
of the issuers of Bonds, could affect or could have an adverse impact on
the financial condition of Puerto Rico and various agencies and
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Interest on certain of the Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be an item of tax preference
for purposes of the Alternative Minimum Tax ("AMT"). The investment by
non-AMT individual taxpayers in AMT municipal bonds generally results in
a higher yield to such bondholders than non-AMT municipal bonds. Since a
portion of the interest from certain Arkansas, Idaho, Kansas, Maine,
Mississippi and Nebraska Trusts is an AMT preference item, certain
Arkansas, Idaho, Kansas, Maine, Mississippi and Nebraska Trusts may be
more appropriate for investors who are not subject to AMT.
Investors should be aware that many of the Bonds in the Trusts are
subject to continuing requirements such as the actual use of Bond
proceeds or manner of operation of the project financed from Bond
proceeds that may affect the exemption of interest on such Bonds from
Federal income taxation. Although at the time of issuance of each of the
Bonds in the Trusts an opinion of bond counsel was rendered as to the
exemption of interest on such obligations from Federal income taxation,
there can be no assurance that the respective issuers or other obligors
on such obligations will fulfill the various continuing requirements
Page 7
established upon issuance of the Bonds. A failure to comply with such
requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from
the date of issuance of such Bonds, thereby reducing the value of the
Bonds and subjecting Unit holders to unanticipated tax liabilities.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions,
special or extraordinary redemption provisions or otherwise. A bond
subject to optional call is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A bond subject
to sinking fund redemption is one which is subject to partial call from
time to time at par or, in the case of a zero coupon bond, at the
accreted value from a fund accumulated for the scheduled retirement of a
portion of an issue prior to maturity. Special or extraordinary
redemption provisions may provide for redemption at par (or for original
issue discount bonds at issue price plus the amount of original issue
discount accreted to redemption date plus, if applicable, some premium)
of all or a portion of an issue upon the occurrence of certain
circumstances. The exercise of redemption or call provisions will
(except to the extent the proceeds of the called Bonds are used to pay
for Unit redemptions) result in the distribution of principal and may
result in a reduction in the amount of subsequent interest
distributions; it may also affect the long-term return and the current
return on Units of each Trust. Redemption pursuant to call provisions is
more likely to occur, and redemption pursuant to sinking fund provisions
may occur, when the Bonds have an offering side valuation which
represents a premium over par or for original issue discount bonds a
premium over the accreted value. Unit holders may recognize capital gain
or loss upon any redemption or call.
To the best knowledge of the Sponsor, there is no litigation pending as
of the date hereof in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Trusts. At any time
after the date hereof, litigation may be initiated on a variety of
grounds with respect to Bonds in a Trust. Such litigation, as for
example suits challenging the issuance of pollution control revenue
bonds under recently-enacted environmental protection statutes, may
affect the validity of such Bonds or the tax-free nature of the interest
thereon. While the outcome of litigation of such nature can never be
entirely predicted, the Fund has received opinions of bond counsel to
the issuing authority of each Bond on the date of issuance to the effect
that such Bonds have been validly issued and that the interest thereon
is exempt from Federal income taxes and state and local taxes. In
addition, other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return and the
Estimated Long-Term Return, under the monthly, quarterly (if applicable)
and semi-annual (if applicable) distribution plans, are as set forth in
Part One attached hereto for each Trust. Estimated Current Return is
computed by dividing the Estimated Net Annual Interest Income per Unit
by the Public Offering Price. Any change in either amount will result in
a change in the Estimated Current Return. For each Trust, the Public
Offering Price will vary in accordance with fluctuations in the prices
of the underlying Bonds and the Net Annual Interest Income per Unit will
change as Bonds are redeemed, paid, sold or exchanged in certain
refundings or as the expenses of each Trust change. Therefore, there is
no assurance that the Estimated Current Return indicated in Part One for
Page 8
each Trust will be realized in the future. Estimated Long-Term Return is
calculated using a formula which (1) takes into consideration and
determines and factors in the relative weightings of the market values,
yields (which 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, the expenses
and sales charge associated with each Unit of a Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the Estimated Long-Term
Return indicated in Part One for each Trust will be realized in the
future. Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of Estimated Long-Term Return
reflects the estimated date and amount of principal returned while
Estimated Current Return calculations include only Net Annual Interest
Income and Public Offering Price. Neither rate reflects the true return
to Unit holders, which is lower, because neither includes the effect of
certain delays in distributions to Unit holders.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust.
How are Purchased Interest and Accrued Interest Treated?
Purchased Interest. For The First Trust Combined Series 198-208, each
Trust contains an amount of Purchased Interest. Purchased Interest is a
portion of the unpaid interest that has accrued on the Bonds from the
later of the last payment date on the Bonds or the date of issuance
thereof through the First Settlement Date and is included in the
calculation of the Public Offering Price. Purchased Interest will be
distributed to Unit holders as Units are redeemed or Securities are
sold, mature or are called. See "Summary of Essential Information"
appearing in Part One for each Trust for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of
the determination of the price Unit holders will receive in connection
with the sale or redemption of Units prior to the termination of the
Trust.
Accrued Interest. Accrued interest is the accumulation of unpaid
interest on a bond from the last day on which interest thereon was paid.
Interest on Bonds generally is paid semi-annually, although each Trust
accrues such interest daily. Because of this, a Trust always has an
amount of interest earned but not yet collected by the Trustee. For this
reason, with respect to sales settling subsequent to the First
Settlement Date, the Public Offering Price of Units will have added to
it the proportionate share of accrued interest to the date of
settlement. Unit holders will receive on the next distribution date of
the Trust the amount, if any, of accrued interest paid on their Units.
For The First Trust Combined Series 1-197, except through an advancement
of its own funds, the Trustee has no cash for distribution to Unit
holders until it receives interest payments on the Bonds in a Trust. The
Trustee will recover its advancements without interest or other costs to
such Trust from interest received on the Bonds in the Trust. When these
advancements have been recovered, regular distributions of interest to
Unit holders will commence. See "Rights of Unit Holders-How are Interest
and Principal Distributed?" Interest account balances are established
with generally positive cash balances so that it will not be necessary
on a regular basis for the Trustee to advance its own funds in
connection with interest distributions.
For The First Trust Combined Series 198-208, in an effort to reduce the
amount of Purchased Interest which would otherwise have to be paid by
Unit holders, the Trustee may advance a portion of the accrued interest
to the Sponsor as the Unit holder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the
Public Offering Price of Units will include only accrued interest from
the First Settlement Date to the date of settlement (other than the
Purchased Interest already included therein), less any distributions
from the Interest Account subsequent to the First Settlement Date. See
"Rights of Unit Holders-How are Interest and Principal Distributed?"
For The First Trust Combined Series 209 and subsequent Series, in an
effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of
Units to the public, the Trustee will advance the amount of accrued
interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unit Holders-How are Interest and
Principal Distributed?"
Page 9
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of
interest actually received by a Trust and distributed to Unit holders.
If a Unit holder sells or redeems all or a portion of his Units, he will
be entitled to receive his proportionate share of the Purchased Interest
(if any) and accrued interest from the purchaser of his Units. Since the
Trustee has the use of the funds (including Purchased Interest, if any)
held in the Interest Account for distributions to Unit holders and since
such Account is non-interest-bearing to Unit holders, the Trustee
benefits thereby.
Why and How are the Insured Trusts Insured?
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS. THE
BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED BY
INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as to the
scheduled payment of interest and principal by policies obtained by each
Insured Trust from Financial Guaranty Insurance Company ("Financial
Guaranty" or "FGIC"), a New York stock insurance company, or AMBAC
Indemnity Corporation ("AMBAC Indemnity" or "AMBAC"), a Wisconsin-
domiciled stock insurance company, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from Financial Guaranty, AMBAC Indemnity or other insurers (the
"Preinsured Bonds"). The insurance policy obtained by each Insured Trust
is noncancellable and will continue in force for such Trust so long as
such Trust is in existence and the Bonds described in the policy
continue to be held by such Trust (see "Portfolio" for each Insured
Trust). Nonpayment of premiums on the policy obtained by each Insured
Trust will not result in the cancellation of insurance, but will permit
Financial Guaranty and/or AMBAC Indemnity to take action against the
Trustee to recover premium payments due it. Premium rates for each issue
of Bonds protected by the policy obtained by each Insured Trust are
fixed for the life of such Trust. The premium for any Preinsured Bonds
has been paid in advance by the Bond issuer, the underwriters, the
Sponsor or others and any such policy or policies are noncancellable and
will continue in force so long as the Bonds so insured are outstanding
and the insurer and/or insurers thereof remain in business. If the
provider of an original issuance insurance policy is unable to meet its
obligations under such policy, or if the rating assigned to the claims-
paying ability of such insurer deteriorates, Financial Guaranty and/or
AMBAC Indemnity has no obligation to insure any issue adversely affected
by either of the above described events. A monthly premium is paid by
each Insured Trust for the insurance obtained by such Trust, which is
payable from the interest income received by such Trust. In the case of
Preinsured Bonds, no premiums for insurance are paid by the Insured Trust.
Financial Guaranty Insurance Company. Under the provisions of the
aforementioned portfolio insurance issued by Financial Guaranty,
Financial Guaranty unconditionally and irrevocably agrees to pay to
Citibank, N.A., or its successor, as its agent (the "Fiscal Agent"),
that portion of the principal of and interest on the Bonds covered by
the policy which shall become due for payment but shall be unpaid by
reason of nonpayment by the issuer of the Bonds. The term "due for
payment" means, when referring to the principal of a Bond, its stated
maturity date or the date on which it shall have been called for
mandatory sinking fund redemption and does not refer to any earlier date
on which payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement of
maturity and means, when referring to interest on a Bond, the stated
date for payment of interest, except that when the interest on a Bond
shall have been determined, as provided in the underlying documentation
relating to such Bond, to be subject to Federal income taxation, "due
for payment" also means, when referring to the principal of such Bond,
the date on which such Bond has been called for mandatory redemption as
a result of such determination of taxability, and when referring to
interest on such Bond, the accrued interest at the rate provided in such
documentation to the date on which such Bond has been called for such
mandatory redemption, together with any applicable redemption premium.
The term "due for payment" will not include, when referring to either
the principal of a Bond or the interest on a Bond, any acceleration of
payment unless such acceleration is at the sole option of Financial
Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the
business day next following the day on which Financial Guaranty shall
have received notice of nonpayment, whichever is later. The Fiscal Agent
will disburse to the Trustee the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by
Page 10
the issuer but only upon receipt by the Fiscal Agent of (i) evidence of
the Trustee's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or
interest due for payment shall thereupon vest in Financial Guaranty.
Upon such disbursement, Financial Guaranty shall become the owner of the
Bond, appurtenant coupon or right to payment of principal or interest on
such Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained by an
Insured Trust has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to maturity of the Bonds regardless of the
identity of the holder thereof) (the "Permanent Insurance") upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the Trustee
will exercise the right to obtain Permanent Insurance only if upon such
exercise the Insured Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent
Insurance) from such sale in excess of the sale proceeds if such Bonds
were sold on an uninsured basis. The insurance premium with respect to
each Bond eligible for Permanent Insurance is determined based upon the
insurability of each Bond as of the Initial Date of Deposit and will not
be increased or decreased for any change in the creditworthiness of such
Bond.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a wholly-
owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in
the State of New York and is subject to regulation by the State of New
York Insurance Department. As of December 31, 1996, the total capital
and surplus of Financial Guaranty was approximately $1,093,256,000.
Copies of Financial Guaranty's financial statements, prepared on the
basis of statutory accounting principles, and the Corporation's
financial statements, prepared on the basis of generally accepted
accounting principles, may be obtained by writing to Financial Guaranty
at 115 Broadway, New York, New York 10006, Attention: Communications
Department (telephone number (212) 312-3000) or to the New York State
Insurance Department at 160 West Broadway, 18th Floor, New York, New
York 10013, Attention: Financial Condition Property/Casualty Bureau
(telephone number (212) 621-0389).
In addition, Financial Guaranty is currently licensed to write insurance
in all fifty states and the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained
herein with respect to such corporation is unaudited but appears in
reports or other materials filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). The Insurance Policy of
AMBAC Indemnity obtained by an Insured Trust is noncancellable and will
continue in force for so long as the Bonds described in the Insurance
Policy are held by an Insured Trust. A monthly premium is paid by an
Insured Trust for the Insurance Policy obtained by it. The Trustee will
pay, when due, successively, the full amount of each installment of the
insurance premium. Pursuant to a binding agreement with AMBAC Indemnity,
in the event of a sale of a Bond covered by the AMBAC Indemnity
Insurance Policy, the Trustee has the right to obtain permanent
insurance for such Bond upon payment of a single predetermined premium
from the proceeds of the sale of such Bond.
Under the terms of the Insurance Policy, AMBAC Indemnity agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by AMBAC Indemnity which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
term "due for payment" means, when referring to the principal of a Bond
so insured, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest.
Page 11
AMBAC Indemnity will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by AMBAC Indemnity that a
nonpayment of principal or of interest on a Bond has occurred, but not
earlier than the date on which the Bonds are due for payment. AMBAC
Indemnity will disburse to the Trustee the face amount of principal and
interest which is then due for payment but is unpaid by reason of
nonpayment by the issuer in exchange for delivery of Bonds, not less in
face amount than the amount of the payment in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where
Bonds are issuable only in a form whereby principal is payable to
registered holders or their assigns, AMBAC Indemnity shall pay principal
only upon presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment in
satisfactory form, so as to permit ownership of such Bonds to be
registered in the name of AMBAC Indemnity or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, AMBAC Indemnity shall pay interest
only upon presentation of proof that the claimant is the person entitled
to the payment of interest on the Bonds and delivery of an instrument of
assignment, in satisfactory form, transferring to AMBAC Indemnity all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $2,550,327,507 (unaudited) and statutory capital of
approximately $1,446,559,894 (unaudited) as of December 31, 1996.
Statutory capital consists of AMBAC Indemnity's policyholders' surplus
and statutory contingency reserve. AMBAC Indemnity is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly-held company. Moody's
Investors Service, Inc. and Standard & Poor's have both assigned a
triple-A claims-paying ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York, New
York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has been
furnished by AMBAC Indemnity. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
adverse changes in such information, subsequent to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or AMBAC
Indemnity has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
Page 12
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or AMBAC Indemnity and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor AMBAC Indemnity nor its parent, AMBAC, Inc., or
any affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor has in
the past and may from time to time in the future, in the normal course
of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of
municipal bonds in which the investors or the affiliates of FGIC
Corporation and/or AMBAC Inc. have or will be participants or for which
a policy of insurance guaranteeing the scheduled payment of interest and
principal has been obtained from Financial Guaranty and/or AMBAC
Indemnity. Neither the Fund nor the Units of a Trust nor the portfolio
of such Trust is insured directly or indirectly by FGIC Corporation
and/or AMBAC Inc.
MBIA Insurance Corporation. MBIA Insurance Corporation ("MBIA
Corporation" or "MBIA") is the principal operating subsidiary of MBIA,
Inc., a New York Stock Exchange listed company. MBIA, Inc. is not
obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation is domiciled in the State of New York and licensed to do
business in and subject to regulation under the laws of all fifty
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. MBIA has two European branches,
one in the Republic of France and the other in the Kingdom of Spain. New
York has laws prescribing minimum capital requirements, limiting classes
and concentrations of investments and requiring the approval of policy
rates and forms. State laws also regulate the amount of both the
aggregate and individual risks that may be insured, the payment of
dividends by the insurer, changes in control and transactions among
affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for
certain periods of time.
As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total
capital and surplus of $1.3 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of December 31, 1996, MBIA had admitted
assets of $4.5 billion (audited), total liabilities of $3.0 billion
(audited), and total capital and surplus of $1.3 billion (audited),
determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King
Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now known as MBIA Insurance Corp. of Illinois.
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG 1," both designated to be of the highest
quality. Standard & Poor's rates all new issues insured by MBIA "AAA."
Capital Guaranty Insurance Company. On December 20, 1995, Capital
Guaranty Corporation ("CGC") merged with a subsidiary of Financial
Security Assurance Holdings Ltd. and Capital Guaranty Insurance Company,
CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly-
owned subsidiary of Financial Security Assurance Inc. For further
description, see "Financial Security Assurance Inc." herein. The address
of FSA Maryland and its telephone number are Steuart Tower, One Market
Page 13
Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance company
which engages only in the business of financial guarantee and surety
insurance. CapMAC is licensed in 49 states in addition to the District
of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also
provide financial guarantee reinsurance for structured asset-backed,
corporate and municipal obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's, and "AAA" by Duff
& Phelps, Inc. ("Duff & Phelps"). Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or
hold securities and are subject to revision or withdrawal at any time by
such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees. CapMAC commenced operations on
December 24, 1987 as an indirect, wholly-owned subsidiary of Citibank
(New York State), a wholly-owned subsidiary of Citicorp. On June 25,
1992, Citibank (New York State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or
to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of
New York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC
is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may retain,
after giving effect to reinsurance, collateral or other securities, is
also regulated. Statutory and regulatory accounting practices may
prescribe appropriate rates at which premiums are earned and the levels
of reserves required. In addition, various insurance laws restrict the
incurrence of debt, regulate permissible investments of reserves,
capital and surplus, and govern the form of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the
Surety Bond(s).
