File No. 33-37953
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 3
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 126
(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 : March 31, 1994
: : 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
January 10, 1994.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
3,306 UNITS
PROSPECTUS
Part One
Dated March 22, 1994
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 37 (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 February 16, 1994, each Unit
represented a 1/3,306 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 5.0% of the Public Offering Price (5.263%
of the amount invested). At February 16, 1994, the Public Offering Price per
Unit was $1,107.31 plus net interest accrued to date of settlement (five
business days after such date) of $12.51 and $23.50 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 5.95% per annum on February 16, 1994, and 5.90% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.19% per annum on February 16, 1994, and 4.14%
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; (2) takes into account the
expenses and sales charge associated with each Unit of the Trust; and
(3) takes into effect the tax-adjusted yield from potential capital gains at
the Date of Deposit. 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 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
SUMMARY OF ESSENTIAL INFORMATION AS OF February 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $3,215,000
Number of Units 3,306
Fractional Undivided Interest in the Trust per Unit 1/3,306
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,477,725
Aggregate Value of Bonds per Unit $1,051.94
Sales Charge 5.263% (5.0% of Public Offering Price) $55.37
Public Offering Price per Unit $1,107.31*
Redemption Price and Sponsor's Repurchase Price per Unit
($55.37 less than the Public Offering Price per Unit) $1,051.94*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $649,000
</TABLE>
Date Trust Established January 9, 1991
Mandatory Termination Date December 31, 2040
Evaluator's Fee: $974 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 Maximum of $.25
affiliate of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five 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 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
SUMMARY OF ESSENTIAL INFORMATION AS OF February 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $67.76 $67.76
Less: Estimated Annual Expense $2.38 $1.84
Estimated Net Annual Interest Income $65.38 $65.92
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $65.38 $65.92
Divided by 12 and 2, Respectively $5.45 $32.96
Estimated Daily Rate of Net Interest Accrual $.1816 $.1831
Estimated Current Return Based on Public
Offering Price 5.90% 5.95%
Estimated Long-Term Return Based on Public
Offering Price 4.14% 4.19%
</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: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust
Combined Series 126, The First Trust of
Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 37
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 126, The First
Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust, Series 37
as of November 30, 1993, and the related statements of operations and changes
in net assets for each of the two years in the period then ended and for the
period from the Date of Deposit, January 9, 1991, to November 30, 1991. These
financial statements are the responsibility of the Trust's Trustee. 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 November 30, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 126, The First Trust of Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 37 at November 30, 1993, and the results of its
operations and changes in its net assets for each of the two years in the
period then ended and for the period from the Date of Deposit, January 9,
1991, to November 30, 1991, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Chicago, Illinois
February 25, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $3,141,243)
(Note 1) $3,473,757
Accrued interest 72,416
Cash 25,076
__________
3,571,249
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 50,501
Accrued liabilities 15
__________
50,516
__________
Net assets, applicable to 3,321 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $3,141,243
Net unrealized appreciation (Note 2) 332,514
Distributable funds 46,976
__________
$3,520,733
==========
Net asset value per unit $1,060.14
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
PORTFOLIO - See notes to portfolio.
November 30, 1993
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal
Name of issuer and title of bond(g) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Allegheny County (Pennsylvania) Higher Education
Building Authority, College Revenue
Refunding, Series of 1990 (Robert Morris College) 2000 @ 100
(MBIA Insured) (c) 7.00 % 6/15/2013 2009 @ 100 S.F. AAA $350,000 387,506
Dauphin County General Authority, Insured Fixed
Rate Revenue (Pennsylvania Municipal
Pooled Financing Program), Series A (BIG 1996 @ 103
Insured) (c) 7.75 1/01/2006 2003 @ 100 S.F. AAA 500,000 554,105
Derry Area School District (Westmoreland County,
Pennsylvania), General Obligation,
Series of 1991 (MBIA Insured) (c)(d)(f) 6.50 2/01/2020 2001 @ 100 AAA 350,000 386,376
Fairview Township Authority, York County,
Pennsylvania, Guaranteed Sewer Revenue,
Series of 1990 (Guaranteed by the Township of
Fairview, York County, Pennsylvania) 2000 @ 100
(AMBAC Insured) (c) 7.00 11/01/2020 2011 @ 100 S.F. AAA 350,000 389,308
The Philadelphia Municipal Authority, Philadelphia,
Pennsylvania, Criminal Justice Center
Refunding Revenue, Series of 1988 (FGIC 1998 @ 102
Insured) (c) 7.80 4/01/2018 2008 @ 100 S.F. AAA 500,000 566,970
The Philadelphia Municipal Authority, Municipal
Services Building Lease Rental, Series of 1990
(Capital Guaranty Insured) (c) - (e) 3/15/2015 AAA 75,000 21,551
Scranton-Lackawanna Health and Welfare Authority,
Hospital Revenue, Series of 1988
(The Community Medical Center Project) (BIG 1998 @ 102
Insured) (c) 7.625 7/01/2012 2011 @ 100 S.F. AAA 350,000 395,713
Washington County Authority Municipal Facilities
Lease Revenue (Pooled Capital Program),
Series 1985 C-1, Subseries C (Shadyside Hospital
Project) (AMBAC Insured) (c)(f) 7.45 12/15/2018 2000 @ 103 AAA 500,000 589,070
Wyoming Valley Sanitary Authority, Luzerne County,
Pennsylvania, Sewer Revenue,
Series of 1985 (BIG Insured) (c)(f) 9.20 11/15/2010 1995 @ 101 AAA 135,000 150,378
York City Sewer Authority, City of York,
Pennsylvania, Guaranteed Sewer Revenue,
Series of 1990 (MBIA Insured) (c) - (e) 12/01/2016 AAA 125,000 32,780
______________________
$3,235,000 3,473,757
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
NOTES TO PORTFOLIO
November 30, 1993
(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 46% 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 November 30, 1993.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds were issued at an original issue discount on December 15,
1990 at a price of 93.224% 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 the following dates and at the following percentages of
their original principal amount.