THE SURETY BONDS ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale, Holdings and CapMAC entered into an
Ownership Policy Agreement (the "Ownership Policy Agreement"), which
sets forth Holdings' intent with respect to its ownership and control of
CapMAC and provides for certain policies and agreements with respect to
Holdings' exercise of its control of CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the term of the Ownership
Policy Agreement, it will not and will not permit any stockholder of
Holdings to enter into any transaction the result of which would be a
change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long-term debt obligations or claims-paying ability
of the person which would control CapMAC after such transaction or its
direct or indirect parent are rated in a high investment grade category,
unless Holdings or CapMAC has confirmed that CapMAC's claims-paying
ability rating by Moody's (the "Rating") in effect immediately prior to
any such change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a result of
a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i) not
to change the "zero-loss" underwriting standards or policies and
procedures of CapMAC in a manner that would materially and adversely
affect the risk profile of CapMAC's book of business, (ii) that CapMAC
will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time to time as
consistent with maintaining CapMAC's Rating and (iii) that until
CapMAC's statutory capital surplus and contingency reserve ("qualified
statutory capital") equal $250 million, CapMAC will maintain a specified
amount of qualified statutory capital in excess of the amount of
qualified statutory capital that CapMAC is required at such time to
Page 14
maintain under the aggregate leverage limitations set forth in Article
69 of the New York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date
on which a change of control of CapMAC occurs and the date on which
CapMAC and Holdings agree in writing to terminate the Ownership Policy
Agreement; provided that, CapMAC or Holdings has confirmed that CapMAC's
Rating in effect immediately prior to any such termination will not be
downgraded upon such termination.
As of December 31, 1996, CapMAC had statutory capital and surplus of
approximately $260,217,105 and had not incurred any debt obligations.
Article 69 of the New York State Insurance Law requires that CapMAC
establishes and maintains the contingency reserve.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the
State of New York are available upon request. CapMAC is located at 885
Third Avenue, New York, New York 10022, and its telephone number is
(212) 755-1155.
Financial Security Assurance. Financial Security Assurance Inc.
("Financial Security") is a monoline insurance company incorporated in
1984 under the laws of the State of New York. Financial Security is
licensed to engage in the financial guaranty insurance business in all
50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general,
financial guaranty insurance consists of the issuance of a guaranty of
scheduled payments of an issuer's securities, thereby enhancing the
credit rating of those securities, in consideration for payment of a
premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or
other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds
and sale/leaseback obligation bonds. Municipal securities consist
largely of general obligation bonds, special revenue bonds and other
special obligations of state and local governments. Financial Security
insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
company. Major shareholders of Holdings include Fund American
Enterprises Holdings, Inc., U S West Capital Corporation and The Tokio
Marine and Fire Insurance Co. Ltd. No shareholder of Financial Security
is obligated to pay any debt of Financial Security or its subsidiaries
or any claim under any insurance policy issued by Financial Security or
its subsidiaries or to make any additional contribution to the capital
of Financial Security or its subsidiaries. As of December 31, 1996, the
total policyholders' surplus and contingency reserves and the total
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $675,944,000 (unaudited) and $411,732,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $815,332,000 (audited), and $359,972,000
(audited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York,
New York, 10022, Attention Communications Department. Financial
Security's telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries
(including FSA Maryland) are reinsured among such companies on an agreed-
upon percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security and FSA Maryland reinsure a portion of
their liabilities under certain of their financial guaranty insurance
policies with other reinsurers under various quota share treaties and on
a transaction-by-transaction basis. Such reinsurance is utilized as a
risk management device and to comply with certain statutory and rating
agency requirements; it does not alter or limit the obligations of
Financial Security or FSA Maryland under any financial guaranty
insurance policy.
Page 15
The claims-paying ability of Financial Security and FSA Maryland is
rated "Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard &
Poor's Rating Services, Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies.
Connie Lee Insurance Company. Connie Lee Insurance Company ("Connie
Lee"), a stock insurance company incorporated in Wisconsin, is a wholly-
owned subsidiary of College Construction Loan Insurance Association
("CCLIA"), a stockholder-owned District of Columbia insurance holding
company whose creation was authorized by the 1986 amendments to the
Higher Education Act. The United States Department of Education ("DOE")
and Student Loan Marketing Association ("Sallie Mae") are founding
shareholders of College Construction Loan Insurance Association. Connie
Lee is not an agency or instrumentality of the United States Government,
although the United States Government is a stockholder of CCLIA. The
obligations of Connie Lee are not obligations of the United States
Government. As a federally authorized company, Connie Lee's structure
and operational authorities are subject to revision by amendments to the
Higher Education Act or other federal enactments.
Various bills containing provisions relating to the privatization of
Connie Lee ("Connie Lee Privatization Legislation") are pending in the
United States Congress. If enacted in the form included in these bills,
the Connie Lee Privatization Legislation would, among other things,
remove the restrictions that limit the types of obligations Connie Lee
is permitted to insure and would authorize Connie Lee to engage in any
business appropriate for any other fully private corporation. The Connie
Lee Privatization Legislation would also provide for the disposition of
the stock in CCLIA held by DOE and for the repeal of substantially all
of the provisions of the Higher Education Act pertaining to the
structure and other operational authorities of Connie Lee. While one
bill containing the Connie Lee Privatization Legislation was passed by
the House of Representatives in September of 1995 and companion
legislation has been introduced in the Senate, it cannot be predicted
whether, or in what form, the Connie Lee Privatization Legislation or
other federal legislation affecting Connie Lee will ultimately be
enacted into law, or the effect that any such enactment may ultimately
have on Connie Lee.
As of December 31, 1996, the total policyholders' surplus of Connie Lee
was $110,443,108 (unaudited) and total admitted assets were $232,533,675
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin in Connie Lee's financial statements prepared in accordance
with statutory accounting principles applicable to insurance companies.
Copies of these financial statements are available from Connie Lee upon
request.
CCLIA's consolidated annual (audited) and quarterly (unaudited)
financial statements prepared in accordance with generally accepted
accounting principles are filed periodically with the Nationally
Recognized Municipal Securities Information Repositories designated
under Rule 15c2-12 of the Securities and Exchange Commission. The
information contained in these financial statements is incorporated
herein by reference. Copies of these financial statements are available
from Connie Lee upon request.
Standard & Poor's has rated the claims-paying ability of Connie Lee "AAA".
Connie Lee makes no representation regarding the Bonds or the
advisability of investing in the Bonds. The above rating is not a
recommendation to buy, sell or hold the Connie Lee insured Bonds and
such rating is subject to the revision or withdrawal at any time by the
rating agency. Any downward revision or withdrawal of the rating may
have an adverse effect on the market price of the Connie Lee insured
Bonds.
The address of Connie Lee's administrative offices and its telephone
number are 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and
(202) 835-0090.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the
market value of each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
Page 16
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. Such
rating will be in effect for a period of thirteen months from the
Initial Date of Deposit of an Insured Trust and will, unless renewed,
terminate at the end of such period. There is no guarantee that the
"AAA" investment rating with respect to the Units of an Insured Trust
will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is to
obtain a higher yield on the Bonds in the portfolio of such Trust than
would be available if all the Bonds in such portfolio had the Standard &
Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course, no
certainty that this result will be achieved. Bonds in a Trust for which
insurance has been obtained by the Bond issuer, the underwriters, the
Sponsor or others (all of which were rated "AAA" by Standard & Poor's
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's or
"Aaa" by Moody's Investors Service, Inc. In selecting Bonds for the
portfolio of each Insured Trust, the Sponsor has applied the criteria
herein before described.
What is the Federal Tax Status of Unit Holders?
See Part Three for each Trust.
FOR INFORMATION WITH RESPECT TO EXEMPTION FROM STATE OR OTHER LOCAL
TAXES, SEE PART THREE FOR EACH TRUST.
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to the Trusts, for which the Sponsor will be reimbursed in
amounts as set forth under "Special Trust Information" in each Part One
of this Prospectus, the Sponsor will not receive any fee in connection
with its activities relating to the Trusts. For Series 49 and all
subsequent Series, First Trust Advisors L.P., an affiliate of the
Sponsor, will receive an annual supervisory fee, which is not to exceed
the amount set forth in Part One for each Trust, for providing portfolio
supervisory services for the Trust. Such fee is based on the number of
Units outstanding in each Trust on January 1 of each year except for
Trusts which were established subsequent to the last January 1, in which
case the fee will be based on the number of Units outstanding in such
Trusts as of the respective Initial Dates of Deposit.
For each valuation of the Bonds in a Trust, the Evaluator will receive a
fee as indicated in Part One of this Prospectus. The Trustee pays
certain expenses of each Trust for which it is reimbursed by such Trust.
The Trustee will receive for its ordinary recurring services to a Trust
an annual fee computed as indicated in Part One of this Prospectus. For
a discussion of the services performed by the Trustee pursuant to its
obligations under the Indenture, reference is made to the material set
forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date from the Interest Account of each Trust to the extent
funds are available and then from the Principal Account of such Trust.
Since the Trustee has the use of the funds being held in the Principal
and Interest Accounts for future distributions, payment of expenses and
redemptions and since such Accounts are non-interest-bearing to Unit
holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to the Fund is expected to result from the
use of these funds. However, the Trustee may bear from its own resources
certain expenses relating to a Trust.
Each of the above mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services and
supervisory services, such individual fees may exceed the actual costs
of providing such services for a Trust, but at no time will the total
amount received for such Services rendered to all unit investment trusts
of which Nike Securities L.P. is the Sponsor in any calendar year exceed
the actual cost to the Sponsor or its affiliate of supplying such
services in such year.
The annualized cost of the portfolio insurance obtained by the Fund for
each Insured Trust is indicated in Part One for each Trust in a Series
Page 17
of the Fund. The portfolio insurance continues so long as such Trust
retains the Bonds thus insured. Premiums are payable monthly in advance
by the Trustee on behalf of such Trust. As Bonds in the portfolio are
redeemed by their respective issuers or are sold by the Trustee, the
amount of premium will be reduced in respect of those Bonds no longer
owned by and held in the Trust which were insured by insurance obtained
by such Trust. Preinsured Bonds for which insurance has been obtained
from Financial Guaranty and/or AMBAC Indemnity or, beginning with Series
25 and all subsequent Series, other insurers, are not insured by such
Trust. The premium payable for Permanent Insurance will be paid solely
from the proceeds of the sale of such Bond in the event the Trustee
exercises the right to obtain Permanent Insurance on a Bond. The
premiums for such Permanent Insurance with respect to each Bond will
decline over the life of the Bond. An Advantage Trust is not insured;
accordingly, there are no premiums for insurance payable by such Trust.
The following additional charges are or may be incurred by a Trust: all
expenses (including legal and annual auditing expenses) of the Trustee
incurred in connection with its responsibilities under the Indenture,
except in the event of negligence, bad faith or willful misconduct on
its part; the expenses and costs of any action undertaken by the Trustee
to protect the Trust and the rights and interests of the Unit holders;
fees of the Trustee for any extraordinary services performed under the
Indenture; indemnification of the Trustee for any loss, liability or
expense incurred by it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its
acceptance or administration of the Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor of
the Trust; all taxes and other government charges imposed upon the Bonds
or any part of the Trust (no such taxes or charges are being levied or
made or, to the knowledge of the Sponsor, are contemplated); and
expenditures incurred in contacting Unit holders upon termination of the
Trust. The above expenses and the Trustee's annual fee, when paid or
owing to the Trustee, are secured by a lien on the Trust. In addition,
the Trustee is empowered to sell Bonds of a Trust in order to make funds
available to pay all these amounts if funds are not otherwise available
in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required, the
Indenture requires the accounts of each Trust to be audited on an annual
basis at the expense of the Trust by independent auditors selected by
the Sponsor. So long as the Sponsor is making a secondary market for
Units, the Sponsor shall bear the cost of such annual audits to the
extent such cost exceeds $.50 per Unit. Unit holders of a Trust covered
by an audit may obtain a copy of the audited financial statements from
the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid
price of the Bonds in the portfolio of each Trust plus the amount of
Purchased Interest of a Trust (if any) and interest accrued to the date
of settlement. All expenses incurred in maintaining a market, other than
the fees of the Evaluator and the costs of the Trustee in transferring
and recording the ownership of Units, will be borne by the Sponsor. If
the supply of Units exceeds demand, or for some other business reason,
the Sponsor may discontinue purchases of Units at such prices. IF A UNIT
HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD INQUIRE OF THE SPONSOR
AS TO CURRENT MARKET PRICES PRIOR TO MAKING A TENDER FOR REDEMPTION TO
THE TRUSTEE. Prospectuses relating to certain other bond funds indicate
an intention, subject to change, on the part of the respective sponsors
of such funds to repurchase units of those funds on the basis of a price
higher than the bid prices of the securities in the funds. Consequently,
depending upon the prices actually paid, the repurchase price of other
sponsors for units of their funds may be computed on a somewhat more
favorable basis than the repurchase price offered by the Sponsor for
Units of a Trust in secondary market transactions. As in the First Trust
Combined Series, the purchase price per unit of such bond funds will
depend primarily on the value of the securities in the Portfolio of the
applicable Trust.
The Public Offering Price of Units of a Trust will be determined by
adding to the Evaluator's determination of the aggregate bid price of
Page 18
the Bonds in a Trust plus the amount of Purchased Interest of a Trust
(if any) and the appropriate sales charge determined in accordance with
the schedule set forth below, based upon the number of years remaining
to the maturity of each Bond in the portfolio of the Trust, adjusting
the total to reflect the amount of any cash held in or advanced to the
principal account of the Trust and dividing the result by the number of
Units of such trust then outstanding. The minimum sales charge on Units
will be 3% of the Public Offering Price (equivalent to 3.093% of the net
amount invested). For purposes of computation, Bonds will be deemed to
mature on their expressed maturity dates unless: (a) the Bonds have been
called for redemption or funds or securities have been placed in escrow
to redeem them on an earlier call date, in which case such call date
will be deemed to be the date upon which they mature; or (b) such Bonds
are subject to a "mandatory tender," in which case such mandatory tender
will be deemed to be the date upon which they mature. The offering price
of Bonds in the Trust may be expected to be greater than the bid price
of such Bonds by approximately 1-2% of the aggregate principal amount of
such Bonds.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each of the various
Bonds in the Trusts based upon the maturities of such bonds, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period Sales Charge
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
__________________ ___________ ___________
<S> <C> <C>
0 Months to 1 Year 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
There will be no reduction of the sales charges for volume purchases. A
dealer will receive from the Sponsor a dealer concession of 70% of the
total sales charges for Units sold by such dealer and dealers will not
be eligible for additional concessions for Units sold pursuant to the
above schedule.
An investor may aggregate purchases of Units of two or more consecutive
series of a particular State, National, Discount, Intermediate, Long
Intermediate or Short Intermediate Trust for purposes of calculating the
discount for volume purchases listed above. Additionally, with respect
to the employees, officers and directors (including their immediate
family members, defined as spouses, children, grandchildren, parents,
grandparents, mothers-in-law, fathers-in-law, sons-in-law and daughters-
in-law, and trustees, custodians or fiduciaries for the benefit of such
person) of the Sponsor and broker/dealers and their subsidiaries and
vendors providing services to the Sponsor, may purchase Units of the
Trusts during the secondary market at the Public Offering Price less the
concession the Sponsor typically allows broker/dealers.
Any such reduced sales charge shall be the responsibility of the selling
broker/dealer. The reduced sales charge structure will apply on all
purchases of Units in a Trust by the same person on any one day from the
Sponsor or any one broker/dealer and, for purposes of calculating the
applicable sales charge, purchases of Units in the Fund will be
aggregated with concurrent purchases by the same person from the Sponsor
or such broker/dealer of Units in any series of tax-exempt unit
investment trusts sponsored by Nike Securities L.P. Additionally, Units
purchased in the name of the spouse of a purchaser or in the name of a
child of such purchaser will be deemed, for the purpose of calculating
the applicable sales charge, to be additional purchases by the
purchaser. The reduced sales charges will also be applicable to a
trustee or other fiduciary purchasing securities for a single trust
estate or single fiduciary account.
From time to time the Sponsor may implement programs under which
broker/dealers and other selling agents of the Fund may receive nominal
awards from the Sponsor for each of their registered representatives who
Page 19
have sold a minimum number of UIT Units during a specified time period.
In addition, at various times the Sponsor may implement other programs
under which the sales force of broker/dealers and other selling agents
may be eligible to win other nominal awards for certain sales efforts,
or under which the Sponsor will reallow to any such broker/dealer or
other selling agent that sponsors sales contests or recognition programs
conforming to criteria established by the Sponsor, or participates in
sales programs sponsored by the Sponsor, an amount not exceeding the
total applicable sales charges on the sales generated by such person at
the public offering price during such programs. Also, the Sponsor in its
discretion may from time to time pursuant to objective criteria
established by the Sponsor pay fees to qualifying broker/dealers and
other selling agents for certain services or activities which are
primarily intended to result in sales of Units of the Trusts. Such
payments are made by the Sponsor out of its own assets, and not out of
the assets of the Trusts. These programs will not change the price Unit
holders pay for their Units or the amount that the Trusts will receive
from the Units sold.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust. U.S. Government bonds, for example, are
backed by the full faith and credit of the U.S. Government and bank CDs
and money market accounts are insured by an agency of the federal
government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the
condition of the short-term debt market. The investment characteristics
of the Trust are described more fully elsewhere in this Prospectus.
The aggregate price of the Bonds in each Trust is determined by the
evaluator (the "Evaluator"), on the basis of bid prices (1) on the basis
of current market prices for the Bonds obtained from dealers or brokers
who customarily deal in bonds comparable to those held by the Trust; (2)
if such prices are not available for any of the Bonds, on the basis of
current market prices for comparable bonds; (3) by determining the value
of the Bonds by appraisal; or (4) by any combination of the above.
Unless Bonds are in default in payment of principal or interest or, in
the Sponsor's opinion, in significant risk of such default, the
Evaluator will not attribute any value to the insurance obtained by an
Insured Trust. On the other hand, the value of insurance obtained by the
issuer of Bonds in a Trust is reflected and included in the market value
of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds") and
which are covered by insurance obtained by an Insured Trust, the value
of the insurance guaranteeing interest and principal payments. The value
of the insurance will be equal to the difference between (i) the market
value of Defaulted Bonds assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance) and (ii) the market value of such
Defaulted Bonds not covered by Permanent Insurance. In addition, the
Evaluator will consider the ability of Financial Guaranty and/or AMBAC
Indemnity to meet its commitments under an Insured Trust's insurance
policy, including the commitments to issue Permanent Insurance. It is
the position of the Sponsor that this is a fair method of valuing the
Bonds and the insurance obtained by an Insured Trust and reflects a
proper valuation method in accordance with the provisions of the
Investment Company Act of 1940.
The Evaluator will be requested to make a determination of the aggregate
price of the Bonds in each Trust, on a bid price basis, as of the close
of trading on the New York Stock Exchange on each day on which it is
open, effective for all sales, purchases or redemptions made subsequent
to the last preceding determination.
Although payment is normally made three business days following the
order for purchase, payment may be made prior thereto. A person will
become owner of the Units on the date of settlement provided payment has
been received. Cash, if any, made available to the Sponsor prior to the
date of settlement for the purchase of Units may be used in the
Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934.
Delivery of Certificates representing Units so ordered will be made
three business days following such order or shortly thereafter. See
Page 20
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market (see "Public Offering-Will
There be a Secondary Market?") may be offered by this Prospectus at the
secondary market public offering price determined in the manner
described above.
It is the intention of the Sponsor to qualify Units of the Fund for sale
in a number of states. Sales will be made to dealers and others at
prices which represent a concession or agency commission of 4.0% of the
Public Offering Price per Unit for each State, Discount or National
Trust, 3.0% of the Public Offering Price for an Intermediate or Long
Intermediate Trust, and 2.5% of the Public Offering Price per Unit for a
Short Intermediate Trust. Notwithstanding the foregoing, broker/dealers
or other selling agents who purchase, in the aggregate, $250,000 of the
Trusts on any day will receive a volume concession or agency commission
of $40.00 per Unit. However, resales of Units of a Trust by such
broker/dealers and other selling agents to the public will be made at
the Public Offering Price described in this Prospectus. The Sponsor
reserves the right to change the amount of the concession or agency
commission from time to time. Certain commercial banks are making Units
of the Fund available to their customers on an agency basis. A portion
of the sales charge paid by these customers is retained by or remitted
to the banks in the amounts indicated in the amounts indicated above.
Under the Glass-Steagall Act, banks are prohibited from underwriting
Units; however, the Glass-Steagall Act does permit certain agency
transactions and the banking regulators have not indicated that these
particular agency transactions are not permitted under such Act. In
Texas and in certain other states, any banks making Units available must
be registered as broker/dealers under state law.
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Fund may receive nominal awards from the
Sponsor for each of their registered representatives who have sold a
minimum number of UIT Units during a specified time period. In addition,
at various times the Sponsor may implement other programs under which
the sales force of an Underwriter or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor
will allow to any such Underwriter or dealer that sponsors sales
contests or recognition programs conforming to criteria established by
the Sponsor, or participates in sales programs sponsored by the Sponsor,
an amount not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to
qualifying Underwriters or dealers for certain services or activities
which are primarily intended to result in sales of Units of the Trusts.
Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trusts. These programs will not change the price
Unit holders pay for their Units or the amount that the Trusts will
receive from the Units sold.
What are the Sponsor's Profits?
The Sponsor and participating dealers will receive a maximum gross sales
commission equal to 5.8% of the Public Offering Price of the Units of
each State Trust (equivalent to 6.157% of the net amount invested), 5.8%
of the Public Offering Price of the Units of a National or Discount
Trust (equivalent to 6.157% of the net amount invested), 4.7% of the
Public Offering Price of the Units of an Intermediate or Long
Intermediate Trust (equivalent to 4.932% of the net amount invested),
and 3.7% of the Public Offering Price of the Units of a Short
Intermediate Trust (equivalent to 3.842% of the net amount invested)
less any reduced sales charge for quantity purchases as described under
"Public Offering-How is the Public Offering Price Determined?"
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in each Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in each Trust and includes a
maximum sales charge of 5.8% for a State Trust, 5.8% for a National or
Discount Trust, 4.7% for an Intermediate or Long Intermediate Trust and
3.7% for a Short Intermediate Trust) or redeemed. The secondary market
public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
Page 21
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made five business days following such
order or shortly thereafter. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer.
Certificates to be redeemed must be properly endorsed or accompanied by
a written instrument or instruments of transfer. A Unit holder must sign
exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates
for Units will bear an appropriate notation on their face indicating
which plan of distribution has been selected in respect thereof. When a
change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then currently
effective plan of distribution. There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. It is anticipated that an amount equal to
approximately one-half of the amount of net annual interest income per
Unit will be distributed on or shortly after each Distribution Date to
Unit holders of record on the preceding Record Date. Record Dates for
monthly distributions of interest are the fifteenth day of each month.
The Distribution Dates for distributions of interest under the monthly
plan is the last day of each month in which the related Record Date
occurs. See "Special Trust Information" appearing in each Part I of this
Prospectus.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating may so indicate on the card and return
same, together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on
the dates specified in Part One. Proceeds from the disposition of any of
the Bonds of such Trust (less any premiums due with respect to Bonds for
which the Trustee has exercised the right to obtain Permanent Insurance)
received after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of such Trust and not
distributed until the next Distribution Date. The Trustee is not
Page 22
required to make a distribution from the Principal Account of a Trust
unless the amount available for distribution shall equal at least $1.00
per Unit.
The Trustee will credit to the Interest Account of each Trust all
interest received by such Trust, including that part of the proceeds
(including insurance proceeds if any, paid to an Insured Trust) of any
disposition of Bonds which represents accrued interest. Other receipts
will be credited to the Principal Account of such Trust. The
distribution to the Unit holders of a Trust as of each Record Date will
be made on the following Distribution Date or shortly thereafter and
shall consist of an amount substantially equal to such portion of the
holder's pro rata share of the estimated annual income of such Trust
after deducting estimated expenses. Except through an advancement of its
own Funds, the Trustee has no cash for distribution to Unit holders
until it receives interest payments on the Bonds in a Trust. The Trustee
shall be reimbursed, without interest, for any such advances from funds
in the Interest Account of such Trust on the ensuing Record Date.
Persons who purchase Units between a Record Date and a Distribution Date
will receive their first distribution on the second Distribution Date
after the purchase, under the applicable plan of distribution. The
Trustee is not required to pay interest on funds held in the Principal
or Interest Account of a Trust (but may itself earn interest thereon and
therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in a
Universal Distribution Option which permits a Unit holder to direct the
Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an existing account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income or
principal on the participant's Units to, among other investment
vehicles, a Unit holder's checking, bank savings, money market,
insurance, reinvestment or any other account. All such distributions, of
course, are subject to the minimum investment and sales charges, if any,
of the particular investment vehicle to which distributions are
directed. The Trustee will notify the participant of each distribution
pursuant to the Universal Distribution Option. The Trustee will
distribute directly to the Unit holder any distributions which are not
accepted by the specified investment vehicle. A participant may at any
time, by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive directly
future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into an
arrangement with Oppenheimer Management Corporation, which permits any
Unit holder of a Trust to elect to have each distribution of interest
income or principal on his Units automatically reinvested in shares of
either the Oppenheimer Intermediate Tax-Exempt Bond Fund (the
"Intermediate Series") or the Oppenheimer Insured Tax-Exempt Bond Fund
(the "Insured Series"). Oppenheimer Management Corporation is the
investment adviser of each Series which are open-end, diversified
management investment companies. The investment objective of the
Intermediate Series is to provide a high level of current interest
income exempt from Federal income tax through the purchase of investment
grade securities. The investment objective of the Insured Series is to
provide as high a level of current interest income exempt from Federal
income tax as is consistent with the assurance of the scheduled receipt
of interest and principal through insurance and the preservation of
capital (the income of either Series may constitute an item of
preference for determining the Federal alternative minimum tax). The
objectives and policies of each Series are presented in more detail in
the prospectus for each Series.
Each person who purchases Units of a Trust may contact the Trustee to
request a prospectus describing each Series and a form by which such
person may elect to become a participant in a Distribution Reinvestment
Option with respect to a Series. Each distribution of interest income or
Page 23
principal on the participant's Units will automatically be applied by
the Trustee to purchase shares (or fractions thereof) of a Series
without a sales charge and with no minimum investment requirements.
The shareholder service agent for each Series will mail to each
participant in the Distribution Reinvestment Option confirmations of all
transactions undertaken for such participant in connection with the
receipt of distributions from The First Trust Combined Series and the
purchase of shares (or fractions thereof) of a Series.
A participant may at any time, by so notifying the Trustee in writing,
elect to terminate his participation in the Distribution Reinvestment
Option and receive future distributions on his Units in cash. There will
be no charge or other penalty for such termination. The Sponsor and
Oppenheimer Management Corporation each have the right to terminate the
Distribution Reinvestment Option, in whole or in part.
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for income
tax purposes.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after
the last business day of each calendar year, the Trustee will furnish to
each person who at any time during the calendar year was a Unit holder
of a Trust of record, a statement as to (1) the Interest Account:
interest received by such Trust (including amounts representing interest
received upon any disposition of Bonds of such Trust), the amount of
such interest representing insurance proceeds (if applicable),
deductions for payment of applicable taxes and for fees and expenses of
the Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount
and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (2) the
Principal Account: the dates of disposition of any Bonds of such Trust
and the net proceeds received therefrom (excluding any portion
representing interest and the premium attributable to the exercise of
the right, if applicable, to obtain Permanent Insurance), deduction for
payment of applicable taxes and for fees and expenses of the Trust,
redemptions of Units, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) the Bonds held and the
number of Units of such Trust outstanding on the last business day of
such calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5) the
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account of such Trust, separately stated,
expressed both as total dollar amounts and as dollar amounts per Unit
outstanding on the Record Date for such distributions.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in
respect of each plan of distribution so that Unit holders may be
informed regarding the results of the other plan or plans of distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the third day following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the Trustee of
such tender of Units. The "date of tender" is deemed to be the date on
which Units are received by the Trustee (if such day is a day on which
the New York Stock Exchange is open for trading), except that as regards
Units received after the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time or as of any earlier closing time on a
day on which the New York Stock Exchange is scheduled in advance to
close at such earlier time), the date of tender is the next day on which
Page 24
such Exchange is open for trading and such Units will be deemed to have
been tendered to the Trustee on such day for redemption at the
redemption price computed on that day. Units so redeemed shall be
cancelled.
Purchased Interest (if any) and other accrued interest to the settlement
date paid on redemption shall be withdrawn from the Interest Account of
a Trust or, if the balance therein is insufficient, from the Principal
Account of such Trust. All other amounts paid on redemption shall be
withdrawn from the Principal Account of the Trust.
The Redemption Price per Unit will be determined on the basis of the bid
price of the Bonds in a Trust and the amount of Purchased Interest of
the Trust (if any), as of the close of trading on the New York Stock
Exchange on the date any such determination is made. The Redemption Price
per Unit is the pro rata share of each Unit determined by the Trustee on
the basis of (1) the cash on hand in the Trust or moneys in the process
of being collected, (2) the value of the Bonds in such Trust based on
the bid prices of the Bonds, except for those cases in which the value
of the insurance, if applicable, has been added, and (3) Purchased
Interest (if any) and any other interest accrued thereon, less (a)
amounts representing taxes or other governmental charges payable out of
such Trust, (b) the accrued expenses of such Trust, and (c) cash held
for distribution to Unit holders of record as of a date prior to the
evaluation then being made. The Evaluator may determine the value of the
Bonds in a Trust (1) on the basis of current bid prices of the Bonds
obtained from dealers or brokers who customarily deal in bonds
comparable to those held by such Trust, (2) on the basis of bid prices
for bonds comparable to any Bonds for which bid prices are not
available, (3) by determining the value of the Bonds by appraisal, or
(4) by any combination of the above. In determining the Redemption Price
per Unit for an Insured Trust, no value will be attributed to the
portfolio insurance covering the Bonds in such Trust unless such Bonds
are in default in payment of principal or interest or in significant
risk of such default. On the other hand, Bonds insured under a policy
obtained by the Bond issuer, the underwriters, the Sponsor or others are
entitled to the benefits of such insurance at all times and such
benefits are reflected and included in the market value of such Bonds.
See "Why and How are the Insured Trusts Insured?" For a description of
the situations in which the evaluator may value the insurance obtained
by an Insured Trust, see "Public Offering-How is the Public Offering
Price Determined?"
The difference between the bid and offering prices of such Bonds may be
expected to average 1-2% of the principal amount. In the case of
actively traded bonds, the difference may be as little as 1/2 of 1% and,
in the case of inactively traded bonds, such difference usually will not
exceed 3%. Therefore, the price at which Units may be redeemed could be
less than the price paid by the Unit holder and may be less than the par
value of the Securities represented by the Units so redeemed.
The Trustee is empowered to sell underlying Bonds in a Trust in order to
make funds available for redemption. To the extent that Bonds are sold,
the size and diversity of such Trust will be reduced. Such sales may be
required at a time when Bonds would not otherwise be sold and might
result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, which for certain
Trusts includes Purchased Interest, it may purchase such Units by
notifying the Trustee before 12:00 p.m. Eastern time on the next
succeeding business day and by making payment therefor to the Unit
holder not later than the day on which the Units would otherwise have
been redeemed by the Trustee. Units held by the Sponsor may be tendered
to the Trustee for redemption as any other Units. Any profit or loss
Page 25
resulting from the resale or redemption of such Units will belong to the
Sponsor.
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell such of the Bonds in each Trust on a
list furnished by the Sponsor as the Trustee in its sole discretion may
deem necessary to meet redemption requests or pay expenses to the extent
funds are unavailable. As described in the following paragraph and in
certain other unusual circumstances for which it is determined by the
Depositor to be in the best interests of the Unit holders or if there is
no alternative, the Trustee is empowered to sell Bonds in a Trust which
are in default in payment of principal or interest or in significant
risk of such default and for which value has been attributed to the
insurance, if any, obtained by the Trust. See "How May Units be
Redeemed?" The Sponsor is empowered, but not obligated, to direct the
Trustee to dispose of Bonds in a Trust in the event of advanced
refunding. The Sponsor may from time to time act as agent for a Trust
with respect to selling Bonds out of a Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject to the
restrictions under the Investment Company Act of 1940, as amended.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor, either pursuant to
the portfolio insurance, if any, or otherwise, within thirty days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails
to instruct the Trustee to sell or to hold such Bond within thirty days
after notification by the Trustee to the Sponsor of such default, the
Trustee may, in its discretion, sell the defaulted Bond and not be
liable for any depreciation or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made by an
issuer of any of the Bonds to issue new obligations in exchange and
substitution for any Bonds pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem
proper if the issuer is in default with respect to such Bonds or in the
written opinion of the Sponsor the issuer will probably default in
respect to such Bonds in the foreseeable future. Any obligations so
received in exchange or substitution will be held by the Trustee subject
to the terms and conditions in the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under "What
is the First Trust Combined Series?" for Failed Bonds, the acquisition
by a Trust of any securities other than the Bonds initially deposited is
prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $9 billion in First Trust
unit investment trusts have been deposited. The Sponsor's employees
include a team of professionals with many years of experience in the
unit investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (630) 241-4141. As of
December 31, 1996, the total partners' capital of Nike Securities L.P.
was $9,005,203 (audited). (This paragraph relates only to the Sponsor
and not to the Trust or to any series thereof or to any other
Underwriter. The information is included herein only for the purpose of
informing investors as to the financial responsibility of the Sponsor
and its ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon request.)
Page 26
Who is the Trustee?
The Trustee is The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Fund which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trusts as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor and the Trustee, in which event the
Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
Page 27
determined in good faith by the Sponsor and the Trustee), provided that
the Indenture is not amended to increase the number of Units of any
Trust issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
of any Trust initially deposited in a Trust, except for the substitution
of certain refunding securities for Bonds or New Bonds for Failed Bonds.
In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of the Unit
holders of such Trust or by the Trustee when the value of such Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds initially deposited in the Trust or by the Trustee
in the event that Units of a Trust not yet sold aggregating more than
60% of the Units of such Trust are tendered for redemption by the
Underwriters, including the Sponsor. If a Trust is liquidated because of
the redemption of unsold Units of the Trust by the Underwriters, the
Sponsor will refund to each purchaser of Units of such Trust the entire
sales charge paid by such purchaser. The Indenture will terminate upon
the redemption, sale or other disposition of the last Bond held
thereunder, but in no event shall it continue beyond the Mandatory
Termination Date as indicated in Part One for each Trust. In the event
of termination, written notice thereof will be sent by the Trustee to
all Unit holders of such Trust. Within a reasonable period after
termination, the Trustee will sell any Bonds remaining in the Trust,
and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder of such Trust (including the Sponsor if
it then holds any Units), upon surrender for cancellation of his
Certificate for Units, his pro rata share of the balances remaining in
the Interest and Principal Accounts of such Trust, all as provided in
the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Booth & Baron, 122 East 42nd Street, Suite 1507, New York, New York
10168, acts as special counsel for the Fund for New York tax matters for
Series 1, 2 and 3 of the Fund. Winston & Strawn (previously named Cole &
Deitz), 175 Water Street, New York, New York 10038 acts as counsel for
the Trustee and as special counsel for the Fund for New York Tax matters
for Series 4-125 of the Fund. Carter, Ledyard & Milburn, 2 Wall Street,
New York, New York 10005, acts as counsel for the Trustee and as special
counsel for the Fund for New York tax matters for Series 126 and
subsequent Series of the Fund. For information with respect to state and
local tax matters, including the State Trust special counsel for such
matters, see Part Three for each Trust.