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
The Philadelphia Municipal Authority,
Municipal Services Building Lease
Rental 3/29/90 15.916
York City Sewer Authority 12/20/90 16.360
</TABLE>
(f) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(g) The Trust consists of ten obligations of issuers located in
Pennsylvania. One of the Bonds in the Trust, representing approximately
11% of the aggregate principal amount of Bonds in the Trust, is a
general obligation of a governmental entity. The remaining issues are
revenue bonds payable from the income of a specific project or authority
and are divided by purpose of issue as follows: Health Care, 2; Sewer,
3; University and School, 1; and Miscellaneous, 3. Approximately 26% of
the aggregate principal amount of the Bonds in the Trust consists of
health care revenue bonds. Each of seven Bond issues represents 10% or
more of the aggregate principal amount of the Bonds in the Trust or a
total of approximately 90%. The three largest such issues represent
approximately 15% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $226,303 226,778 202,840
Expenses:
Trustee's fees and related expenses (3,106) (4,544) (2,940)
Evaluator's fees (974) (974) (672)
Supervisory fees (834) (834) (746)
________________________________
Investment income - net 221,389 220,426 198,482
Net gain (loss) on investments:
Net realized gain (loss) (95) - -
Change in unrealized appreciation
or depreciation 164,941 83,640 83,933
________________________________
164,846 83,640 83,933
________________________________
Net increase in net assets resulting
from operations $386,235 304,066 282,415
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $221,389 220,426 198,482
Net realized gain (loss) on investments (95) - -
Change in unrealized appreciation or
depreciation on investments 164,941 83,640 83,933
__________________________________
386,235 304,066 282,415
Distributions to unit holders:
Investment income - net (219,189) (219,697) (149,771)
Principal from investment transactions - - -
__________________________________
(219,189) (219,697) (149,771)
Unit redemptions (14 and 1 in
1993 and 1992, respectively):
Principal portion (14,646) (998) -
Net interest accrued (196) (15) -
__________________________________
(14,842) (1,013) -
__________________________________
Total increase (decrease) in net assets 152,204 83,356 132,644
Net assets:
At the beginning of the period 3,368,529 3,285,173 3,152,529
__________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $46,976, $48,427
and $48,711 at November 30, 1993,
1992 and 1991, respectively) $3,520,733 3,368,529 3,285,173
==================================
Trust units outstanding at the end of
the period 3,321 3,335 3,336
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
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, January 9, 1991. 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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York 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. Additionally, a fee of $974 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 November 30, 1993 follows:
<TABLE>
<S> <C>
Unrealized appreciation $334,504
Unrealized depreciation (1,990)
________
$332,514
========
</TABLE>
<PAGE>
3. Insurance
The issuers of all of the bond issues in the Trust have acquired insurance
coverage which provides for the payment, when due, of all principal and
interest on those bonds (see Note (c) to Portfolio). Such insurance coverage
continues in force so long as the bonds are outstanding and the insurer
remains 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>
Period from
the Date of
Deposit,
Year Year Jan. 9,
Type of ended ended 1991, to
distribution Nov. 30, Nov. 30, Nov. 30,
plan 1993 1992 1991
<S> <C> <C> <C>
Monthly $65.60 65.64 43.49*
Semi-annual 66.13 66.14 43.78
</TABLE>
[FN]
*Excludes $1.28 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $23,244, plus interest
accruing to the first settlement date, January 16, 1991, totaling $4,267, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.20 per unit, was paid on May 1, 1991 to all unit
holders of record on April 15, 1991.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $67.99 67.98 60.80
Expenses (1.48) (1.90) (1.30)
_____________________________
Investment income - net 66.51 66.08 59.50
Distributions to unit holders:
Investment income - net (65.84) (65.86) (44.90)
Principal from investment transactions - - -
Net gain (loss) on investments 49.42 25.07 25.16
_____________________________
Total increase (decrease) in net assets 50.09 25.29 39.76
Net assets:
Beginning of the period 1,010.05 984.76 945.00
_____________________________
End of the period $1,060.14 1,010.05 984.76
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 37
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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
3,083 UNITS
PROSPECTUS
Part One
Dated March 22, 1994
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, although interest on certain Bonds in the Trust will be a preference
item for purposes of the alternative minimum tax. 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 11 (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, although interest on certain
Bonds in the Trust will be a preference item for purposes of the alternative
minimum tax. At February 16, 1994, each Unit represented a 1/3,083 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 5.0% of the Public Offering Price (5.263%
of the amount invested). At February 16, 1994, the Public Offering Price per
Unit was $1,090.87 plus net interest accrued to date of settlement (five
business days after such date) of $12.20 and $23.08 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 5.98% per annum on February 16, 1994, and 5.93% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.56% per annum on February 16, 1994, and 5.51%
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; (2) takes into account the
expenses and sales charge associated with each Unit of the Trust; and
(3) takes into effect the tax-adjusted yield from potential capital gains at
the Date of Deposit. 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 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,980,000
Number of Units 3,083
Fractional Undivided Interest in the Trust per Unit 1/3,083
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,194,996
Aggregate Value of Bonds per Unit $1,036.33
Sales Charge 5.263% (5.0% of Public Offering Price) $54.54
Public Offering Price per Unit $1,090.87*
Redemption Price and Sponsor's Repurchase Price per Unit
($54.54 less than the Public Offering Price per Unit) $1,036.33*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $600,000
</TABLE>
Date Trust Established January 9, 1991
Mandatory Termination Date December 31, 2040
Evaluator's Fee: $900 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 Maximum of $.25
affiliate of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five 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 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $67.06 $67.06
Less: Estimated Annual Expense $2.32 $1.79
Estimated Net Annual Interest Income $64.74 $65.27
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $64.74 $65.27
Divided by 12 and 2, Respectively $5.40 $32.64
Estimated Daily Rate of Net Interest Accrual $.1798 $.1813
Estimated Current Return Based on Public
Offering Price 5.93% 5.98%
Estimated Long-Term Return Based on Public
Offering Price 5.51% 5.56%
</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: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 126, The First Trust Advantage,
Kansas Trust, Series 11
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 126, The First
Trust Advantage, Kansas Trust, Series 11 as of November 30, 1993, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended and for the period from the Date of Deposit,
January 9, 1991, to November 30, 1991. These financial statements are the
responsibility of the Trust's Trustee. 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 November 30, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 126, The First Trust Advantage, Kansas Trust, Series 11 at November 30,
1993, and the results of its operations and changes in its net assets for each
of the two years in the period then ended and for the period from the Date of
Deposit, January 9, 1991, to November 30, 1991, in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
February 25, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,916,348)
(Note 1) $3,137,056
Accrued interest 51,718
Cash 38,731
Prepaid expense 418
__________
3,227,923
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 46,775
Accrued liabilities 15
__________
46,790
__________
Net assets, applicable to 3,083 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $2,916,348
Net unrealized appreciation (Note 2) 220,708
Distributable funds 44,077
__________
$3,181,133
==========
Net asset value per unit $1,031.83
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
PORTFOLIO - See notes to portfolio.
November 30, 1993
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal
Name of issuer and title of bond(f) rate maturity provisions(a) rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cowley County, Kansas, and Shawnee County, Kansas,
GNMA Collateralized Mortgage 2000 @ 18.830
Revenue, 1990 Series B (AMBAC Insured) (d) - % c 6/01/2022 2012 @ 48.009 S.F. AAA $80,000 8,918
Franklin County, Kansas, General Obligation
Refunding, Series 1990 7.10 9/01/2005 1997 @ 100 NR 275,000 291,429
City of Junction City, Kansas, Sewer System 6.90 9/01/2002 1997 @ 100 NR 100,000 107,332
Revenue Series 1990 6.95 9/01/2003 1997 @ 100 NR 110,000 117,785
Kansas Turnpike Authority, Turnpike Revenue, 2000 @ 100
Series 1990 (MBIA Insured) 6.75 9/01/2015 2013 @ 100 S.F. AAA 500,000 541,420
Unified School District No. 368, Miami County,
Kansas (Paola), General Obligation, Series 1991
(AMBAC Insured) (e) 6.75 12/01/2011 AAA 135,000 155,629
Unified School District No. 441, Nemaha County,
Kansas (Sabetha), General Obligation
School Building, Series 1990 (AMBAC Insured) (e) 6.80 9/01/2010 1999 @ 100 AAA 140,000 156,243
Certificates of Participation, Series 1990 of the 7.10 9/01/2003 1997 @ 100 NR 100,000 107,902
City of Olathe, Johnson County, Kansas 7.10 9/01/2004 1997 @ 100 NR 110,000 118,419
City of Scott City, Kansas, General Obligation 7.10 11/01/2014 2000 @ 100 NR 210,000 230,316
Water System, Series 1990 7.10 11/01/2015 2000 @ 100 NR 220,000 241,283
City of Topeka, Kansas, Hospital Revenue
(Stomont-Vail Regional Medical Center), 2000 @ 102
Series 1990A (MBIA Insured) 7.00 11/15/2010 2001 @ 100 S.F. AAA 500,000 560,380
City of Wichita, Kansas, Health Care Facilities
Refunding and Improvement Revenue 2000 @ 101.5
(Presbyterian Manors, Inc.), Series IX-A, 1990 8.00 12/01/2016 2003 @ 100 S.F. NR 500,000 500,000
______________________
$2,980,000 3,137,056
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
NOTES TO PORTFOLIO
November 30, 1993
(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 23% 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 November 30, 1993. "NR"
indicates no rating.