Experts
The statements of net assets, including the portfolios, of each Trust
contained in Part One of the Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere therein and in the
Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing.
Page 28
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. 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;
ll. Nature of and provisions of the obligation;
lll. 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
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
<N>
________________
* As published by the rating companies.
** Bonds insured by Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, Municipal Bond Investors Assurance Corporation, Connie Lee
Insurance Company, Financial Security Assurance and Capital Guaranty
Insurance Company are automatically rated "AAA" by Standard & Poor's.
Page 29
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat large than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Fitch Investors Service, Inc. A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follow:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
Page 30
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
Page 31
CONTENTS:
The First Trust Combined Series:
What is The First Trust Combined Series? 3
What are Estimated Long-Term Return and
Estimated Current Return? 8
How are Purchased Interest and Accrued
Interest Treated? 9
Why and How are the Insured Trusts Insured? 10
What is the Federal Tax Status of Unit Holders? 17
What are the Expenses and Charges? 17
Public Offering:
How is the Public Offering Price Determined? 18
How are Units Distributed? 21
What are the Sponsor's Profits? 21
Rights of Unit Holders:
How are Certificates Issued and Transferred? 22
How are Interest and Principal Distributed? 22
How can Distributions to Unit Holders be
Reinvested? 23
What Reports will Unit Holders Receive? 24
How May Units be Redeemed? 25
How May Units be Purchased by the Sponsor? 26
How May Bonds be Removed from the Fund? 26
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 26
Who is the Trustee? 27
Limitations on Liabilities of Sponsor and Trustee 27
Who is the Evaluator? 27
Other Information:
How May the Indenture be Amended or
Terminated? 28
Legal Opinions 28
Experts 28
Description of Bond Ratings 29
__________
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 INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE FUND
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST(REGISTERED TRADEMARK)
THE FIRST TRUST
COMBINED SERIES
Prospectus
Part Two
May 30, 1997
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
AND PART THREE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 32
NATIONAL TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1997 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. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to a
Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax").
See "Certain Tax Matters Applicable to Corporate Unit Holders";
(2) each Unit holder 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. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unit holders pay for their
Units to
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
the extent that such interest accrued on such Bonds during the
period from the Unit holder's settlement date to the date such Bonds are
delivered to the respective Trust and, consequently, such Unit holders
may have an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The amount of
any such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with 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 accrual original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units
among each of the Trust assets ratably according to value as of the
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of 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.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Page 2
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.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax 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.
Page 3
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
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
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.
LeBoeuf, Lamb, Leiby & MacRae has served as Special Counsel to Series 8-
81, inclusive, of The First Trust of Insured Municipal Bonds, Booth &
Baron has served as Special Counsel to Series 82-147 of The First Trust
of Insured Municipal Bonds and Winston & Strawn (previously named Cole &
Deitz) has served as Special Counsel to Series 148 and subsequent Series
of The First Trust Insured Municipal Bonds for New York tax matters. In
the opinion of such Special Counsels, under the existing income tax laws
of the State and City of New York, each Trust is not an association
taxable as a corporation and the income of each such Trust will be
treated as the income of the Unit holder.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Certain Considerations
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the National 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 National Trusts to pay interest on or
principal of the Bonds.
Page 4
National Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
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 5
MINNESOTA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1997 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. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to a
Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax").
See "Certain Tax Matters Applicable to Corporate Unit Holders";
(2) each Unit holder 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. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unit holders pay for their
Units to
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
the extent that such interest accrued on such Bonds during the
period from the Unit holder's settlement date to the date such Bonds are
delivered to the respective Trust and, consequently, such Unit holders
may have an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The amount of
any such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with 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 accrual original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units
among each of the Trust assets ratably according to value as of the
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of 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.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax 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.
Page 3
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
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
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.
Booth & Baron has served as Special Counsel to Series 1-9 of The First
Trust of Insured Municipal Bonds-Multi-State, inclusive, and Winston &
Strawn (previously named Cole & Deitz) has served as Special Counsel to
Series 10 and 11 of The First Trust of Insured Municipal Bonds-Multi-
State for New York tax matters. In the opinion of such Special Counsels,
under the existing income tax laws of the State and City of New York,
each Trust is not an association taxable as a corporation and the income
of each such Trust will be treated as the income of the Unit holder.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Minnesota Tax Status of Unit Holders
At the time of the closing for each Minnesota Trust, Special Counsel to
the Fund for Minnesota tax matters rendered an opinion under then
existing Minnesota income tax law applicable to taxpayers whose income
is subject to Minnesota income taxation substantially to the effect that:
Each Minnesota Trust will have no income other than (i) interest income
on bonds issued by the State of Minnesota and its political and
governmental subdivisions, municipalities and governmental agencies and
instrumentalities and on bonds issued by possessions of the United
States which would be exempt from Federal and Minnesota income taxation
when paid directly to an individual, trust or estate (the "Bonds"), (ii)
gain on the disposition of such Bonds, and (iii) proceeds paid under
certain insurance policies issued to the Trustee or to the issuers of
the Bonds which represent maturing interest or principal payments on
defaulted Bonds held by the Trustee.
Neither the Sponsor nor its counsel has independently examined the Bonds
to be deposited in and held in the Trust. However, although no opinion
is expressed herein regarding such matters, it is assumed that: (i) the
Bonds were validly issued, (ii) the interest thereon is excludible from
gross income for Federal income tax purposes and (iii) the interest
thereon is exempt from income tax imposed by Minnesota that is
applicable to individuals, trusts and estates (the "Minnesota Income
Tax"). It should be noted that interest on the Bonds is subject to tax
in the case of corporations subject to the Minnesota Corporate Franchise
Tax or the Corporate alternative Minimum Tax and is a factor in the
computation of the Minimum Fee applicable to financial institutions. The
opinion set forth below does not address the taxation of persons other
than full-time residents of Minnesota.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing Minnesota income tax laws as of the date of this prospectus and
based upon the assumptions above:
1. Each Minnesota Trust is not an association taxable as a corporation
and each Unit holder of a Minnesota Trust will be treated as the owner
Page 4
of a pro rata portion of the Minnesota Trust, and the income of such
portion of the Minnesota Trust will therefore be treated as the income
of the Unit holder for Minnesota Income Tax purposes;
2. Income on the Bonds which is exempt from the Minnesota Income Tax
when received by a Unit holder of a Minnesota Trust and which would be
exempt from the Minnesota Income Tax if received directly by a Unit
holder will retain its status as exempt from such tax when received by
the Minnesota Trust and distributed to such Unit holder;
3. To the extent that interest on the Bonds, if any, which is
includible in the computation of "alternative minimum taxable income"
for federal income tax purposes, such interest will also be includible
in the computation of "alternative minimum taxable income" for purposes
of the Minnesota Alternative Minimum Tax imposed on individuals, estates
and trusts and on corporations;
4. Each Unit holder of a Minnesota Trust will recognize gain or loss
for Minnesota Income Tax purposes if the Trustee disposes of a Bond
(whether by redemption, sale or otherwise) or if the Unit holder redeems
or sells Units of the Minnesota Trust to the extent that such
transaction results in a recognized gain or loss to such Unit holder for
Federal income tax purposes;
5. Tax cost reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Unit holders realizing
taxable gain for Minnesota Income Tax purposes when their Units are sold
or redeemed for an amount equal to or less than their original cost;
6. Proceeds, if any, paid under individual insurance policies obtained
by issuers of Bonds which represent maturing interest on defaulted
obligations held by the Trustee will be excludible from Minnesota net
income if, and to the same extent as, such interest would have been so
excludible if paid in the normal course by the issuer of the defaulted
obligation 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, and;
7. To the extent that interest derived from a Minnesota Trust by a
Unit holder with respect to any possession obligations is excludible
from gross income for Federal income tax purposes pursuant to 48 U.S.C.
Section 745, 48 U.S.C. Section 1423a and 48 U.S.C. Section 1403, such
interest will not be subject to either the Minnesota Income Tax or the
Minnesota alternative minimum tax imposed on individuals, estates and
trusts. It should be noted that interest relating to possession bonds is
subject to tax in the case of corporations, subject to the Minnesota
Corporate Franchise Tax or the Corporate Alternative Minimum Tax.
Chapman and Cutler has not examined any of the Bonds to be deposited and
held in the Minnesota Trust or the proceedings for the issuance thereof
or the opinions of bond counsel with respect thereto, and therefore
express no opinions to the exemption from State income taxes of interest
on the Bonds if received directly by a Unit holder.
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
In the early 1980s the State of Minnesota experienced financial
difficulties due to a downturn in the State's economy resulting from the
national recession. In recent years, Minnesota has ranked as one of the
top five states in production for dairy products, soy beans, hogs, corn,
turkeys, sugar beets, barley, hay, sweet corn, oats, green peas, and
sunflowers. In 1994, Minnesota ranked first in the nation in cash
receipts for sugar beets. Total cash receipts in 1994 were $6.522
billion, with dairy products and soy beans contributing 18.3% and 15.6%,
respectively.
Between 1985 and 1994, more than 435,000 jobs were added in Minnesota,
resulting in employment growth of 24.1% compared to the national average
of 16.9%. The four fastest growing industries in Minnesota were:
services; manufacturing; finance, insurance and real estate (FIRE); and
transportation, communications and public utilities (TCPU).
Employment growth in Minnesota continues to outpace the U.S. economy in
fiscal year 1996. Payroll employment grew by 2.3%, significantly above
the U.S. growth of 2.0%. Between November 1995 and November 1996,
Page 5
Minnesota added 54,800 jobs, growing at a rate of 2.3% for total nonfarm
wage and salary employment. This brings the total number of nonfarm jobs
in the state to 2,470,800. In the last year, the services division
accounted for almost 38% of the growth and trade made up another 25%.
From November 1995 to November 1996, the services sector grew 3.2%, or
20,700 jobs, the largest percentage increase of any industry division in
the state. Manufacturing added 2,700 jobs, a .6% increase. FIRE gained
2,900 jobs for a growth rate of 2.1%. TCPU increased by 2.7%, or 3,200
jobs.
The annual unemployment rate in Minnesota has been below the U.S. and
Midwest rates every year since 1985. In 1995 and 1996, the Minnesota
unemployment rate was 3.7% and 3.6%, respectively, compared to rates of
5.6% and 5.4%, respectively, for the nation.
In 1995, per capita personal income in Minnesota was $23,271, exceeding
the national average by 3%. In 1996, Minnesota's per capita personal
income rose to $24,498, an increase of 5.3% from 1995. The U.S. increase
for 1996 is predicted at 4.7%.
Total personal income in the state, however, grew more slowly than in
the rest of the nation. Total wage and salary disbursements in the
state, which account for about two-thirds of personal income, grew at a
4.9% rate in fiscal year 1996, noticeably slower than the U.S. wide
growth rate of 6.2%. Much of this difference is attributed to increases
in the number of hours worked by part time employees. During the past
year, economic conditions in Minnesota have been such that part time
workers are already working all of the hours they desire.
The Minnesota economy is expected to track the national economy during
fiscal year 1997. Growth rates for personal income in Minnesota and
nationally are projected to be identical. Job growth in Minnesota is
forecast to be only slightly stronger than that for the entire U.S.,
while total wage and salary disbursements are expected to lag slightly,
reflecting the belief that part time workers elsewhere in the nation
will continue to add hours at a faster rate than those in Minnesota. The
1996 farm bill will add to farm income in the state in both 1996 and 1997.
Minnesota's fiscal period is a biennium. General Fund revenues and
transfers-in totaled $9.619 billion for fiscal year 1996, up 9% from
those for fiscal year 1995. Actual total resources were $10.421 billion.
General Fund expenditures and transfers-out for the year totaled $9.638
billion, an increase of 11.7% from the previous year. Of this amount,
$6.749 billion (70%) is in the form of grants and subsidies to local
governments, individuals and non-profit organizations.
Total net revenue for the General Fund for the fiscal year ending June
30, 1996 was $9.617 billion. Of this amount, approximately 43% or $4.135
billion was from individual income taxes, 30.1% or $2.897 billion was
from sales tax, and 7.3% or $702 million was from corporate income tax.
Total General Fund expenditures for fiscal year 1996 were $8.554 billion.
The budgetary fund balance for the General Fund at the end of fiscal
year 1996 was $1.357 billion, and the undesignated fund balance was $506
million, a $47.9 million increase from fiscal year 1995. A budgetary
reserve of $570 million was provided for in fiscal year 1996, compared
to $500 million in 1995.
Total net revenue for the Special Revenue Fund for the fiscal year
ending June 30, 1996 was $1.553 billion. Total expenditures for this
fund were $1.026 billion. The budgetary fund balance for the Special
Revenue Fund at the end of fiscal year 1996 was $379.2 million, with the
undesignated fund balance at $298.7 million.
Estimated General Fund revenues for the 1996-97 fiscal year are $19,089
million. Total resources are forecast at $20.110 billion. General Fund
expenditures and transfers for fiscal year 1996-97 are predicted at
$18,811 million, leaving an estimated budgetary balance of $502 million.
Total expenditures for the 1996-97 biennium are predicted at $29,801
million. Of this amount, $18,080 million is from the general fund,
$10,127 are from the special revenue funds, and $563 million is from the
Debt Service Fund.
National economic growth for the remainder of the decade is predicted to
generate a corresponding growth in state revenues without increasing tax
rates. Minnesota's revenues are expected to grow by $1.4 billion, 7.4%
in the 1998-99 biennium, and 8.1% in the following biennium. Since the
state forecast is based on a strong 2.4% annual growth rate, a return to
a more moderate rate of growth, similar to the 2.0% growth rate in 1995,
would materially reduce forecast revenues.
Spending for fiscal years 1998 and 1999 is estimated at 3.3% and 2.3%,
respectively, both below Minnesota's projected personal income growth
Page 6
rates of 4.9% and 4.7% for the same periods.
The 1998-99 General Fund beginning balance is estimated at $1.299
billion. The Governor recommended General Fund revenues for the 1998-99
biennium of $19.99 billion, a 4.7% increase from the previous biennium.
The Governor also recommended total expenditures and transfers for the
1998-99 biennium of $20.344 billion, an 8.2% increase from the 1996-97
biennium. The budgetary balance of $3 million at the end of the 1998-99
biennium is $499 million less than the previous biennium.
The State's budget reserve for the 1998-99 biennium is doubled to $522
million (an increase from $261 million in fiscal year 1997) or 5% of
fiscal year 1999 spending to protect against economic uncertainty.
The November 1996 forecast shows total resources for the 1998-99
biennium at $21.804 billion, total expenditures and transfers at $19.568
billion, and a budgetary balance of $1.439 billion.
The state issued $439.6 million of new general obligation bonds, and
$170.6 million of general obligation bonds were redeemed during 1996,
leaving an outstanding balance of $2.2 billion. General obligation bonds
authorized but unissued as of June 30, 1996 were $1.101 billion.
Minnesota Statutes, Section 16A.641 provides for an annual appropriation
for transfer to the Debt Service Fund. The amount of the appropriation
is to be such that, when combined with the balance on hand in the Debt
Service Fund on December 1 of each year for state bonds, it will be
sufficient to pay all general obligation bond principal and interest due
and to become due through July 1 in the second ensuing year. If the
amount appropriated is insufficient when combined with the balance on
hand in the Debt Service Fund, the state constitution requires the state
auditor to levy a statewide property tax to cover the deficiency. No
such property tax has been levied since 1969 when the law was enacted
requiring the appropriation. In fiscal year 1996, total operating
transfers to the Debt Service Fund were $277.522 million.
The Governor's budget recommends a General Fund appropriation of $545.6
million for fiscal year 1998-99 for debt service on bonds sold for
existing authorizations, bonds authorized but unissued, and new bonds
anticipated to be authorized in the 1998 legislative session. This
amount represents 2.8% of total general fund spending. The Governor also
proposed $16.6 million be appropriated to pay remaining state claims
from the Cambridge Bank Litigation judgment, rather than issuing
additional revenue bonds for this purpose.
In May 1996, Moody's Investor Services upgraded Minnesota's general
obligation bond rating to Aaa. S&P's current rating is AA+, and Fitch's
rates Minnesota bonds at AAA.
Litigation. In September 1995, in Minneapolis Branch of the NAACP v.
State of Minnesota, plaintiffs filed suit claiming that the segregation
of minority and poor students in the Minneapolis public schools has
deprived the students of an adequate education in violations of the
Minnesota Constitution. It is impossible at this point to estimate the
State's exposure in this case especially since the plaintiffs have not
articulated what relief they are seeking. While the complaint does not
request monetary damages, it does request injunctive relief that could
force the State to spend over $10 million for additional funding of
various items for the Minneapolis schools, and increased busing
expenses. District court proceedings continue.
In Minnesota Home Health Care Association v. Gomez, plaintiffs have sued
the Department of Human Services ("DHS") for declaratory and injunctive
relief claiming that DHS violated federal law by failing to determine
payment rates for home health care service providers which are
consistent with efficiency, economy, and quality of care, and which
provide adequate patient access. The potential loss to the State is
estimated at $20 million and may impact the Accounting General Fund. The
State prevailed in District Court. The case is on appeal to the Eighth
Circuit Court of Appeals.
In PepsiCo, et al. v. Commissioner of Revenue, twelve corporate
taxpayers claim unconstitutional treatment under certain provisions of
Minnesota tax law. The Department of Revenue has not determined the
potential refund liability should the plaintiffs prevail; however, the
aggregate refunds to all similarly-situated taxpayers could exceed $10
million.
In Rural American Bank-Ada f/k/a First Bank of Ada, et al. v.
Commissioner of Revenue, filed in Ramsey County District Court,
taxpayers claim they are entitled to refunds pursuant to the Court's
decision in Cambridge State Bank, in which the Court struck down a
provision of the franchise tax law which taxed interest income from
federal obligations. The complaint and alternative writ of mandamus seek
to require the Commissioner to pay refunds to 130 banks who were not
parties to the Cambridge and Cambridge-related cases. The Commissioner
Page 7
denies any liability, but it is possible that the State could be ordered
to pay in excess of $10 million dollars.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Minnesota 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 Minnesota Trusts to pay interest on or
principal of the Bonds.
Page 8
Minnesota Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
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 9
PENNSYLVANIA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania 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, 1997 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. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to a
Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax").
See "Certain Tax Matters Applicable to Corporate Unit Holders";
(2) each Unit holder 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. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unit holders pay for their
Units to
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
the extent that such interest accrued on such Bonds during the
period from the Unit holder's settlement date to the date such Bonds are
delivered to the respective Trust and, consequently, such Unit holders
may have an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The amount of
any such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with 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 accrual original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units
among each of the Trust assets ratably according to value as of the
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of 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.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includable in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includable
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.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax 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.
Page 3
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
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
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 exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Pennsylvania Tax Status of Unit Holders
In rendering its opinion, Special Counsel has not, for timing reasons,
made an independent review of proceedings related to the issuance of the
Bonds. It has relied on the Sponsor for assurance that the Bonds have
been issued by the Commonwealth of Pennsylvania or by or on behalf of
municipalities or other governmental agencies within the Commonwealth.
At the time of the closing for each Pennsylvania Trust, Special Counsel
to the Fund for Pennsylvania tax matters rendered an opinion under then
existing Pennsylvania income tax law applicable to taxpayers whose
income is subject to Pennsylvania income taxation substantially to the
effect that:
Units evidencing fractional undivided interests in a Pennsylvania Trust,
which are represented by obligations issued by the Commonwealth of
Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision
of the Commonwealth of Pennsylvania or any public authority created by
any such political subdivision, are not taxable under any of the
personal property taxes presently in effect in Pennsylvania;
Distributions of interest income to Unit holders that would not be
taxable if received directly by a Pennsylvania resident are not subject
to personal income tax under the Pennsylvania Tax Reform Code of 1971;
nor will such interest be taxable under the Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals;
A Unit holder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the
redemption or sale of his Units. Units will be taxable under the
Pennsylvania inheritance and estate taxes;
A Unit holder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its
Units. Interest income distributed to Unit holders which are
corporations is not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title insurance
companies and trust companies may be required to take the value of the
Units into account in determining the taxable value of their shares
subject to the Shares tax;
Under Act No. 68 of December 3, 1993, gains derived by a Pennsylvania
Trust from the sale, exchange or other disposition of Bonds may be
subject to Pennsylvania personal or corporate income taxes. Those gains
which are distributed by a Pennsylvania Trust to Unit holders who are
individuals may be subject to Pennsylvania Personal Income Tax. For Unit
holders which are corporations, the distributed gains may be subject to
Page 4
Corporate Net Income Tax or Mutual Thrift Institutions Tax. Gains which
are not distributed by a Pennsylvania Trust may nevertheless be taxable
to Unit holders if derived by a Pennsylvania Trust from the sale,
exchange or other disposition of Bonds issued on or after February 1,
1994. Gains which are not distributed by a Pennsylvania Trust will
remain nontaxable to Unit holders if derived by a Pennsylvania Trust
from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994.
Any proceeds paid under insurance policies issued to the Trustee or
obtained by issuers of the Bonds with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Pennsylvania gross income if, and to the same
extent as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations;
A Pennsylvania Trust is not taxable as a corporation under Pennsylvania
tax laws applicable to corporations.
On December 3, 1993, changes to Pennsylvania laws affecting taxation of
income and gains from the sale of Pennsylvania and local obligations
were enacted. Among these changes was the repeal of the exemption from
tax of gains realized upon the sale or other disposition of such
obligations. The Pennsylvania Department of Revenue has issued proposed
regulations concerning these changes. The opinions expressed above are
based on Special Counsel's analysis of the law and proposed regulations,
but are subject to modification upon review of final regulations or
other guidance that may be issued by the Department of Revenue or future
court decisions.
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
Investors should be aware of certain factors that might affect the
financial conditions of the Commonwealth of Pennsylvania. Pennsylvania
historically has been identified as a heavy industry state although that
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries
began to decline. A more diversified economy was necessary as the
traditionally strong industries in the Commonwealth declined due to a
long-term shift in jobs, investment and workers away from the northeast
part of the nation. The major sources of growth in Pennsylvania are in
the service sector, including trade, medical and the health services,
education and financial institutions. Pennsylvania's agricultural
industries are also an important component of the Commonwealth's
economic structure, accounting for more than $3.6 billion in crop and
livestock products annually, while agribusiness and food related
industries support $39 billion in economic activity annually.
Non-agricultural employment in the Commonwealth over the ten years
ending in 1995 increased at an annual rate of 1.02%. This rate compares
to a 0.36% rate for the Middle Atlantic region and a 1.8% rate for the
United States during the same period. For the last three years,
employment in the Commonwealth has increased 3.4%.
Non-manufacturing employment has increased in recent years to 82.1% of
total Commonwealth employment in 1995 and to 82.5% as of December 1996.
Consequently, manufacturing employment constitutes a diminished share of
total employment within the Commonwealth. Manufacturing, contributing
17.9% of 1995 non-agricultural employment and 17.5% as of December 1996,
has fallen behind both the services sector and the trade sector as the
largest single source of employment within the Commonwealth. In 1995 the
services sector accounted for 30.4% of all non-agricultural employment
while the trade sector accounted for 22.8%.
From 1983 to 1989, Pennsylvania's annual average unemployment rate
dropped from 11.8% to 4.5%, falling below the national rate in 1986 for
the first time in over a decade. Pennsylvania's annual average
unemployment rate remained below the national average from 1986 until
1990. Slower economic growth caused the unemployment rate in the
Commonwealth to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of
faster economic growth resulted in a decrease in the Commonwealth's
unemployment rate to 7.1% in 1993. As of January 1997, the seasonally
adjusted unemployment rate for the Commonwealth was 4.7% compared to
5.4% for the United States.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
Page 5
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Financial information for the principal operating funds of the
Commonwealth is maintained on a budgetary basis of accounting. A
budgetary basis of accounting is used for the purpose of ensuring
compliance with the enacted operating budget and is governed by
applicable statutes of the Commonwealth and by administrative
procedures. The Commonwealth also prepares annual financial statements
in accordance with generally accepted accounting principles ("GAAP").
The budgetary basis financial information maintained by the Commonwealth
to monitor and enforce budgetary control is adjusted at fiscal year-end
to reflect appropriate accruals for financial reporting in conformity
with GAAP.
Financial Condition and Results of Operations. The fiscal years 1992
through 1996 were years of recovery for Pennsylvania from the recession
in 1990 and 1991. The recovery fiscal years were characterized by modest
economic growth and low inflation rates in the Commonwealth. These
economic conditions, combined with several years of tax reductions
following the various tax rate increases and tax base expansions enacted
in fiscal 1991 for the General Fund, produced modest increases in
Pennsylvania's tax revenues during the period. Tax revenues from fiscal
1992 through fiscal 1996 rose at an annual average rate of 2.8 percent.
Total revenues and other income sources increased during this period by
an average annual rate of 3.3 percent. Expenditures and other uses
during the fiscal 1992 through fiscal 1996 period rose at a 4.4 percent
annual rate, led by annual average increases of 14.2 percent for
protection of persons and property program costs and 11.4 percent for
capital outlay costs. Expenditure reductions for fiscal 1996 from the
previous fiscal year for operating transfers out and for conservation of
natural resources program costs were the result of accounting changes
affecting the General Fund and the Motor License Fund and a
recategorization of expenditures due to a departmental restructuring in
the General Fund. At the close of fiscal 1996, the fund balance for the
governmental fund types totaled $1,986.3 million, an increase of $58.7
million over fiscal 1995 and $758.5 million over fiscal 1992.
Financial Results for Recent Fiscal Years (GAAP Basis). The five-year
period from fiscal 1992 through fiscal 1996 recorded a 4.6 percent
average annual increase in revenues and other sources, led by an average
annual increase of 13.2 percent for intergovernmental revenues. The
increase for intergovernmental revenues in fiscal 1996 is partly due to
an accounting change. Tax revenues during the five-year period increased
an average of 2.5 percent as modest economic growth, low inflation rates
and several tax rate reductions and other tax reduction measures
constrained the growth of tax revenues. The tax reduction measures
followed a $2.7 billion tax increase measure adopted for the 1992 fiscal
year.
Expenditures and other uses during the fiscal 1992 through fiscal 1996
period rose at an average annual rate of 6.0 percent led by increases of
14.2 percent for protection of persons and property program costs. The
costs of a prison expansion program and other correctional program
expenses are responsible for the large percentage increase. A reduction
in debt service costs at an average annual rate of 29.1 percent over the
five-year period is a result of reduced short-term borrowing for cash
flow purposes. Improved financial results and structural cash flow
modifications contributed to the lower borrowing. Efforts to control
costs for various social welfare programs and the presence of favorable
economic conditions have led to a modest 5.6 percent increase for public
health and welfare costs for the five year period.
The fund balance at June 30, 1996 totaled $635.2 million, a $547.7
million increase from a balance of $87.5 million at June 30, 1992.
Fiscal 1994 Financial Results (Budgetary Basis). Commonwealth revenues
during the fiscal year totaled $15,210.7 million, $38.6 million above
the fiscal year estimate, and 3.9% over Commonwealth revenues during the
previous fiscal year. The sales tax was an important contributor to the
higher than estimated revenues. Collections from the sales tax were
$5.124 billion, a 6.1% increase from the prior fiscal year and $81.3
million above estimate. The strength of collections from the sales tax
offset the lower than budgeted performance of the personal income tax
which ended the fiscal year $74.4 million below estimate. The shortfall
in the personal income tax was largely due to shortfalls in income not
subject to withholding such as interest, dividends and other income.
Expenditures, excluding pooled financing expenditures and net of all
fiscal 1994 appropriation lapses, totaled $14,934.4 million representing
a 7.2% increase over fiscal 1993 expenditures. Medical assistance and
corrections spending contributed to the rate of spending growth for the
fiscal year. The Commonwealth maintained an operating balance on a
Page 6
budgetary basis for fiscal 1994 producing a fiscal year ending
unappropriated surplus of $335.8 million.
Fiscal 1995 Financial Results (Budgetary Basis). Commonwealth revenues
for the 1995 fiscal year were above estimate and exceeded fiscal year
expenditures and encumbrances. Fiscal 1995 was the fourth consecutive
fiscal year the Commonwealth reported an increase in the fiscal year-end
unappropriated balance. Prior to reserves for transfer to the Tax
Stabilization Reserve Fund, the fiscal 1995 closing unappropriated
surplus was $540.0 million, an increase of $204.2 million over the
fiscal 1994 closing unappropriated surplus prior to transfers.
Commonwealth revenues during the 1995 fiscal year were $459.4 million,
2.9 percent above the estimate of revenues used at the time the 1995
fiscal year budget was enacted. Corporation taxes contributed $329.4
million of the additional receipts largely due to higher receipts from
the corporate net income tax. Fiscal 1995 revenues from the corporate
net income tax were 22.6 percent over collections in fiscal 1994 and
include the effects of the reduction of the tax rate from 12.25 percent
to 11.99 percent that became effective with tax years beginning on and
after January 1, 1994. The sales and use tax and miscellaneous revenues
also showed strong year-over-year growth that produced above-estimate
revenue collections. Sales and use tax revenues were $5,526.9 million,
$128.8 million above the enacted budget estimate and 7.9 percent over
fiscal 1994 collections. Tax receipts from both motor vehicle and non-
motor vehicle sales contributed to the higher collections. Miscellaneous
revenue collections for fiscal 1995 were $183.5 million, $44.9 million
above estimate and were largely due to additional investment earnings,
escheat revenues and other miscellaneous revenues.
Fiscal 1996 Financial Results (Budgetary Basis). Commonwealth revenues
(prior to tax refunds) for the 1996 fiscal year increased by $113.9
million over the prior fiscal year to $16,338.5 million representing a
growth rate of 0.7 percent. Tax rate reductions and other tax law
changes substantially reduced the amount and rate of revenue growth for
the fiscal year. The Commonwealth has estimated that tax changes enacted
for the 1996 fiscal year reduced Commonwealth revenues by $283.4 million
representing 1.7 percentage points of fiscal 1996 growth in Commonwealth
revenues. The most significant tax changes enacted for the 1996 fiscal
year were (i) the reduction of the corporate net income tax rate to 9.99
percent; (ii) double weighing of the sales factor of the corporate net
income apportionment calculation; (iii) an increase in the maximum
annual allowance for a net operating loss deduction from $0.5 million to
$1.0 million; (iv) an increase in the basic exemption amount for the
capital stock and franchise tax; (v) the repeal of the tax on annuities;
and (vi) the elimination of inheritance tax on transfers of certain
property to surviving spouses.
Among the major sources of Commonwealth revenues for the 1996 fiscal
year, corporate tax receipts declined $338.4 million from receipts in
the prior fiscal year, largely due to the various tax changes enacted
for these taxes. Corporate tax changes were enacted to reduce the cost
of doing business in Pennsylvania for the purpose of encouraging
business to remain in Pennsylvania and to expand employment
opportunities within the state. Sales and use tax receipts for the
fiscal year increased $155.5 million, or 2.8 percent, over receipts
during fiscal 1995. All of the increase was produced by the non-motor
vehicle portion of the tax as receipts from the sale of motor vehicles
declined slightly for fiscal 1996. Personal income tax receipts for the
fiscal year increased $291.1 million, or 5.7 percent, over receipts
during fiscal 1995. Personal income tax receipts were aided by a 10.2
percent increase in nonwithholding tax payments which generally are
comprised of quarterly estimated and annual final return tax payments.
Non-tax receipts for the fiscal year increased $23.7 million for the
fiscal year. Included in that increase was $67 million in net receipts
from a tax amnesty program that was available for a portion of the 1996
fiscal year. Some portion of the tax amnesty receipts represent normal
collections of delinquent taxes. The tax amnesty program is not expected
to be repeated.
The unappropriated surplus (prior to transfers to Tax Stabilization
Reserve Fund) at the close of the fiscal year for the General Fund was
$183.8 million, $65.5 million above estimate. Transfers to the Tax
Stabilization Reserve Fund from fiscal 1996 operations will be $27.6
million. This amount represents the fifteen percent of the fiscal year
ending unappropriated surplus transfer provided under current law. With
the addition of this transfer and anticipated interest earnings, the Tax
Stabilization Reserve Fund balance will be $211 million.
Page 7
Fiscal 1997 Budget. The enacted fiscal 1997 budget provides for
expenditures from Commonwealth revenues of $16,375.8 million, an
increase of 0.6% over appropriated amounts from Commonwealth revenues
for fiscal 1996. The fiscal 1997 budget is based on anticipated
Commonwealth revenues before refunds of $16,744.5 million, an increase
over actual fiscal 1996 revenues of 2.5 percent.
Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and the probation and parole
programs. Continuation of the trend of rapidly rising inmate populations
increases operating costs for correctional facilities and requires the
opening of new facilities. The fiscal 1997 budget contains an
appropriation increase in excess of $110 million for these programs. The
approved budget also contains some departmental restructurings. The
Department of Community Affairs was eliminated with certain of its
programs transferred to the Department of Commerce that has been renamed
the Department of Community and Economic Development. In addition to
assuming some of the community programs, a significant restructuring of
the economic development programs was completed with the establishment
of the new Department of Community and Economic Development. Although
the departmental restructurings are estimated to save approximately $8
million, a $25 million increase in funds was committed to economic and
community development programs for fiscal 1997.
Providing funding for these program increases in a fiscal year budget
where appropriations increased by only $96.7 million, or 0.6 percent,
required reductions and savings in other programs funded from the
General Fund. A major reform of the current welfare system was enacted
in May 1996 to encourage recipients toward self-sufficiency through work
requirements, to provide temporary support for families showing personal
responsibility and to maintain safeguards for those who cannot help
themselves. Net savings to the fiscal 1997 budget of $176.5 million is
anticipated. Many of these savings are redirected in the fiscal 1997
budget toward providing additional support services to those working and
seeking work. Of the net savings, $21 million is committed to job
training opportunities and an additional $69 million towards making day
care services available to welfare recipients for work opportunities.
The fiscal 1997 budget also provides additional funding without
requiring additional appropriations. An actuarial reduction of 112 basis
points in the employer contribution rate is estimated to save school
districts approximately $21 million for the fiscal year. Additional
savings can be expected to be realized by school districts from
legislated changes to teacher sabbatical leaves and worker's
compensation insurance.