(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 July 10, 1990 at a price of 8.515% of their original
principal amount.
(d) Interest on these Bonds (approximately 3% of the aggregate principal
amount of the Bonds in the Trust) will be an item of tax preference for
purposes of the Kansas and Federal Alternative Minimum Tax.
(e) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(f) The Trust consists of ten obligations of issuers located in Kansas.
Four of the Bonds in the Trust, aggregating approximately 33% 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; Single Family
Housing, 1; Sewer, 1; Transportation, 1; and Miscellaneous, 1.
Approximately 34% 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 65%. The three largest such
issues represent approximately 17% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $206,740 206,740 185,054
Expenses:
Trustee's fees and related expenses (2,774) (4,272) (2,727)
Evaluator's fees (900) (900) (525)
Supervisory fees (771) (771) (691)
________________________________
Investment income - net 202,295 200,797 181,111
Net gain (loss) on investments:
Net realized gain (loss) 77 120 -
Change in unrealized appreciation
or depreciation 119,388 69,213 32,107
________________________________
119,465 69,333 32,107
________________________________
Net increase in net assets resulting
from operations $321,760 270,130 213,218
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $202,295 200,797 181,111
Net realized gain (loss) on investments 77 120 -
Change in unrealized appreciation or
depreciation on investments 119,388 69,213 32,107
__________________________________
321,760 270,130 213,218
Distributions to unit holders:
Investment income - net (200,431) (200,404) (136,247)
Principal from investment transactions - - -
__________________________________
(200,431) (200,404) (136,247)
Unit redemptions (5 in 1991):
Principal portion - - (4,944)
Net interest accrued - - (117)
__________________________________
- - (5,061)
__________________________________
Total increase (decrease) in net assets 121,329 69,726 71,910
Net assets:
At the beginning of the period 3,059,804 2,990,078 2,918,168
__________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $44,077, $41,681
and $39,803 at November 30, 1993,
1992 and 1991, respectively) $3,181,133 3,059,804 2,990,078
==================================
Trust units outstanding at the end of
the period 3,083 3,083 3,083
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
KANSAS TRUST, SERIES 11
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, January 9, 1991. 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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York 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. Additionally, a fee of $900 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 November 30, 1993 follows:
<TABLE>
<S> <C>
Unrealized appreciation $228,678
Unrealized depreciation (7,970)
________
$220,708
========
</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>
Period from
the Date of
Deposit,
Year Year Jan. 9,
Type of ended ended 1991, to
distribution Nov. 30, Nov. 30, Nov. 30,
plan 1993 1992 1991
<S> <C> <C> <C>
Monthly $64.80 64.79 42.78*
Semi-annual 65.28 65.27 43.06
</TABLE>
[FN]
*Excludes $1.26 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $38,486, plus interest
accruing to the first settlement date, January 16, 1991, totaling $3,893, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.05 per unit, was paid on May 1, 1991 to all unit
holders of record on April 15, 1991.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $67.06 67.06 59.95
Expenses (1.44) (1.93) (1.28)
_____________________________
Investment income - net 65.62 65.13 58.67
Distributions to unit holders:
Investment income - net (65.01) (65.00) (44.15)
Principal from investment transactions - - -
Net gain (loss) on investments 38.74 22.49 10.34
_____________________________
Total increase (decrease) in net assets 39.35 22.62 24.86
Net assets:
Beginning of the period 992.48 969.86 945.00
_____________________________
End of the period $1,031.83 992.48 969.86
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
KANSAS TRUST, SERIES 11
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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
3,126 UNITS
PROSPECTUS
Part One
Dated March 22, 1994
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 Maine State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust Advantage, Maine 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 Maine,
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 Maine
State and local income taxes under existing law. At February 16, 1994, each
Unit represented a 1/3,126 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 4.9% of the Public Offering Price (5.152%
of the amount invested). At February 16, 1994, the Public Offering Price per
Unit was $1,143.23 plus net interest accrued to date of settlement (five
business days after such date) of $12.04 and $23.22 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 5.85% per annum on February 16, 1994, and 5.81% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.53% per annum on February 16, 1994, and 4.48%
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; (2) takes into account the
expenses and sales charge associated with each Unit of the Trust; and
(3) takes into effect the tax-adjusted yield from potential capital gains at
the Date of Deposit. 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 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,835,000
Number of Units 3,126
Fractional Undivided Interest in the Trust per Unit 1/3,126
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,398,634
Aggregate Value of Bonds per Unit $1,087.21
Sales Charge 5.152% (4.9% of Public Offering Price) $56.02
Public Offering Price per Unit $1,143.23*
Redemption Price and Sponsor's Repurchase Price per Unit
($56.02 less than the Public Offering Price per Unit) $1,087.21*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $615,000
</TABLE>
Date Trust Established January 9, 1991
Mandatory Termination Date December 31, 2040
Evaluator's Fee: $923 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 Maximum of $.25
affiliate of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five 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 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $68.70 $68.70
Less: Estimated Annual Expense $2.29 $1.78
Estimated Net Annual Interest Income $66.41 $66.92
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $66.41 $66.92
Divided by 12 and 2, Respectively $5.53 $33.46
Estimated Daily Rate of Net Interest Accrual $.1845 $.1859
Estimated Current Return Based on Public
Offering Price 5.81% 5.85%
Estimated Long-Term Return Based on Public
Offering Price 4.48% 4.53%
</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: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 126, The First Trust Advantage,
Maine Trust, Series 3
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 126, The First
Trust Advantage, Maine Trust, Series 3 as of November 30, 1993, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended and for the period from the Date of Deposit,
January 9, 1991, to November 30, 1991. These financial statements are the
responsibility of the Trust's Trustee. 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 November 30, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 126, The First Trust Advantage, Maine Trust, Series 3 at November 30,
1993, and the results of its operations and changes in its net assets for each
of the two years in the period then ended and for the period from the Date of
Deposit, January 9, 1991, to November 30, 1991, in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
February 25, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,996,103)
(Note 1) $3,416,646
Accrued interest 82,668
Cash 9,731
__________
3,509,045
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 41,330
Principal distributions payable 3,309
Accrued liabilities 17
__________
44,656
__________
Net assets, applicable to 3,182 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $2,996,103
Net unrealized appreciation (Note 2) 420,543
Distributable funds 47,743
__________
$3,464,389
==========
Net asset value per unit $1,088.75
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
PORTFOLIO - See notes to portfolio.
November 30, 1993
<TABLE>
<CAPTION>
Coupon
interest Date of Redemption Principal
Name of issuer and title of bond(e) rate maturity provisions(a) Rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Auburn Water District, Maine, 1990 Series Revenue 7.30% 12/01/2009 NR $140,000 174,615
7.30 12/01/2010 NR 155,000 193,631
Town of Blue Hill, Maine, General Obligation 7.35 7/01/2009 NR 155,000 185,626
7.35 7/01/2010 NR 155,000 187,042
City of Brewer, Maine, General Obligation 7.10 6/01/2006 A (c) 70,000 82,169
7.15 6/01/2007 A (c) 70,000 82,065
City of Ellsworth, Maine, General Obligation 7.25 8/01/2007 NR 125,000 147,916
7.25 8/01/2010 NR 155,000 186,406
Kennebunk Sewer District, Maine, 1991 Series Revenue 7.15 1/01/2007 A (c) 80,000 93,078
7.20 1/01/2008 A (c) 80,000 93,971
7.25 1/01/2009 A (c) 80,000 95,121
7.30 1/01/2010 A (c) 80,000 96,280
7.30 1/01/2011 A (c) 80,000 96,502
Maine Health and Higher Educational Facilities
Authority, Hospital Revenue, Central Maine Medical 1998 @ 102
Center Issue, Series 1988 (FGIC Insured) 7.75 7/01/2008 2001 @ 100 S.F. AAA 350,000 399,658
1998 @ 102
8.00 7/01/2018 2009 @ 100 S.F. AAA 250,000 287,567
Maine Municipal Bond Bank, 1988 Series B(d) 7.85 11/01/2018 1998 @ 103 A+ 365,000 426,459
Regional Waste Systems, Inc. (Maine), Solid Waste
Resource Recovery System Revenue, Series A, 1999 @ 103
Series B and Series C 7.95 7/01/2010 2001 @ 100 S.F. AA 500,000 588,540
______________________
$2,890,000 3,416,646
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
NOTES TO PORTFOLIO
November 30, 1993
(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 33% 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 November 30, 1993. All ratings
are by Standard & Poor's Corporation unless otherwise indicated (NR
indicates "No Rating").
(c) Ratings by Moody's Investors Service, Inc.
(d) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(e) The Trust consists of eight obligations of issuers located in Maine.
Three of the Bonds in the Trust, aggregating approximately 25% of the
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: Water, 1; Health Care, 1; Sewer, 1; and
Miscellaneous, 2. Approximately 21% of the aggregate principal amount
of the Bonds in the Trust consist of health care revenue bonds. Each
of six Bond issues represents 10% or more of the aggregate principal
amount of the Bonds in the Trust or a total of approximately 85%. The
largest such issue represents approximately 21%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $222,646 230,598 208,636
Expenses:
Trustee's fees and related expenses (3,067) (4,815) (2,929)
Evaluator's fees (923) (923) (429)
Supervisory fees (818) (841) (754)
________________________________
Investment income - net 217,838 224,019 204,524
Net gain (loss) on investments:
Net realized gain (loss) 6,263 2,755 (301)
Change in unrealized appreciation
or depreciation 239,672 115,228 65,643
________________________________
245,935 117,983 65,342
________________________________
Net increase in net assets resulting
from operations $463,773 342,002 269,866
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE TRUST, SERIES 3
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $217,838 224,019 204,524
Net realized gain (loss) on investments 6,263 2,755 (301)
Change in unrealized appreciation or
depreciation on investments 239,672 115,228 65,643
__________________________________
463,773 342,002 269,866
Distributions to unit holders:
Investment income - net (215,533) (223,780) (155,594)
Principal from investment transactions (3,309) - -
__________________________________
(218,842) (223,780) (155,594)
Unit redemptions (90, 90 and 16 in
1993, 1992 and 1991, respectively):
Principal portion (95,967) (90,260) (15,281)
Net interest accrued (1,572) (1,697) (477)
__________________________________
(97,539) (91,957) (15,758)
__________________________________
Total increase (decrease) in net assets 147,392 26,265 98,514
Net assets:
At the beginning of the period 3,316,997 3,290,732 3,192,218
__________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $47,743, $49,879
and $48,888 at November 30, 1993,
1992 and 1991, respectively) $3,464,389 3,316,997 3,290,732
==================================
Trust units outstanding at the end of
the period 3,182 3,272 3,362
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE 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, January 9, 1991. 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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York 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. Additionally, a fee of $923 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 November 30, 1993 follows:
<TABLE>
<S> <C>
Unrealized appreciation $420,543
Unrealized depreciation -
________
$420,543
========
</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>
Period from
the Date of
Deposit,
Year Year Jan. 9,
Type of ended ended 1991, to
distribution Nov. 30, Nov. 30, Nov. 30,
plan 1993 1992 1991
<S> <C> <C> <C>
Monthly $66.68 66.85 44.79*
Semi-annual 67.20 67.35 45.07
</TABLE>
[FN]
*Excludes $1.30 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $21,505, plus interest
accruing to the first settlement date, January 16, 1991, totaling $4,402, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.80 per unit, was paid on May 1, 1991 to all unit
holders of record on April 15, 1991.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $68.98 68.94 61.83
Expenses (1.49) (1.97) (1.22)
_____________________________
Investment income - net 67.49 66.97 60.61
Distributions to unit holders:
Investment income - net (66.85) (67.02) (46.20)
Principal from investment transactions (1.04) - -
Net gain (loss) on investments 75.40 35.00 19.39
_____________________________
Total increase (decrease) in net assets 75.00 34.95 33.80
Net assets:
Beginning of the period 1,013.75 978.80 945.00
_____________________________
End of the period $1,088.75 1,013.75 978.80
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MAINE 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
3,174 UNITS
PROSPECTUS
Part One
Dated March 22, 1994
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 Advantage, Minnesota 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
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
February 16, 1994, each Unit represented a 1/3,174 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 4.1% of the Public Offering Price (4.275%
of the amount invested). At February 16, 1994, the Public Offering Price per
Unit was $1,060.66 plus net interest accrued to date of settlement (five
business days after such date) of $12.50 and $23.57 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 6.22% per annum on February 16, 1994, and 6.17% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.39% per annum on February 16, 1994, and 4.34%
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; (2) takes into account the
expenses and sales charge associated with each Unit of the Trust; and (3)
takes into effect the tax-adjusted yield from potential capital gains at the
Date of Deposit. 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 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,995,000
Number of Units 3,174
Fractional Undivided Interest in the Trust per Unit 1/3,174
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,228,490
Aggregate Value of Bonds per Unit $1,017.17
Sales Charge 4.275% (4.1% of Public Offering Price) $43.49
Public Offering Price per Unit $1,060.66*
Redemption Price and Sponsor's Repurchase Price per Unit
($43.49 less than the Public Offering Price per Unit) $1,017.17*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $613,000
</TABLE>
Date Trust Established January 9, 1991
Mandatory Termination Date December 31, 2040
Evaluator's Fee: $920 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 Maximum of $.25
affiliate of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five 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 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $67.76 $67.76
Less: Estimated Annual Expense $2.36 $1.83
Estimated Net Annual Interest Income $65.40 $65.93
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $65.40 $65.93
Divided by 12 and 2, Respectively $5.45 $32.97
Estimated Daily Rate of Net Interest Accrual $.1817 $.1831
Estimated Current Return Based on Public
Offering Price 6.17% 6.22%
Estimated Long-Term Return Based on Public
Offering Price 4.34% 4.39%
</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: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 126, The First Trust Advantage,
Minnesota Trust, Series 3
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 126, The First
Trust Advantage, Minnesota Trust, Series 3 as of November 30, 1993, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended and for the period from the Date of Deposit,
January 9, 1991, to November 30, 1991. These financial statements are the
responsibility of the Trust's Trustee. 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 November 30, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 126, The First Trust Advantage, Minnesota Trust, Series 3 at
November 30, 1993, and the results of its operations and changes in its net
assets for each of the two years in the period then ended and for the period
from the Date of Deposit, January 9, 1991, to November 30, 1991, in conformity
with generally accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
February 25, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,978,425)
(Note 1) $3,257,883
Accrued interest 77,982
Cash 7,984
__________
3,343,849
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 46,684
Accrued liabilities 17
__________
46,701
__________
Net assets, applicable to 3,174 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $2,978,425
Net unrealized appreciation (Note 2) 279,458
Distributable funds 39,265
__________
$3,297,148
==========
Net asset value per unit $1,038.80
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
PORTFOLIO - See notes to portfolio.