Proposed Fiscal 1998 Budget. On February 4, 1997, the Governor presented
his proposed General Fund budget for fiscal 1998 to the General
Assembly. Revenue estimates in the proposed budget were developed using
a national economic forecast with projected annual growth rates below
two percent. Total Commonwealth revenues before reductions for refunds
and proposed tax changes are estimated to be $17,339.2 billion, 2.4
percent above revised estimates for fiscal 1997. Proposed appropriations
against those revenues total $16,915.7 million, a 2.7 percent increase
over currently estimated fiscal 1997 appropriations. As proposed, the
fiscal 1998 budget assumes the draw down of the currently estimated
$177.6 million unappropriated surplus at June 30, 1997; however, no
appropriation lapses are included in this projection. Four tax law
proposals and a proposed increase transfer of taxes to a special purpose
are included in the proposed budget. Together these items are estimated
to reduce fiscal 1998 Commonwealth revenues by $66.9 million. All
require legislative enactment. The General Assembly is reviewing the
proposed budget in hearings before its committees. The General Assembly
may change, eliminate or add amounts and items to the Governor's
proposed budget and there can be no assurance that the budget, as
prepared by the Governor, will be enacted into law.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be
revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the
1990 Census. Philadelphia functions both as a city of the first class
and a county for the purpose of administering various governmental
programs.
For the fiscal year ended June 30, 1992, Philadelphia experienced a
cumulative General Fund balance deficit of $71.4 million.
Page 8
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class
cities in remedying fiscal emergencies was enacted by the General
Assembly and approved by the Governor in June 1991. PICA is designed to
provide assistance through the issuance of funding debt to liquidate
budget deficits and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. An
intergovernmental cooperation agreement between Philadelphia and PICA
was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8,1992. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA
on April 30, 1996.
As of February 28, 1997, PICA has issued approximately $1,761.7 million
of its Special Tax Revenue Bonds to provide financial assistance to
Philadelphia, to liquidate the cumulative General Fund balance deficit,
to refund certain general obligation bonds of the City and to fund
additional capital projects. No further PICA bonds are to be issued by
PICA for the purpose of financing a capital project or deficit as the
authority for such bond sales expired on December 31, 1994. PICA's
authority to issue debt for the purpose of financing a cash flow deficit
expired on December 31, 1996. Its ability to refund existing outstanding
debt is unrestricted. PICA had $1,146.2 million in Special Tax Revenue
Bonds outstanding as of June 30, 1996.
The audited General fund balance of the City as of June 30, 1994, 1995
and 1996 showed a surplus of approximately $15.4 million, $80.5 million
and $118.5 million, respectively.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Ba by
Moody's and BB by S&P. S&P's rating on Philadelphia's general obligation
bonds is "BBB-" and Moody's rating is "Baa." Any explanation concerning
the significance of such ratings must be obtained from the rating
agencies. There is no assurance that any ratings will continue for any
period of time or that they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Pennsylvania 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 Pennsylvania Trusts to pay interest on or
principal of the Bonds.
Page 9
PENNSYLVANIA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania 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 10
KANSAS TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1997 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. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to a
Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax").
See "Certain Tax Matters Applicable to Corporate Unit Holders";
(2) each Unit holder 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. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unit holders pay for their
Units to
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
the extent that such interest accrued on such Bonds during the
period from the Unit holder's settlement date to the date such Bonds are
delivered to the respective Trust and, consequently, such Unit holders
may have an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The amount of
any such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with 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 accrual original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units
among each of the Trust assets ratably according to value as of the
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of 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.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax 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.
Page 3
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
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
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 exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Kansas Tax Status of Unit Holders
At the time of the closing for each Kansas Trust, Chapman and Cutler,
Counsel to the Fund for Kansas tax matters rendered an opinion under
then existing Kansas income tax law applicable to taxpayers whose income
is subject to Kansas income taxation, assuming interest on the Bonds is
excludable from gross income under Section 103 of the Internal Revenue
Code of 1986, as amended, substantially to the effect that:
Each Kansas Trust is not an association taxable as a corporation for
Kansas income tax purposes;
Each Unit holder of a Kansas Trust will be treated as the owner of a pro
rata portion of such Kansas Trust, and the income and deductions of such
Kansas Trust will therefore be treated as income of the Unit holder
under Kansas law;
Interest on Bonds issued after December 31, 1987 by the State of Kansas
or any of its political subdivisions will be exempt from income taxation
imposed on individuals, corporations and fiduciaries (other than
insurance companies, banks, trust companies or savings and loan
associations). However, interest on Bonds issued prior to January 1,
1988 by the State of Kansas or any of its political subdivisions will
not be exempt from income taxation imposed on individuals, corporations
and fiduciaries (other than insurance companies, banks, trust companies
or savings and loan associations) unless the laws of the State of Kansas
authorizing the issuance of such Bonds specifically exempt the interest
on the Bonds from income taxation by the State of Kansas;
Interest on Bonds issued by the State of Kansas or any of its political
subdivisions will be subject to the tax imposed on banks, trust
companies and savings and loan associations under Article 11, Chapter 79
of the Kansas statutes;
Interest on Bonds issued by the State of Kansas or any of its political
subdivisions will be subject to the tax imposed on insurance companies
under Article 40, Chapter 28 of the Kansas statutes unless the laws of
the State of Kansas authorizing the issuance of such Bonds specifically
exempt the interest on the Bonds from income taxation by the State of
Kansas; interest on the Bonds which is exempt from Kansas income
taxation when received by a Kansas Trust will continue to be exempt when
distributed to a Unit holder (other than a bank, trust company or
savings and loan association);
Each Unit holder of a Kansas Trust will recognize gain or loss for
Kansas income tax purposes if the Trustee disposes of a Bond (whether by
sale, exchange, payment on maturity, retirement or otherwise) or if the
Unit holder redeems or sells Units of a Kansas Trust to the extent that
such transaction results in a recognized gain or loss for federal income
Page 4
tax purposes;
Interest received by a Kansas Trust on the Bonds is exempt from
intangibles taxation imposed by any counties, cities and townships
pursuant to present Kansas law; and
No opinion is expressed regarding whether the gross earnings derived
from the Units is subject to intangibles taxation imposed by any
counties, cities and townships pursuant to present Kansas law.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Kansas law. Ownership of the Units may
result in collateral Kansas tax to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of
any such collateral consequences.
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
Recovery from the adverse effects of layoffs, business closures and
widespread flooding that occurred in 1993 characterized the Kansas
economy in 1994. The continued effects of layoffs and restructuring
slowed employment growth in Kansas during 1994 and employment growth
lagged behind the national rate. The unemployment rate rose from 5.0% in
1993 to a monthly average of 5.3% in 1994.
During 1995, the Kansas economy improved and in 1996, Kansas employment
reflected a strong economy. Labor force employment showed an increase of
34,000 from November 1995 to November 1996. The 11-month average
(January 1996-November 1996) unemployment rate for the state was 4.0%,
the lowest 11-month average since 1979. During 1995 and 1996, the
unemployment rate decreased from 4.4% to 3.9%, respectively. This
compares favorably with a national unemployment rate in 1995 and 1996 of
5.6% and 5.4%, respectively.
In 1993 and 1994, the slowdown in employment growth was concentrated in
the goods producing industries of manufacturing and mining. Employment
growth in Kansas trailed national employment growth in all major
employment categories except manufacturing and government. The situation
improved in the following years.
In 1996, jobs across Kansas were up 2.3%, for a net increase of 27,100
new jobs. There was a 3.8% growth rate from October 1995 to October
1996. National job growth for the same period was 2.1%. Total non-farm
employment as of October 1996 was 1,233,200. This was 19,000 higher than
the previous year. Trade led growth with the addition of 8,700 new jobs.
Manufacturing employment rose by 4,600 over the year, primarily from
increased production of aircraft and parts. More business in special
trade contracting and heavy construction added 3,600 construction jobs
during the year. Services employment rose by 2,300, with substantial
increases in social, management, and business services. Transportation-
utilities added 2,100 jobs, primarily from growth in communications
firms. Gains in banking and insurance provided most of the 1,500 new
jobs in the finance division. Mining edged up only 100 over the year.
Government had the only decrease, down 3,900 from October 1995.
Per capita personal income increased 4.7% from $20,851 in 1994 to
$21,841 in 1995 (higher than the 1993-94 increase of 4.4%). Kansas's
per capita personal income in 1995 was 94% of the national figure
($23,208) and Kansas ranked 23rd among the states in per capita personal
income.
Total personal income in Kansas in 1994 and 1995 was $53.25 million and
$56.03 million, respectively, an increase of 5.2% (same as in 1993-94).
During the first quarter of 1996, this number increased to $58.15
million. Personal income increased from $57,908 in the first quarter of
1996 to $58,661 in the second quarter of 1996, an increase of 1.3%.
Kansas personal income is estimated to increase 5.2% in 1996 and 5.0% in
1997.
To ensure appropriate balances, the 1990 Kansas legislature enacted
legislation that established minimum ending balances for the State
General Fund. The act established targeted year-end State General Fund
balances as a percentage of state expenditures for the forthcoming
fiscal year. This act phased in over several years and now requires an
ending balance of at least 7.5% of expenditures and demand transfers.
The act provides that the Governor's budget recommendations and
legislative-approved budget must adhere to the balance targets.
The Governor's recommendations for receipts and expenditures would
provide an ending balance of 7.5% of expenditures and demand transfers
in fiscal year 1996 and 7.6% in fiscal year 1997. Although not required
Page 5
by law, the Governor adjusted the fiscal year 1996 budget to assure the
targeted ending balance requirement through the announced 1.5%
rescission and other budget savings. These actions were necessary given
the shortfall that occurred in fiscal year 1995 receipts, resulting in
reduced estimates for fiscal year 1996 receipts and supplemental
appropriations necessary in education and other areas. The effect of a
regulation change (Real Estate Settlement Procedures Act) alone required
an additional $30.0 million for schools based on changes the act made in
the timing of property tax payments.
For fiscal year 1997, the budget recommendations produce receipts in
excess of expenditures of $5.1 million, a marked change from the
deficits of $91.0 million and $106.6 million in the prior two fiscal
years. Given that the state is projected to reach the minimum ending
balance in fiscal year 1996, this "balancing" was necessary to continue
to meet the targeted ending balance requirements. The budget presented
by the Governor meets the targeted balance and corrects the spending
imbalance (that occurred during fiscal years 1987 to 1993) without a
proposed tax rate increase.
Adjusted estimated receipts to the State General Fund for fiscal year
1996 are $3,368.0 million. The estimate is a 4.6%, or $149.2 million,
increase over fiscal year 1995 revenues of $3,218.8 million.
Expenditures for fiscal years 1995 and 1996 were $3,309.8 million, and
$3,474.5 million, respectively.
The estimated receipts of $3,526.9 million for fiscal year 1997
represent a 4.7% increase above fiscal year 1996 receipts adjusted for
the Governor's recommendations. This is an increase of $159.0 million
above the adjusted fiscal year 1996 amount. Increases to the estimate of
$8.8 million are based on acceleration of the transfer of the State
Gaming Revenues Fund of receipts over $50.0 million. The State General
Fund expenditures of $3,521.8 million are recommended by the Governor
for fiscal year 1997.
Total receipts to the state were $7.39 billion in fiscal year 1995. Net
receipts are projected to remain constant in fiscal year 1996 (at $7.49
billion), and then grow by $189.2 million in fiscal year 1997, an
increase of 2.6%. The Governor recommends fiscal year 1997 expenditures
from all funding sources of $7.81 billion. Approximately 57.1% of that
total budget is recommended for aid to local governments (30.6%) or for
direct assistance payments for individuals (26.6%).
Balances in funds in the state budget are projected to experience a net
decline from $1.2 billion to $683.2 million during fiscal year 1996.
This reduction of $513.1 million is primarily attributable to the
reduction in balances of the State Highway Fund of $352.5 million and a
reduction of the balance in the State General Fund of $106.6 million, a
total between the two funds of $459.1 million.
In fiscal year 1997, the reduction in the ending balance of $233.8
million is almost entirely the result of a decline of the State Highway
Fund balances of $212.8 million. Reduction in the State Highway Fund
balances are to be expected, because dollars reserved for the
Comprehensive Highway Program are being expended as major highway
construction projects to be completed in fiscal year 1996 and fiscal
year 1997.
Individual income taxes account for the largest source of revenue,
totaling $1.410 billion in fiscal year 1996. The next largest category,
sales and use taxes, is projected to generate $1.392 billion for the
State General Fund in fiscal year 1997.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Kansas 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 Kansas Trusts to pay interest on or principal
of the Bonds.
Page 6
Kansas Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
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 7
NORTH CAROLINA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1997 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. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to a
Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax").
See "Certain Tax Matters Applicable to Corporate Unit Holders";
(2) each Unit holder 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. Unit holders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unit holders pay for their
Units to
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
the extent that such interest accrued on such Bonds during the
period from the Unit holder's settlement date to the date such Bonds are
delivered to the respective Trust and, consequently, such Unit holders
may have an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The amount of
any such gain or loss is measured by comparing the Unit holder's pro
rata share of the total proceeds from such disposition with 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 accrual original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units
among each of the Trust assets ratably according to value as of the
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of 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.
The application of these rules will also vary depending on the value of
the Bond on the date a Unit holder acquires his Unit, and the price the
Unit holder pays for his Unit. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includable in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includable
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.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax 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.
Page 3
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
Booth & Baron has served as Special Counsel to Series 1-9 of The First
Trust of Insured Municipal Bonds-Multi-State, inclusive, and Winston &
Strawn (previously named Cole & Deitz) has served as Special Counsel to
Series 10 and 11 of The First Trust of Insured Municipal Bonds-Multi-
State for New York tax matters. In the opinion of such Special Counsels,
under the existing income tax laws of the State and City of New York,
each Trust is not an association taxable as a corporation and the income
of each such Trust will be treated as the income of the Unit holder.
At the time of the closing, Booth & Baron, Special Counsel to Series 1-3
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 1-3 of the Fund is
not an association taxable as a corporation and the income of each such
Trust will be treated as the income of the Unit holder.
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
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 exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
North Carolina Tax Status of Unit Holders
At the time of the closing for each North Carolina Trust, Special
Counsel to the Fund for North Carolina tax matters rendered an opinion
under then existing North Carolina income tax law applicable to
taxpayers whose income is subject to North Carolina income taxation
substantially to the effect that:
A North Carolina Trust is not an "association" taxable as a corporation
under North Carolina law with the result that income of a North Carolina
Trust will be deemed to be income of the Unit holders.
Interest on the Bonds that is exempt from North Carolina income tax when
received by a North Carolina Trust will retain its tax-exempt status
when received by the Unit holders.
Unit holders will realize a taxable event when a North Carolina Trust
disposes of a Bond (whether by sale, exchange, redemption or payment at
maturity) or when a Unit holder redeems or sells his Units (or any of
them), and taxable gains for Federal income tax purposes may result in
gains taxable as ordinary income for North Carolina income tax purposes.
However, when a Bond has been issued under an act of the North Carolina
General Assembly that provides that all income from such Bond, including
any profit made from the sale thereof, shall be free from all taxation
by the State of North Carolina, any such profit received by a North
Carolina Trust will retain its tax-exempt status in the hands of the
Unit holders.
Unit holders must amortize their proportionate shares of any premium on
a Bond. Amortization for each taxable year is accomplished by lowering
Unit holder's basis (as adjusted) in his Units with no deduction against
gross income for the year.
In order for the Units to be exempt from the North Carolina tax on
intangible personal property: (a) at all times either (i) the corpus of
a North Carolina Trust must be composed entirely of North Carolina Bonds
Page 4
or, pending distribution, amounts received on the sale, redemption or
maturity of the Bonds, or (ii) (if Puerto Rico Bonds are included in a
North Carolina Trust) at least 80% of the fair market value of the
Bonds, excluding amounts received on the sale, redemption or maturity of
the Bonds, must be attributable to the fair market value of the North
Carolina Bonds; and (b) the Trustee periodically must supply to the
North Carolina Department of Revenue at such times as required by the
Department of Revenue a complete description of a North Carolina Trust
and also the name, description and value of the obligations held in the
corpus of a North Carolina Trust.
The opinion of Special Counsel is based, in part, on the opinion of
Chapman and Cutler regarding Federal tax status of the Fund and upon
current interpretations of the North Carolina Department of Revenue,
which are subject to change.
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
See "Portfolio" appearing in Part One for each Trust for a list of the
Debt Obligations included in each North Carolina Trust. The portions of
the following discussion regarding the financial condition of the State
government may not be relevant to general obligation or revenue bonds
issued by political subdivisions of the State. Those portions and the
sections which follow regarding the economy of the State are included
for the purpose of providing information about general economic
conditions that may or may not affect issuers of the North Carolina
Obligations. None of the information is relevant to any Puerto Rico
Obligations which may be included in the Portfolio of a North Carolina
Trust.
General obligations of a city, town or county in North Carolina are
payable from the general revenues of the entity, including ad valorem
tax revenues on property within the jurisdiction. Revenue bonds issued
by North Carolina political subdivisions include (1) revenue bonds
payable exclusively from revenue-producing governmental enterprises and
(2) industrial revenue bonds, college and hospital revenue bonds and
other "private activity bonds" which are essentially non-governmental
debt issues and which are payable exclusively by private entities such
as non-profit organizations and business concerns of all sizes. State
and local governments have no obligation to provide for payment of such
private activity bonds and in many cases would be legally prohibited
from doing so. The value of such private activity bonds may be affected
by a wide variety of factors relevant to particular localities or
industries, including economic developments outside of North Carolina.