November 30, 1993
<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 Brainerd, Minnesota, Hospital Facilities
Revenue (Benedictine Health System - St. Joseph's
Medical Center), Series 1985 (MBIA Insured)(e) 9.625% 10/01/2012 1995 @ 102 AAA $370,000 416,687
City of Minneapolis, Minnesota, and The Housing and
Redevelopment Authority of the City of Saint
Paul, Minnesota, Health Care System Revenue 2000 @ 102
(Health One Obligated Group), Series 1990C 8.00 8/15/2019 2002 @ 100 S.F. A- 500,000 596,225
City of Minneapolis, Minnesota, Hospital Facilities
Revenue (LifeSpan Inc. Issue), Series 1990-C 2001 @ 102
(Minneapolis Childrens Medical Center Project) 7.00 12/01/2020 2008 @ 100 S.F. A 150,000 167,015
Minnesota Housing Finance Agency, Single Family 2001 @ 102
Mortgage, 1990 Series E 7.70 7/01/2016 2006 @ 100 S.F. AA+ 135,000 144,052
Northern Municipal Power Agency (Minnesota), 1999 @ 102
Electric System Revenue, Refunding Series 1989 A 7.25 1/1012016 2012 @ 100 S.F. A 500,000 557,545
Owatonna City, Minnesota, Public Utilities Revenue 7.40 1/01/2015 2000 @ 100 A1(d) 250,000 285,952
City of St. Cloud, Minnesota, Hospital Facilities
Revenue (The Saint Cloud Hospital) Series 1990-B 2001 @ 102
(AMBAC Insured) 7.00 7/01/2020 2011 @ 100 S.F. AAA 250,000 282,905
Independent School District No. 625, Saint Paul,
Minnesota, Full Faith and Credit, Certificates
of Participation - (c) 1/01/2015 AA 200,000 60,968
Southern Minnesota Municipal Power Agency, Power
Supply System Revenue, Series 1984 B (e) 7.00 1/01/2018 1998 @ 100 NR 500,000 548,265
Western Minnesota Municipal Power Agency
Transmission Project Revenue, 1986 Series A
(AMBAC Insured) (e) 8.00 1/01/2006 1996 @ 102 AAA 180,000 198,269
______________________
$3,035,000 3,257,883
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
NOTES TO PORTFOLIO
November 30, 1993
(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 35% 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 November 30, 1993 ("NR"
indicates "No Rating"). All ratings are by Standard & Poor's
Corporation unless otherwise indicated.
(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 February 1, 1990 at a price of 17.580% of their original
principal amount.
(d) Rating by Moody's Investors Service, Inc.
(e) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(f) The Trust consists of ten obligations of issuers located in Minnesota.
None of the Bonds in the Trust are general obligations of a governmental
entity. All of the issues are revenue bonds payable from the income of
a specific project or authority and are divided by purpose of issue as
follows: Single Family Housing, 1; Electric, 3; University and School,
1; Utility, 1; and Health Care, 4. Approximately 42%, 39% and 4% of the
aggregate principal amount of the Bonds consist of health care revenue
bonds, electric 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 62%. The three largest such issues represent
approximately 16% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $218,158 218,544 197,196
Expenses:
Trustee's fees and related expenses (2,965) (4,228) (2,942)
Evaluator's fees (920) (920) (683)
Supervisory fees (795) (796) (712)
________________________________
Investment income - net 213,478 212,600 192,859
Net gain (loss) on investments:
Net realized gain (loss) - (466) -
Change in unrealized appreciation
or depreciation 170,672 54,864 53,922
________________________________
170,672 54,398 53,922
________________________________
Net increase in net assets resulting
from operations $384,150 266,998 246,781
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA TRUST, SERIES 3
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $213,478 212,600 192,859
Net realized gain (loss) on investments - (466) -
Change in unrealized appreciation or
depreciation on investments 170,672 54,864 53,922
__________________________________
384,150 266,998 246,781
Distributions to unit holders:
Investment income - net (211,162) (211,814) (146,421)
Principal from investment transactions - (29,993) -
__________________________________
(211,162) (241,807) (146,421)
Unit redemptions (5 and 5 in
1993 and 1992, respectively):
Principal portion (5,168) (4,804) -
Net interest accrued (194) (116) -
__________________________________
(5,362) (4,920) -
__________________________________
Total increase (decrease) in net assets 167,626 20,271 100,360
Net assets:
At the beginning of the period 3,129,522 3,109,251 3,008,891
__________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $39,265, $42,311
and $46,438 at November 30, 1993,
1992 and 1991, respectively) $3,297,148 3,129,522 3,109,251
==================================
Trust units outstanding at the end of
the period 3,174 3,179 3,184
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA 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, January 9, 1991. 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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York 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. Additionally, a fee of $920 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 November 30, 1993 follows:
<TABLE>
<S> <C>
Unrealized appreciation $289,326
Unrealized depreciation (9,868)
________
$279,458
========
</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>
Period from
the Date of
Deposit,
Year Year Jan. 9,
Type of ended ended 1991, to
distribution Nov. 30, Nov. 30, Nov. 30,
plan 1993 1992 1991
<S> <C> <C> <C>
Monthly $66.24 66.35 44.54*
Semi-annual 66.78 66.88 44.88
</TABLE>
[FN]
*Excludes $1.30 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $36,154, plus interest
accruing to the first settlement date, January 16, 1991, totaling $4,154, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.55 per unit, was paid on May 1, 1991 to all unit
holders of record on April 15, 1991.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $68.62 68.68 61.93
Expenses (1.47) (1.87) (1.36)
_____________________________
Investment income - net 67.15 66.81 60.57
Distributions to unit holders:
Investment income - net (66.43) (66.57) (45.99)
Principal from investment transactions - (9.42) -
Net gain (loss) on investments 53.64 17.10 16.94
_____________________________
Total increase (decrease) in net assets 54.36 7.92 31.52
Net assets:
Beginning of the period 984.44 976.52 945.00
_____________________________
End of the period $1,038.80 984.44 976.52
=============================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
MINNESOTA 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
3,603 UNITS
PROSPECTUS
Part One
Dated March 22, 1994
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, although interest on certain Bonds in the Trust will be a preference
item for purposes of the alternative minimum tax. In addition, the interest
income is, in the opinion of Special Counsel, exempt to the extent indicated
from Nebraska State and local income taxes. Capital gains, if any, are
subject to tax.
The Trust
The First Trust Advantage, Nebraska 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
Nebraska, 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 Nebraska State and local income taxes under existing law, although
interest on certain Bonds in the Trust will be a preference item for purposes
of the alternative minimum tax. At February 16, 1994, each Unit represented a
1/3,603 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 February 16, 1994, the Public Offering Price per
Unit was $982.71 plus net interest accrued to date of settlement (five
business days after such date) of $10.68 and $20.78 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 6.15% per annum on February 16, 1994, and 6.10% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 4.45% per annum on February 16, 1994, and 4.40%
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; (2) takes into account the
expenses and sales charge associated with each Unit of the Trust; and (3)
takes into effect the tax-adjusted yield from potential capital gains at the
Date of Deposit. 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 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $3,170,000
Number of Units 3,603
Fractional Undivided Interest in the Trust per Unit 1/3,603
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,420,320
Aggregate Value of Bonds per Unit $949.30
Sales Charge 3.520% (3.4% of Public Offering Price) $33.41
Public Offering Price per Unit $982.71*
Redemption Price and Sponsor's Repurchase Price per Unit
($33.41 less than the Public Offering Price per Unit) $949.30*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $714,000
</TABLE>
Date Trust Established January 9, 1991
Mandatory Termination Date December 31, 2040
Evaluator's Fee: $1,071 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 Maximum of $.25
affiliate of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (five 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 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 16, 1994
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: United States Trust Company of New York
<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 $62.29 $62.29
Less: Estimated Annual Expense $2.34 $1.82
Estimated Net Annual Interest Income $59.95 $60.47
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $59.95 $60.47
Divided by 12 and 2, Respectively $5.00 $30.24
Estimated Daily Rate of Net Interest Accrual $.1665 $.1680
Estimated Current Return Based on Public
Offering Price 6.10% 6.15%
Estimated Long-Term Return Based on Public
Offering Price 4.40% 4.45%
</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: First day of the month as follows: monthly--each month;
semi-annual--January and July.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 126, The First Trust Advantage,
Nebraska Trust, Series 6
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 126, The First
Trust Advantage, Nebraska Trust, Series 6 as of November 30, 1993, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended and for the period from the Date of Deposit,
January 9, 1991, to November 30, 1991. These financial statements are the
responsibility of the Trust's Trustee. 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 November 30, 1993,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, 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 126, The First Trust Advantage, Nebraska Trust, Series 6 at
November 30, 1993, and the results of its operations and changes in its net
assets for each of the two years in the period then ended and for the period
from the Date of Deposit, January 9, 1991, to November 30, 1991, in conformity
with generally accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
February 25, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $3,181,591)
(Note 1) $3,426,203
Accrued interest 77,448
Cash 292,839
__________
3,796,490
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Principal distribution payable 265,085
Distributions payable and accrued to unit holders 51,306
Accrued liabilities 17
__________
316,408
__________
Net assets, applicable to 3,623 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $3,181,591
Net unrealized appreciation (Note 2) 244,612
Distributable funds 53,879
__________
$3,480,082
==========
Net asset value per unit $960.55
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
PORTFOLIO - See notes to portfolio.
November 30, 1993
<TABLE>
<CAPTION>
Coupon
interest Date of Redemption Principal
Name of issuer and title of bond(h) rate maturity provisions(a) Rating(b) amount Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Knox County School District 096, in the State of
Nebraska (aka Crofton Public Schools), 7.00 % 12/15/2009 1995 @ 100 NR $200,000 206,890
General Obligation School 7.00 12/15/2010 1995 @ 100 NR 225,000 232,229
City of Lincoln, Nebraska, Electric System
Revenue Refunding, Power Supply Facilities 1996 @ 24.506
1986 Series A - (c) 9/01/2015 2007 @ 53.481 S.F. AA 100,000 21,726
City of Lincoln, Nebraska, Water Revenue,
Series 1990(g) 7.15 11/01/2010 2000 @ 101 Aa(d) 700,000 807,303
Nebraska Investment Finance Authority, Multifamily
Mortgage Revenue, Series 1990 (FHA Insured Mortgage 2000 @ 102
Loan - Cornhusker Square Apartments Project) (e) 7.90 6/01/2031 1994 @ 100 S.F. Aa (d) 500,000 537,635
Nebraska Public Power District, Power Supply
System Revenue, 1986 Series(g) 7.375 1/01/2007 1996 @ 102 AAA 680,000 742,084
City of Omaha, Nebraska, Various Purpose and
Refunding (General Obligation), Series of 1985(g) 7.90 11/01/2003 1995 @ 102 AAA 185,000 203,415
Omaha, Nebraska, School District Series A (General
Obligation), Douglas County School District #1(g) 6.75 6/15/2011 1994 @ 102.5 Aa(d) 100,000 103,911
The University of Nebraska Facilities Corporation,
Hospital Revenue, Series 1990A (University of
Nebraska Medical Center Project) (f)(g) 7.00 7/01/2011 2000 @ 101 AA- 500,000 571,010
______________________
$3,190,000 3,426,203
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
NOTES TO PORTFOLIO
November 30, 1993
(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 November 30, 1993. 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 62% 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 November 30, 1993 (NR indicates
"No Rating"). All ratings are by Standard & Poor's Corporation unless
otherwise indicated.
(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 December 11, 1986 at a price of 12.066% of their original
principal amount.
(d) Rating by Moody's Investors Service, Inc.
(e) Interest on these Bonds (approximately 16% of the aggregate principal
amount of the Bonds in the Trust) will be an item of tax preference for
purposes of the Federal and Nebraska alternative minimum tax.
(f) These Bonds were issued at an original issue discount on May 15, 1990 at
a price of 94.728% of their original principal amount.
(g) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government Securities.
(h) The Trust consists of eight obligations of issuers located in Nebraska.
Three of the Bonds in the Trust, representing approximately 22% 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: Utility, 1; Electric, 2;
Multifamily Housing, 1; and Health Care, 1. Approximately 24% and 22%
of the aggregate principal amount of the Bonds consist of electric
revenue bonds and utility 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 88%. The largest
such issue represents approximately 22%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $240,840 242,443 223,201
Expenses:
Trustee's fees and related expenses (3,341) (5,230) (2,962)
Evaluator's fees (1,071) (1,071) (901)
Supervisory fees (906) (910) (839)
________________________________
Investment income - net 235,522 235,232 218,499
Net gain (loss) on investments:
Net realized gain (loss) 28,246 633 (407)
Change in unrealized appreciation
or depreciation 124,291 95,123 25,198
________________________________
152,537 95,756 24,791
________________________________
Net increase in net assets resulting
from operations $388,059 330,988 243,290
================================
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA TRUST, SERIES 6
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Net increase in net assets resulting
from operations:
Investment income - net $235,522 235,232 218,499
Net realized gain (loss) on investments 28,246 633 (407)
Change in unrealized appreciation or
depreciation on investments 124,291 95,123 25,198
__________________________________
388,059 330,988 243,290
Distributions to unit holders:
Investment income - net (233,940) (234,501) (165,134)
Principal from investment transactions (265,085) (4,431) -
__________________________________
(499,025) (238,932) (165,134)
Unit redemptions (109 and 20 in 1992 and
1991, respectively):
Principal portion - (103,781) (19,200)
Net interest accrued - (1,684) (148)
__________________________________
- (105,465) (19,348)
__________________________________
Total increase (decrease) in net assets (110,966) (13,409) 58,808
Net assets:
At the beginning of the period 3,591,048 3,604,457 3,545,649
__________________________________
At the end of the period (including
distributable funds applicable to
Trust units of $53,879, $43,557 and
$54,499 at November 30, 1993, 1992
and 1991, respectively) $3,480,082 3,591,048 3,604,457
==================================
Trust units outstanding at the end of
the period 3,623 3,623 3,732
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA 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, January 9, 1991. 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.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to United States Trust Company of
New York 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. Additionally, a fee of $1,071 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 November 30, 1993 follows:
<TABLE>
<S> <C>
Unrealized appreciation $244,612
Unrealized depreciation -
________
$244,612
========
</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>
Period from
the Date of
Deposit,
Year Year Jan. 9,
Type of ended ended 1991, to
distribution Nov. 30, Nov. 30, Nov. 30,
plan 1993 1992 1991
<S> <C> <C> <C>
Monthly $64.38 64.44 42.84*
Semi-annual 64.85 64.97 43.18
</TABLE>
[FN]
*Excludes $1.26 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $22,450, plus interest
accruing to the first settlement date, January 16, 1991, totaling $4,725, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.25 per unit, was paid on May 1, 1991 to all unit
holders of record on April 15, 1991.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from
the Date of
Deposit,
Year Year Jan. 9,
ended ended 1991, to
Nov. 30, Nov. 30, Nov. 30,
1993 1992 1991
<S> <C> <C> <C>
Interest income $66.48 66.82 59.77
Expenses (1.47) (1.99) (1.26)
___________________________
Investment income - net 65.01 64.83 58.51
Distributions to unit holders:
Investment income - net (64.57) (64.66) (44.25)
Principal from investment transactions (73.17) (1.22) -
Net gain (loss) on investments 42.10 26.41 6.56
___________________________
Total increase (decrease) in net assets (30.63) 25.36 20.82
Net assets:
Beginning of the period 991.18 965.82 945.00
___________________________
End of the period $960.55 991.18 965.82
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 126
THE FIRST TRUST ADVANTAGE
NEBRASKA 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The First Trust Combined Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated March 31, 1994 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, 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 Date
of Deposit. All of the Bonds in a Short Intermediate Trust mature
within 3 to 6 years of the Date of Deposit. All of the Bonds in
a Long Intermediate Trust mature within 10 to 15 years of the
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 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 CORPORATION. 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.