Section 23-48 of the North Carolina General Statutes appears to permit
any city, town, school district, county or other taxing district to
avail itself of the provisions of Chapter 9 of the United States
Bankruptcy Code, but only with the consent of the Local Government
Commission of the State and of the holders of such percentage or
percentages of the indebtedness of the issuer as may be required by the
Bankruptcy Code (if any such consent is required). Thus, although
limitations apply, in certain circumstances political subdivisions might
be able to seek the protection of the Bankruptcy Code.
State Budget and Revenues. The North Carolina State Constitution
requires that the total expenditures of the State for the fiscal period
covered by each budget not exceed the total of receipts during the
fiscal period and the surplus remaining in the State Treasury at the
beginning of the period. The State's fiscal year runs from July 1st
through June 30th. In November 1996, the voters of the State approved a
constitutional amendment giving the Governor the power to veto certain
legislative matters, including budgetary matters.
Since 1994, the State has had a budget surplus, in part as a result of
new taxes and fees and spending reductions put into place in the early
1990s. In addition, the State, like the nation, has experienced economic
recovery during the 1990s. The General Fund balance at the end of the
1995-96 fiscal year was reported at approximately $406 million. As of
November 1996, the amount of uncommitted funds of the State was $586
million.
In the 1996-97 Budget prepared by the Office of State Budget and
Management, it is projected that General Fund net revenues will increase
3% over 1995-96. This increase is expected to result primarily from
growth in the North Carolina economy, despite a tax reduction package
enacted by the Legislature during the 1996 legislative session.
Page 5
The State budget is based upon estimated revenues and a multitude of
existing and assumed State and non-State factors, including State and
national economic conditions, international activity and federal
government policies and legislation.
In April 1995, the North Carolina General Assembly repealed, effective
for taxable years beginning on or after January 1, 1995, the tax levied
on various forms of intangible personal property. The intangibles tax
revenues receivable by counties and municipalities will no longer be
received. Instead, the legislature has provided for specific
appropriations to counties and municipalities. In addition, in the 1996
session the legislature reduced the corporate income tax rate from 7.75%
to 6.9% (phased in over four years) and reduced the food tax from 4% to
3%.
It is unclear what effect these developments at the State level may have
on the value of the Debt Obligations in the North Carolina Trusts.
Litigation. Litigation against the State include the following:
Leandro, et al. v. State of North Carolina and State Board of Education-
In May 1994, students and boards of education in five counties in the
State filed suit in state court requesting a declaration that the public
education system of North Carolina, including its system of funding,
violates the State constitution by failing to provide adequate or
substantially equal educational opportunities and denying due process of
law and violates various statutes relating to public education. The suit
is similar to a number of suits in other states, some of which resulted
in holdings that the respective systems of public education funding were
unconstitutional under the applicable state law. The defendants in such
suit filed a motion to dismiss, which was denied but then was reversed
by the State Court of Appeals. An appeal from this decision is now
pending with the North Carolina Supreme Court. The North Carolina
Attorney General's Office believes that sound legal arguments support
the State's position, but no significant financial impact is expected to
result from the ultimate resolution of this case, even if adverse to the
State.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System and Woodward v.
Local Governmental Employees' Retirement System-Plaintiffs are
disability retirees who brought class actions in state court challenging
changes in the formula for payment of disability retirement benefits and
claiming impairment of contract rights, breach of fiduciary duty,
violation of other federal constitutional rights and violation of state
constitutional and statutory rights. The State estimates that the cost
in damages and higher prospective benefit payments to plaintiffs and
class members would probably amount to $50 million or more in
Faulkenbury, $50 million or more in Peele and $15 million or more in
Woodward, all ultimately payable, at least initially, from the state
retirement system funds.
Upon review in Faulkenbury, the North Carolina Court of Appeals and
Supreme Court have held that claims made in Faulkenbury substantially
similar to those in Peele and Woodward, for breach of fiduciary duty and
violation of federal constitutional rights brought under the federal
Civil Rights Act, either do not state a cause of action or are otherwise
barred by the statute of limitations. In 1994, plaintiffs took voluntary
dismissals of their claims for impairment of contract rights in
violation of the United States Constitution and filed new actions in
federal court asserting the same claims along with claims for violation
of constitutional rights in the taxation of retirement benefits. The
federal court actions have been stayed pending the trial in state court.
The cases have been consolidated and discretionary review by the State
Supreme Court has been allowed. The North Carolina Attorney General's
Office believes that sound legal arguments support the State's position.
Fulton Corporation v. Justus, Secretary of Revenue-The State's
intangible personal property tax levied on certain shares of stock
(repealed as of the tax year beginning January 1, 1995) has been
challenged by the plaintiff on grounds that it violates the Commerce
Clause of the United States Constitution by discriminating against stock
issued by corporations that do all or part of their business outside the
State. The plaintiff, a North Carolina corporation, paid the intangibles
tax on stock it owns in other corporations. The plaintiff seeks to
invalidate the tax in its entirety and to recover tax paid on the value
of its shares in other corporations.
The North Carolina Court of Appeals invalidated the taxable percentage
deduction and excised it from the statute beginning with the 1994 tax
year. The effect of this ruling was to increase collections by rendering
all stock taxable on 100% of its value. The North Carolina Supreme Court
reversed the Court of Appeals and held that the tax is valid and
Page 6
constitutional. The plaintiff appealed to the U.S. Supreme Court which
held that the tax violated the Commerce Clause of the U.S. Constitution,
and remanded the case to the North Carolina Supreme Court for
consideration of possible remedies, including refunds. On remand, the
North Carolina Supreme Court determined that the Court of Appeals was
correct in finding that all stock was taxable and, moreover, that the
tax must be applied retroactively. The Court offered that the
legislature could "forgive" the tax, but the Court did not have this
ability. The legislature has not responded as of this date. In the event
that the General Assembly forgives the tax, it is estimated that the
cost to the State would be $141 million to issue refunds to those
taxpayers who filed protests to the tax and $500 million to all
taxpayers who paid the tax in the subject years.
Other Tax Cases. In Davis v. Michigan (1989), the United States Supreme
Court ruled that a Michigan income tax statute which taxed federal
retirement benefits while exempting those paid by state and local
governments violated the constitutional doctrine of intergovernmental
tax immunity. At the time of the Davis decision, North Carolina law
contained similar exemptions in favor of state and local retirees. Those
exemptions were repealed prospectively, beginning with the 1989 tax
year. All public pension and retirement benefits are now entitled to a
$4,000 annual exclusion.
The Swanson Cases-Following Davis, federal retirees filed a class action
suit in federal court in 1989 seeking damages equal to the North
Carolina income tax paid on federal retirement income by the class
members. A companion suit was filed in state court in 1990. The
complaints alleged that the amount in controversy exceeded $140 million.
The North Carolina Department of Revenue estimated refunds and interest
liability of $280.89 million as of June 30, 1994.
The North Carolina Supreme Court ultimately held in favor of the State
in the case brought in State court and the United States Supreme Court
denied the plaintiffs' request for review of that decision, thereby
concluding the State litigation. Plaintiffs also were unsuccessful in
the federal court action. The federal retirees sought relief through
State legislation, and in 1996 the legislature passed a special refund
and tax credit bill that will permit the retirees to recover, through
credits or, in some cases, refunds, the net tax previously paid that
could not be recovered through usual claims. The expected cost to the
State is approximately $140 million.
The Bailey Cases-State and local government retirees filed a class
action suit in 1990 as a result of the repeal of the income tax
exemptions for state and local government retirement benefits. The
original suit was dismissed after the North Carolina Supreme Court ruled
in 1991 that the plaintiffs had failed to comply with state law
requirements for challenging unconstitutional taxes and the United
States Supreme Court denied review.
In 1992, many of the same plaintiffs filed a new lawsuit alleging
essentially the same claims, including breach of contract,
unconstitutional impairment of contract rights by the State in taxing
benefits that were allegedly promised to be tax-exempt, and violation of
several state constitutional provisions. Although the Superior Court
ruled largely in the plaintiffs' favor, appeals have been taken from
both sides and the North Carolina Supreme Court has allowed
discretionary review before hearing by the Court of Appeals. Additional
suits have been filed to recover taxes subsequently paid. The North
Carolina Attorney General's Office estimates that the amount in
controversy is approximately $40-$45 million annually for the tax years
1989 through 1992. In addition, it is anticipated that the decision
reached in this case will govern the resolution of tax refund claims
made by retired state and local government employees for taxes paid on
retirement benefit income for tax years after 1991. Furthermore, if the
order of the Superior Court is upheld, its provisions would apply
prospectively to prevent future taxation of State and local government
retirement benefits that were vested before August 1989. The North
Carolina Attorney General's Office believes that sound legal arguments
support the State's position on the merits.
Patton v. State-In connection with the legislature's repeal of the tax
exemption for state retirees in 1989, certain adjustments were adopted
that reduced the state retirees' tax burden. In May 1995, federal
retirees filed a lawsuit in State court for tax refunds for the years
1989 through 1994 alleging that these adjustments also constitute
unlawful discrimination against federal retirees. This action is being
held in abeyance pending the outcome in Bailey. Should plaintiffs
prevail in Bailey, such a result, these federal retirees allege, would
re-establish the disparity of treatment between state and federal
pension income which was held unconstitutional in Davis. Potential
refunds exceed $300 million.
Page 7
The State is involved in numerous other claims and legal proceedings,
many of which normally occur in governmental operations; however, the
North Carolina Attorney General does not expect any of the outstanding
lawsuits to materially adversely affect the State's ability to meet its
financial obligations.
General. The population of the State has increased 13% from 1980, from
5,880,095 to 6,657,106 as reported by the 1990 federal census and the
State rose from twelfth to tenth in population. The State's estimate of
population as of July 1996 is 7,322,317. Notwithstanding its rank in
population size, North Carolina is primarily a rural state, having only
six municipalities with populations in excess of 100,000.
The labor force has undergone significant change during recent years as
the State has moved from an agricultural to a service and goods
producing economy. Those persons displaced by farm mechanization and
farm consolidations have, in large measure, sought and found employment
in other pursuits. Due to the wide dispersion of non-agricultural
employment, the people have been able to maintain, to a large extent,
their rural habitation practices. During the period 1980 to 1996, the
State labor force grew about 30% (from 2,855,200 to 3,718,000). Per
capita income during the period 1985 to 1995 grew from $11,870 to
$21,103, an increase of 77.8%.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. As of June 1996, the State was
reported to rank eleventh among the states in non-agricultural
employment and eighth in manufacturing employment. Employment indicators
have varied somewhat in the annual periods since June of 1990, but have
demonstrated an upward trend since 1991.
The seasonally adjusted unemployment rate in October 1996 was estimated
to be 4.0% of the labor force, as compared with 5.2% nationwide.
In 1995, the State was eighth in the nation in gross agricultural income
which was approximately $7.0 billion. According to the State
Commissioner of Agriculture, in 1995, the State ranked first in the
nation in the production of flue-cured tobacco, total tobacco, turkeys
and sweet potatoes; second in hog production, trout, the production of
cucumbers for pickles and net farm income; third in the value of poultry
and egg products, and greenhouse and nursery income; fourth in
commercial broilers, peanuts, blueberries and strawberries; and sixth in
burley tobacco.
The diversity of agriculture in North Carolina and a continuing push in
marketing efforts have protected farm income from some of the wide
variations that have been experienced in other states where most of the
agricultural economy is dependent on a small number of agricultural
commodities. North Carolina is the third most diversified agricultural
state in the nation.
Tobacco production, which has been the leading source of agricultural
income in the State, declined in 1995. The poultry industry is now the
leading source of gross agricultural income, at 29%, and the pork
industry provides over 18% of the total agricultural income. Tobacco
farming in North Carolina has been and is expected to continue to be
affected by major Federal legislation and regulatory measures regarding
tobacco production and marketing and by international competition.
Measures adverse to tobacco farming could have negative effects on farm
income and the North Carolina economy generally.
The number of farms has been decreasing; in 1995 there were
approximately 58,000 farms in the State (down from approximately 72,000
in 1987, a decrease of about 19% in eight years). However, a strong
agribusiness sector supports farmers with farm inputs (fertilizer,
insecticide, pesticide and farm machinery) and processing of commodities
produced by farmers (vegetable canning and cigarette manufacturing).
North Carolina's agriculture industry, including food, fiber and forest
products, contributes over $45 billion annually to the State's economy.
The State Department of Commerce, Travel and Tourism Division reports
that in 1995 more than $9 billion was spent on tourism in the State. The
Department estimates that two-thirds of total expenditures came from out-
of-state travelers and that approximately 161,000 people were employed
in tourism-related jobs. The effects of two severe hurricanes in 1996
may have an adverse effect on tourism in certain areas of the State.
Bond Ratings. Currently, Moody's rates North Carolina general obligation
bonds as Aaa and Standard & Poor's rates such bonds as AAA. Standard &
Poor's also reaffirmed its stable outlook for the State in June 1995.
Standard & Poor's reports that North Carolina's rating reflects the
State's strong economic characteristics, sound financial performance and
low debt levels.
The Sponsor believes the information summarized above describes some of
the more significant events relating to a North Carolina Trust. The
Page 8
sources of this information are the official statements of issuers
located in North Carolina, State agencies, publicly available documents,
publications of rating agencies and statements by, or news reports of
statements by State officials and employees and by rating agencies. The
Sponsor and its counsel have not independently verified any of the
information contained in the official statements and other sources and
counsel have not expressed any opinion regarding the completeness or
materiality of any matters contained in this Prospectus other than the
tax opinions set forth above under "North Carolina Tax Status of Unit
Holders."
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the North Carolina
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 North Carolina Trusts to pay interest on or
principal of the Bonds.
Page 9
North Carolina Trust Series
The First Trust (registered trademark) Combined Series
The First Trust Advantage
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 10
VIRGINIA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated May 30, 1997 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 such opinions. If the interest on a Bond should be
determined to be taxable, the Bond would generally have to be sold at a
substantial discount. In addition, investors could be required to pay
income tax on interest received prior to the date on which interest is
determined to be taxable. Gain realized on the sale or redemption of the
Bonds by the Trustee or of a Unit by a Unit holder is 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 Federal income
tax purposes. At the time of the closing for each Trust, Chapman and
Cutler, Counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status for Federal income tax
purposes when received by the Trusts and when distributed to a Unit
holder; however, such interest may be taken into account in computing
the alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"). See
"Certain Tax Matters Applicable to Corporate Unit Holders";
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
(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. Legislative proposals have been made that would
treat certain transactions designed to reduce or eliminate risk of loss
and opportunities for gain as constructive sales for purposes of
recognition of gain (but not loss). Unit holders should consult their
own tax advisors with regard to any such constructive sale rules. Unit
holders must reduce the tax basis of their Units for their share of
accrued interest received by the respective Trust, if any, on Bonds
delivered after the date the Unit holders pay for their Units to the
extent that such interest accrued on such Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction
may exceed the amount of accrued interest paid to the seller) and,
consequently, such Unit holders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unit holder (subject to various non-recognition provisions of the Code).
The amount of any such gain or loss is measured by comparing the Unit
holder's pro rata share of the total proceeds from such disposition with
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.
It should be noted that certain legislative proposals have been made
which could affect the calculation of basis for Unit holders holding
securities that are substantially identical to the Bonds. Unit holders
should consult their own tax advisors with regard to the calculation of
basis. The tax basis reduction requirements of 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.
Page 2
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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 most
corporations. Investors with questions regarding these issues should
consult their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
For purposes of computing the alternative minimum tax applicable to all
taxpayers (including non-corporate taxpayers) subject to the alternative
minimum tax and the Superfund Tax for corporations, interest on certain
private activity bonds (which includes most industrial and housing
Page 3
revenue bonds) issued on or after August 8, 1986 is included as an item
of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR CERTAIN
TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY BONDS ISSUED
ON OR AFTER THAT DATE.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year. 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.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's
taxable income with certain adjustments. One of the adjustment items
used in computing AMTI and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all 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 made that would extend the Superfund Tax. Under the provisions of
Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisers with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to either the environmental tax or the branch
profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of The First Trust Combined
Series 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 First Trust Combined
Series is not an association taxable as a corporation and the income of
each Trust in Series 4-125 of The First Trust Combined Series 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 First Trust Combined Series for New York tax matters for Series
126 and subsequent Series of The First Trust Combined Series, 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 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.
Booth & Baron has served as Special Counsel to Series 1-9 of The First
Trust of Insured Municipal Bonds-Multi-State, inclusive, and Winston &
Strawn (previously named Cole & Deitz) has served as Special Counsel to
Series 10 and 11 of The First Trust of Insured Municipal Bonds-Multi-
State for New York tax matters. In the opinion of such Special Counsels,
under the existing income tax laws of the State and City of New York,
each Trust is not an association taxable as a corporation and the income
of each such Trust will be treated as the income of the Unit holder.
Page 4
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Virginia Tax Status of Unit Holders
The assets of a Virginia Trust will consist of interest-bearing
obligations issued by or on behalf of the Commonwealth of Virginia
("Virginia") or counties, municipalities, authorities or political
subdivisions thereof (the "Bonds"). Neither the Sponsor not its counsel
have independently examined the Bonds to be deposited in and held in a
Virginia Trust. However, although no opinion is expressed herein
regarding such matters, it is assumed that: (i) the Bonds were validly
issued, (ii) the interest thereon is excludible from gross income for
Federal income tax purposes and (iii) the interest thereon is exempt
from income tax imposed by Virginia that is applicable to individuals
and corporations (the "Virginia Income Tax"). The opinion set forth
below does not address the taxation of persons other than full-time
residents of Virginia.