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, Kansas, Maine,
Mississippi and Nebraska Trusts will be a preference item for
purposes of the Federal Alternative Minimum Tax. ACCORDINGLY,
CERTAIN ARKANSAS, 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 Date of Deposit, with Nike Securities L.P., as Sponsor,
United States Trust Company of New York, as Trustee, Securities
Evaluation Service, Inc., as Evaluator and First Trust Advisors
L.P., as Portfolio Supervisor. 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 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,
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 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 obtained
Page 3
by the Bond issuer, the underwriters, 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 underwriters, 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 Corporation
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 Corporation 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 Date of Deposit,
a Bond may cease to be rated or its rating may be reduced below
the minimum required as of the 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 Trust 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. If
such interest rates for newly issued comparable bonds increase,
the market discount of previously issued bonds will become greater,
and if such interest rates for newly issued comparable bonds decline,
the market discount of previously issued bonds will be reduced,
other things being equal. Investors should also note that the
value of bonds purchased at a market discount will increase in
value faster than bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value
of bonds purchased at a market discount will decrease faster than
bonds purchased at a market premium. In addition, if interest
rates rise, the prepayment risk of higher yielding, premium bonds
and the prepayment benefit for lower yielding, discount bonds
will be reduced. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income
and capital gain and less in the form of tax-exempt interest income
than a comparable bond newly issued at current market rates. See
"What is the Federal Tax Status of Unit Holders?" appearing in
Part Three for each Trust. Market discount attributable to interest
changes does not indicate a lack of market confidence in the issue.
Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Bonds.
Page 4
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, capital appreciation bonds, capital accumulator bonds,
compound interest bonds and money discount maturity payment bonds).
Zero Coupon Bonds do not provide for the payment of any current
interest and generally provide for payment at maturity at face
value unless sooner sold or redeemed. Zero Coupon Bonds may be
subject to more price volatility than conventional bonds. While
some types of Zero Coupon Bonds, such as multipliers and capital
appreciation bonds, define par as the initial offering price rather
than the maturity value, they share the basic Zero Coupon bond
features of (1) not paying interest on a semi-annual basis and
(2) providing for the reinvestment of the bond's semi-annual earnings
at the bond's stated yield to maturity. While Zero Coupon Bonds
are frequently marketed on the basis that their fixed rate of
return minimizes reinvestment risk, this benefit can be negated
in large part by weak call protection, i.e., a bond's provision
for redemption at only a modest premium over the accreted value
of the bond.
Certain of the Bonds in the Trusts may have been acquired at a
market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased and
deposited in the Trusts were higher than the current market interest
rates for newly issued bonds of comparable rating and type. If
such interest rates for newly issued and otherwise comparable
bonds decrease, the market premium of previously issued bonds
will be increased, and if such interest rates for newly issued
comparable bonds increase, the market premium of previously issued
bonds will be reduced, other things being equal. The current returns
of bonds trading at a market premium are initially higher than
the current returns of comparable bonds of a similar type issued
at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price
is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments
of principal will result in a reduction in yield. Redemption pursuant
to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium
over par or for original issue discount Bonds a premium over the
accreted value. To the extent that the Bonds were deposited in
the Fund at a price higher than the price at which they are redeemed,
this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally
pay a higher rate of interest than bonds priced at or below par,
the effect of the redemption of premium bonds would be to reduce
Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of
Bonds in the Trust. Although the actual impact of any such redemptions
that may occur will depend upon the specific Bonds that are redeemed,
it can be anticipated that the Estimated Net Annual Unit Income
will be significantly reduced after the dates on which such Bonds
are eligible for redemption. The Trust may be required to sell
Zero Coupon Bonds prior to maturity (at their current market price
which is likely to be less than their par value) in the event
that all the Bonds in the portfolio other than the Zero Coupon
Bonds are called or redeemed in order to pay expenses of the Trust
or in case the Trust is terminated. See "Rights of Unit Holders:
How May Bonds be Removed from the Fund?" and "Other Information:
How May the Indenture be Amended or Terminated?" See the "Portfolio"
appearing in Part One for each Trust for the earliest scheduled
call date and the initial redemption
Page 5
price for each Bond or, for the Bonds that are currently redeemable,
the next scheduled call date and the current redemption price.
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 health care revenue
bonds. Ratings of bonds issued for health care facilities are
sometimes based on feasibility studies that contain projections
of occupancy levels, revenues and expenses. A facility's gross
receipts and net income available for debt service may be affected
by future events and conditions including among other things,
demand for services, the ability of the facility to provide the
services required, physicians' confidence in the facility, management
capabilities, competition with other hospitals, efforts by insurers
and governmental agencies to limit rates, legislation establishing
state rate-setting agencies, expenses, government regulation,
the cost and possible unavailability of malpractice insurance
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar
third party payor programs. Pursuant to recent Federal legislation,
Medicare reimbursements are currently calculated on a prospective
basis utilizing a single nationwide schedule of rates. Prior to
such legislation Medicare reimbursements were based on the actual
costs incurred by the health facility. The current legislation
may adversely affect reimbursements to hospitals and other facilities
for services provided under the Medicare program.
Certain of the Bonds in the Trusts may be single family mortgage
revenue bonds, which are issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages
on residences located within the issuer's boundaries and owned
by persons of low or moderate income. Mortgage loans are generally
partially or completely prepaid prior to their final maturities
as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are
subject to extraordinary mandatory redemption in whole or in part
from such prepayments of mortgage loans, a substantial portion
of such Bonds will probably be redeemed prior to their scheduled
maturities or even prior to their ordinary call dates. The redemption
price of such issues may be more or less than the offering price
of such Bonds. Extraordinary mandatory redemption without premium
could also result from the failure of the originating financial
institutions to make mortgage loans in sufficient amounts within
a specified time period or, in some cases, from the sale by the
Bond issuer of the mortgage loans. Failure of the originating
financial institutions to make mortgage loans would be due principally
to the interest rates on mortgage loans funded from other sources
becoming competitive with the interest rates on the mortgage loans
funded with the proceeds of the single family mortgage revenue
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single
family mortgage revenue bonds issued after December 31, 1980 were
issued under Section 103A of the Internal Revenue Code, which
Section contains certain ongoing requirements relating to the
use of the proceeds of such Bonds in order for the interest on
such Bonds to retain its tax-exempt status. In each case, the
issuer of the Bonds has covenanted to comply with applicable ongoing
requirements and bond counsel to such issuer has issued an opinion
that the interest on the Bonds is exempt from Federal income tax
under existing laws and regulations. There can be no assurances
that the ongoing requirements will be met. The failure to meet
these requirements could cause the interest on the Bonds to become
taxable, possibly retroactively from the date of issuance.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are primarily derived from mortgage loans to housing
projects for low to moderate income families. The ability of such
issuers to make debt service payments will be affected by events
and conditions affecting financed projects, including,
Page 6
among other things, the achievement and maintenance of sufficient
occupancy levels and adequate rental income, increases in taxes,
employment and income conditions prevailing in local labor markets,
utility costs and other operating expenses, the managerial ability
of project managers, changes in laws and governmental regulations,
the appropriation of subsidies and social and economic trends
affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high
rent levels and income limitations imposed under Federal and state
programs. Like single family mortgage revenue bonds, multi-family
mortgage revenue bonds are subject to redemption and call features,
including extraordinary mandatory redemption features, upon prepayment,
sale or non-origination of mortgage loans as well as upon the
occurrence of other events. Certain issuers of single or multi-family
housing bonds have considered various ways to redeem bonds they
have issued prior to the stated first redemption dates for such
bonds. In one situation the New York City Housing Development
Corporation, in reliance on its interpretation of certain language
in the indenture under which one of its bond issues was created,
redeemed all of such issue at par in spite of the fact that such
indenture provided that the first optional redemption was to include
a premium over par and could not occur prior to 1992. In connection
with the housing Bonds held by a Trust, the Sponsor has not had
any direct communications with any of the issuers thereof, but
at the date hereof it is not aware that any of the respective
issuers of such Bonds are actively considering the redemption
of such Bonds prior to their respective stated initial call dates.