At the time of closing for each Virginia Trust, Chapman and Cutler,
Special Counsel to the Fund for Virginia tax matters, rendered an
opinion under then existing Virginia income tax law applicable to
taxpayers whose income is subject to Virginia income taxation
substantially to the effect that:
(1) Each Virginia Trust is not an association taxable as a corporation
for purposes of the Virginia Income Tax and each Unit holder of a
Virginia Trust will be treated as the owner of a pro rata portion of the
assets held by a Virginia Trust and the Income of such portion of a
Virginia Trust will be treated as income of the Unit holder for purposes
of the Virginia Income Tax.
(2) Income on the Bonds which is exempt from Virginia Income Tax when
received by a Virginia Trust and which would be exempt from Virginia
Income Tax if received directly by a Unit holder, will retain its status
as exempt from such tax when received by a Virginia Trust and
distributed to such Unit holder.
(3) Each Unit holder will recognize gain or loss for purposes of the
Virginia Income Tax if the Trustee disposes of a bond (whether by
redemption, sale or otherwise) or if the Unit holder redeems or sells
Units of a Virginia Trust to the extent that such a transaction results
in a recognized gain or loss to such Unit holder for Federal income tax
purposes, except as described in this paragraph. Virginia has by law
provided that all income from certain tax-exempt obligations issued
under the laws of Virginia, including any profits made from the sale of
such Bonds, shall be exempt from all taxation by Virginia. Although no
opinion is expressed herein, the Virginia Department of Taxation has
indicated that the gain on the sale of such tax-exempt obligations,
recognized for Federal income tax purposes, would not be subject to
Virginia income taxation. Accordingly, any such gain relating to the
disposition of any Bond that would not be subject to Virginia Income tax
if the Bond was held directly by a Unit holder will retain its tax-
exempt status for purposes of the Virginia Income Tax when the Bond is
disposed of by the Virginia Trust or when the Unit holder is deemed to
have disposed of his pro rata portion of such Bond upon the disposition
of his Unit, provided that such gain can be determined with reasonable
certainty and substantiated.
(4) The Virginia Income Tax does not permit a deduction of interest
paid on indebtedness incurred or continued to purchase or carry Units in
a Virginia Trust to the extent that interest income related to the
ownership of Units is exempt from the Virginia Income Tax.
In the case of Unit holders subject to the Virginia Bank Franchise Tax,
the income derived by such a Unit holder from his pro rata portion of
the Bonds held by the Virginia Trust may affect the determination of
such Unit holder's Bank Franchise Tax. Prospective investors subject to
the Virginia Bank Franchise Tax should consult their tax advisors.
Ownership of the Units may result in collateral Virginia tax
consequences to certain taxpayers. Prospective investors should consult
their own tax advisors as to the applicability of any such collateral
consequences.
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
Each Virginia Trust is susceptible to political, economic or regulatory
factors affecting issuers of Virginia Bonds. Without intending to be
complete, the following briefly summarizes some of these matters, as
well as some of the complex factors affecting the financial situation in
the Commonwealth of Virginia (the "Commonwealth" or "Virginia"). This
Page 5
information is derived from sources that are generally available to
investors and is based in part on information obtained from various
agencies in Virginia. No independent verification has been made of the
accuracy or completeness of the following information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local
governmental finances generally will not adversely affect the market
value of Virginia Bonds held in the portfolio of a Virginia Trust or the
ability of particular obligors to make timely payments of debt service
on (or relating to) those obligations.
The Commonwealth's financial condition is supported by a broad-based
economy, including manufacturing, tourism, agriculture, ports, mining
and fisheries. Manufacturing continues to be a major source of
employment, ranking behind only services, wholesale and retail trade and
government (federal, state and local). Defense activity is an important
component of Virginia's economy.
As the expansion phase of the current economic cycle further matures,
Virgina's economy is expected to grow moderately over the next few
years. Virgina's job growth is expected to slightly outperform the
nation over the next few years. This reverses a trend of the last two
years in which federal government downsizing placed a drag on total
income growth. Likewise, Virginia is also expected to outperform the
nation in personal income growth.
The Virginia economy experienced continued growth in fiscal year 1996 as
the expansion entered its fourth year. Both total nonagricultural
employment and personal income growth slowed. The anticipated slowdown
in the Virginia economy occurred in fiscal year 1996 as employment
increased by a modest 1.8%. The services and trade sectors recorded
stronger job growth than forecast, while the government, construction,
finance, insurance and real estate sectors all were much weaker than
anticipated. These gains amounted to almost 53,500 new jobs, only about
two-thirds of the 86,600 new jobs created in fiscal year 1995. Northern
Virginia experienced the best job growth among the state's metropolitan
statistical areas during 1996, at 2.6% or 23,500 jobs.
In fiscal year 1997, Virginia is expected to add 65,500 nonagricultural
jobs for growth of 2.1%. Services will again lead job growth at 4.4%,
with gains of 39,500 jobs, only 200 more new jobs than in fiscal year
1996. Wholesale and retail trade will add almost 19,200 jobs. Job growth
is forecast to continue to close to this level over the next biennium.
The forecast anticipates that 59,600 new jobs will be created in fiscal
year 1998. However, manufacturing employment continues to decline with
an expected job loss of 3,000 in fiscal year 1997, or a decrease of
0.7%. Small job increases of 0.3% are predicted for fiscal year 1998.
Most of the manufacturing job losses have occurred in textiles and
apparel. This loss in manufacturing employment emphasizes the shift from
a goods-producing economy to a service-producing one.
The impact of federal government downsizing remains an important concern
over the next few years. The loss of high-paying manufacturing and
federal government jobs has significantly contributed to Virginia's
recent under-performance in comparison to the nation. The previous five
years of federal government defense and non-defense downsizing have
already taken more than 36,000 jobs from the Virginia economy-nearly one-
half of a typical year's job growth. Federal government downsizing was
even more pronounced in fiscal year 1996 than in the previous two fiscal
years (recording job losses of 4,100 and 4,500 in fiscal years 1994 and
1995, respectively) as federal civilian government employment declined
by 5,000 jobs. Most of the job losses during 1994-96 resulted from
continued defense downsizing and federal government cutbacks in Northern
Virginia and Hampton Roads.
The unemployment picture brightened in Virginia in fiscal year 1996.
Virginia's unemployment rate of 4.4% was below the national average of
5.4%. Virginia's unemployment rate has typically been one of the lowest
in the nation, largely as a result of the balance found in Virginia's
economy, and has remained consistently below the national rate.
Personal income figures for Virginia have generally followed national
trends. Changes in the Commonwealth personal income were generally
higher than the U.S. figures in the 1980's. Since then, the Commonwealth
and the nation have grown at similar rates. Virginia's per capita
personal income of $23,974 for 1995 was 103% of the national figure, an
increase of 4.5% from the previous year. Total personal income in
Virginia is forecast to grow at 5.2% in fiscal year 1997 and 4.9% in
fiscal year 1998. The largest portion of personal income, wages and
salaries, is expected to increase 5.3% and 4.9% in fiscal years 1997 and
1998, respectively. This growth will outperform U.S. personal income
gains.
Page 6
The Commonwealth of Virginia has historically operated on a fiscally
conservative basis and is required by its Constitution to have a
balanced biennial budget. At the end of the June 30, 1995 fiscal year,
the General Fund of the Commonwealth had an ending fund balance computed
on a budgetary cash basis of $350.7 million, of which $151.6 million was
in required reserves. $199.1 million of the General Fund balance was
designated for expenditure during the next fiscal year, leaving no
undesignated, unreserved fund balance. Computed on a modified accrual
basis in accordance with generally accepted accounting principles, the
General Fund balance at the end of the fiscal year ended June 30, 1995
was negative $86.4 million, compared with a General Fund balance of
$185.3 million at the end of the fiscal year ended June 30, 1994. The
fiscal year 1995 deficit in the General Fund when measured on the GAAP
basis of accounting is the result of a settlement and subsequent ruling
by the Virginia Supreme Court in the case of Harper v. Department of
Taxation relating to the tax treatment of federal retirees' benefits.
In fiscal year 1996, total general fund revenues grew 6.9% to $7,356.1
million, exceeding the official forecast of $7,302.7 million (6.1%
growth) by $53.4 million. This marked the sixth consecutive year that
actual revenue collections slightly exceeded the official forecast.
General fund revenues for fiscal year 1996 consisted of the following:
individual income tax at $4,348 million or 59.1% of total general fund
revenue, state sales and use tax at $1,722 million or 23.4%, corporate
income tax at $402.3 million or 5.5%, insurance premiums tax at $218
million or 3%, public utility tax at $115.5 million or 1.6%, and
miscellaneous taxes and other revenues at $550.2 million or 7.5% of
total general fund revenue. From 1995-96, corporate income taxes
increased by 6.9%, individual income taxes increased by 7.9%, sales and
use tax increased 3.9%, and the public utility tax increased by 6.3%.
A surge in collections of net individual income taxes, particularly in
nonwithholding payments, accounted for most of the revenue surplus in
fiscal year 1996. The $67.6 million surplus in net individual income
taxes more than offset a $31.3 million shortfall in the corporate income
tax source. The remaining three major sources-insurance company premium
taxes, public service gross receipts taxes, and sales and use taxes-fell
short of the official estimates, but remained close to their respective
forecasts. Miscellaneous taxes and other revenues finished the fiscal
year with a $28.8 million surplus. Stronger than expected collections of
wills, suits, and deeds, estate and gift taxes, and interest on state
monies provided the bulk of the gain in miscellaneous revenues. Total
revenues are expected to grow by 4.6% for fiscal year 1997 and 4.7% for
fiscal year 1998.
For fiscal years 1997 and 1998, the Governor has recommended amendments
to fund the supplemental federal retiree settlement. For those retirees
who were unable to participate in the first two settlements, the
Governor proposed increases from the general fund of $499,409 for fiscal
year 1997 and $320,895 for fiscal year 1998.
As of June 30, 1995, total debt for the Commonwealth aggregated $9.3
billion. Of that amount, $2.7 billion was tax-supported. Outstanding
general obligation debt backed by the full faith and credit of the
Commonwealth was $963 million at June 30, 1995. Of that amount, $524
million was also secured by revenue producing capital projects.
The Virginia Constitution contains limits on the amount of general
obligation bonds which the Commonwealth can issue. These limits are
substantially in excess of current levels of outstanding bonds, and at
June 30, 1995 would permit an additional total of approximately $6
billion of bonds secured by revenue-producing projects and approximately
$6.1 billion of unsecured general obligation bonds for capital projects,
with not more than approximately $1.0 billion of the latter to be issued
in any four-year period. Bonds which are not secured by revenue-
producing projects must be approved in a State-wide election. In 1996,
the Commonwealth issued over $259 million in bonds.
The Commonwealth of Virginia maintains a "triple A" bond rating from
Standard & Poor's, Moody's Investors Service, Inc. and Fitch Investors
Service on its general obligation indebtedness, reflecting in part its
sound fiscal management, diversified economic base and low debt ratios.
There can be no assurances that these conditions will continue. Nor are
these same conditions necessarily applicable to securities which are not
general obligations of the Commonwealth. Securities issued by specific
municipalities, governmental authorities or similar issuers may be
subject to the economic risks or uncertainties peculiar to the issuers
of such securities or to the sources from which they are to be paid.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
Page 7
conditions to which the issuers of Bonds held by the Virginia 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 Virginia Trusts to pay interest on or
principal of the Bonds.
Page 8
Virginia Trust Series
The First Trust (registered trademark) Combined Series
The First Trust Advantage
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 9
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
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 73, 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 May 30, 1997.
THE FIRST TRUST COMBINED SERIES 73
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
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
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) May 30, 1997
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 wi
th 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 May 2, 1997 in this
Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated May
23, 1997.
ERNST & YOUNG LLP
Chicago, Illinois
May 22, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 179
<NAME> NATIONAL TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 5,389,229
<INVESTMENTS-AT-VALUE> 5,720,103
<RECEIVABLES> 136,177
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,856,280
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,082
<TOTAL-LIABILITIES> 44,082
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,389,229
<SHARES-COMMON-STOCK> 6,779
<SHARES-COMMON-PRIOR> 7,460
<ACCUMULATED-NII-CURRENT> 92,095
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 330,874
<NET-ASSETS> 5,812,198
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 450,633
<OTHER-INCOME> 0
<EXPENSES-NET> 15,541
<NET-INVESTMENT-INCOME> 435,092
<REALIZED-GAINS-CURRENT> 67,756
<APPREC-INCREASE-CURRENT> (274,620)
<NET-CHANGE-FROM-OPS> 228,228
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 448,590
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 931,042
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 681
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,781,204)
<ACCUMULATED-NII-PRIOR> 116,004
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 015
<NAME> MINNESOTA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 1,973,340
<INVESTMENTS-AT-VALUE> 2,171,855
<RECEIVABLES> 567,759
<ASSETS-OTHER> 10,758
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,750,372
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,213
<TOTAL-LIABILITIES> 6,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,973,340
<SHARES-COMMON-STOCK> 3,671
<SHARES-COMMON-PRIOR> 4,108
<ACCUMULATED-NII-CURRENT> 572,304
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 198,515
<NET-ASSETS> 2,744,159
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 195,795
<OTHER-INCOME> 0
<EXPENSES-NET> 10,253
<NET-INVESTMENT-INCOME> 185,542
<REALIZED-GAINS-CURRENT> 10,679
<APPREC-INCREASE-CURRENT> (105,293)
<NET-CHANGE-FROM-OPS> 90,928
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 198,053
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 416,366
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 437
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (870,060)
<ACCUMULATED-NII-PRIOR> 52,816
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> PENNSYLVANIA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 2,507,240
<INVESTMENTS-AT-VALUE> 2,756,280
<RECEIVABLES> 54,689
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,810,969
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,892
<TOTAL-LIABILITIES> 15,892
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,507,240
<SHARES-COMMON-STOCK> 4,371
<SHARES-COMMON-PRIOR> 4,557
<ACCUMULATED-NII-CURRENT> 38,797
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 249,040
<NET-ASSETS> 2,795,077
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 192,546
<OTHER-INCOME> 0
<EXPENSES-NET> 8,369
<NET-INVESTMENT-INCOME> 184,177
<REALIZED-GAINS-CURRENT> (27,301)
<APPREC-INCREASE-CURRENT> (61,870)
<NET-CHANGE-FROM-OPS> 95,006
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 193,191
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 644,122
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 186
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (866,373)
<ACCUMULATED-NII-PRIOR> 42,838
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> KANSAS ADVANTAGE TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 5,108,248
<INVESTMENTS-AT-VALUE> 5,120,338
<RECEIVABLES> 111,217
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,231,555
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,041
<TOTAL-LIABILITIES> 36,041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,108,248
<SHARES-COMMON-STOCK> 5,611
<SHARES-COMMON-PRIOR> 5,806
<ACCUMULATED-NII-CURRENT> 75,176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,090
<NET-ASSETS> 5,195,514
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 383,487
<OTHER-INCOME> 0
<EXPENSES-NET> 10,172
<NET-INVESTMENT-INCOME> 373,315
<REALIZED-GAINS-CURRENT> 3,970
<APPREC-INCREASE-CURRENT> (159,212)
<NET-CHANGE-FROM-OPS> 218,073
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 371,471
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 195
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (336,249)
<ACCUMULATED-NII-PRIOR> 69,888
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 006
<NAME> NORTH CAROLINA ADVANTAGE TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 3,928,455
<INVESTMENTS-AT-VALUE> 4,258,422
<RECEIVABLES> 63,432
<ASSETS-OTHER> 22,567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,344,421
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,388
<TOTAL-LIABILITIES> 8,388
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,928,455
<SHARES-COMMON-STOCK> 4,439
<SHARES-COMMON-PRIOR> 4,810
<ACCUMULATED-NII-CURRENT> 77,611
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 329,967
<NET-ASSETS> 4,336,033
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 312,894
<OTHER-INCOME> 0
<EXPENSES-NET> 9,835
<NET-INVESTMENT-INCOME> 303,059
<REALIZED-GAINS-CURRENT> (2,765)
<APPREC-INCREASE-CURRENT> (118,559)
<NET-CHANGE-FROM-OPS> 181,735
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 303,613
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 63,470
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 371
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (553,298)
<ACCUMULATED-NII-PRIOR> 71,378
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Post Effective Amendment to form S-6 and is qualified in its entirety
by reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 004
<NAME> VIRGINIA ADVANTAGE TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 3,537,370
<INVESTMENTS-AT-VALUE> 3,705,071
<RECEIVABLES> 45,754
<ASSETS-OTHER> 19,515
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,770,340
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,723
<TOTAL-LIABILITIES> 8,723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,537,370
<SHARES-COMMON-STOCK> 4,045
<SHARES-COMMON-PRIOR> 4,332
<ACCUMULATED-NII-CURRENT> 56,546
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167,701
<NET-ASSETS> 3,761,617
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 278,096
<OTHER-INCOME> 0
<EXPENSES-NET> 9,062
<NET-INVESTMENT-INCOME> 269,034
<REALIZED-GAINS-CURRENT> 6,508
<APPREC-INCREASE-CURRENT> (110,273)
<NET-CHANGE-FROM-OPS> 165,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 273,543
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 275,305
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 287
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (652,468)
<ACCUMULATED-NII-PRIOR> 66,531
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