However, there can be no assurance that an issuer of a Bond in
a Trust will not attempt to so redeem a Bond in a Trust.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are derived from the sale of water and/or sewerage
services. Water and sewerage bonds are generally payable from
user fees. Problems faced by such issuers include the ability
to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing
large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations,
the increasing difficulty of obtaining or discovering new supplies
of fresh water, the effect of conservation programs and the impact
of "no-growth" zoning ordinances. All of such issuers have been
experiencing certain of these problems in varying degrees.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are primarily derived from the sale of electric
energy. Utilities are generally subject to extensive regulation
by state utility commissions which, among other things, establish
the rates which may be charged and the appropriate rate of return
on an approved asset base. The problems faced by such issuers
include the difficulty in obtaining approval for timely and adequate
rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations
on operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates
of future demand for electricity in certain areas of the country,
the difficulty of the capital market in absorbing utility debt,
the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, Federal,
state and municipal governmental authorities may from time to
time review existing and impose additional regulations governing
the licensing, construction and operation of nuclear power plants,
which may adversely affect the ability of the issuers of such
Bonds to make payments of principal and/or interest on such Bonds.
Certain of the Bonds in the Trusts may be lease obligations issued
for the most part by governmental authorities that have no taxing
power or other means of directly raising revenues. Rather, the
governmental authorities are financing vehicles created solely
for the construction of buildings (schools, administrative offices,
convention centers and prisons, for example) or the purchase of
equipment (police cars and computer systems, for example) that
will be used by a state or local government (the "lessee"). Thus,
these obligations are subject to the ability and willingness of
the lessee government to meet its lease rental payments which
include debt service on the obligations. Lease obligations are
subject, in almost all cases, to the annual appropriation risk,
i.e., the lessee government is not legally obligated to budget
and appropriate for the rental payments beyond the current fiscal
year. These obligations are also subject to construction and abatement
risk in many states - rental obligations cease in the event that
delays in building, damage, destruction
Page 7
or condemnation of the project prevents its use by the lessee.
In these cases, insurance provisions designed to alleviate this
risk become important credit factors. In the event of default
by the lessee government, there may be significant legal and/or
practical difficulties involved in the re-letting or sale of the
project. Some of these issues, particularly those for equipment
purchases, contain the so-called "substitution safeguard", which
bars the lessee government, in the event it defaults on its rental
payments, from the purchase or use of similar equipment for a
certain period of time. This safeguard is designed to insure that
the lessee government will appropriate, even though it is not
legally obligated to do so, but the legality of the safeguard
remains untested in most, if not all, states.
Certain of the Bonds in the Trusts may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are
tax-exempt securities issued by states, municipalities, public
authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. These projects
are usually operated by corporate entities. Issuers are obligated
only to pay amounts due on the IRBs to the extent that funds are
available from the unexpended proceeds of the IRBs or receipts
or revenues of the issuer under an arrangement between the issuer
and the corporate operator of a project. The arrangement may be
in the form of a lease, installment sale agreement, conditional
sale agreement or loan agreement, but in each case the payments
to the issuer are designed to be sufficient to meet the payments
of amounts due on the IRBs. Regardless of the structure, payment
of IRBs is solely dependent upon the creditworthiness of the corporate
operator of the project or corporate guarantor. Corporate operators
or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings,
regulatory and environmental restrictions, litigation resulting
from accidents or environmentally-caused illnesses, extensive
competition and financial deterioration resulting from a complete
restructuring pursuant to a leveraged buy-out, takeover or otherwise.
Such a restructuring may result in the operator of a project becoming
highly leveraged which may impact on such operator's creditworthiness,
which in turn would have an adverse impact on the rating and/or
market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact on the market for and
consequently the value of such Bonds, even though no actual takeover
or other action is ever contemplated or affected. The IRBs in
a Trust may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or, with respect
to original issue discount bonds, at issue price plus the amount
of original issue discount accreted to the redemption date plus,
if applicable, a premium. The Sponsor cannot predict the causes
or likelihood of the redemption of IRBs or other Bonds in the
Trusts prior to the stated maturity of such Bonds.
Certain of the Bonds in the Trusts may be obligations which are
payable from and secured by revenues derived from the ownership
and operation of facilities such as airports, bridges, turnpikes,
port authorities, convention centers and arenas. The major portion
of an airport's gross operating income is generally derived from
fees received from signatory airlines pursuant to use agreements
which consist of annual payments for leases, occupancy of certain
terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry
is experiencing significant variations in earnings and traffic,
due to increased competition, excess capacity, increased costs,
deregulation, traffic constraints and other factors, and several
airlines are experiencing severe financial difficulties. The Sponsor
cannot predict what effect these industry conditions may have
on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Bonds related to other facilities
is dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues
due to such factors as increased cost of maintenance, decreased
use of a facility, lower cost of alternative modes of transportation,
scarcity of fuel and reduction or loss of rents.
Certain of the Bonds in the Trusts may be obligations of issuers
which are, or which govern the operation of, schools, colleges
and universities and whose revenues are derived mainly from ad
valorem taxes, or for higher education systems, from tuition,
dormitory revenues, grants and endowments. General problems
Page 8
relating to school bonds include litigation contesting the state
constitutionality of financing public education in part from ad
valorem taxes, thereby creating a disparity in educational funds
available to schools in wealthy areas and schools in poor areas.
Litigation or legislation on this issue may affect the sources
of funds available for the payment of school bonds in the Trusts.
General problems relating to college and university obligations
would include the prospect of a declining percentage of the population
consisting of "college" age individuals, possible inability to
raise tuitions and fees sufficiently to cover increased operating
costs, the uncertainty of continued receipt of Federal grants
and state funding and new government legislation or regulations
which may adversely affect the revenues or costs of such issuers.
All of such issuers have been experiencing certain of these problems
in varying degrees.
Certain of the Bonds in the Trusts may be obligations which are
payable from and secured by revenues derived from the operation
of resource recovery facilities. Resource recovery facilities
are designed to process solid waste, generate steam and convert
steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of
certain circumstances, including but not limited to: destruction
or condemnation of a project; contracts relating to a project
becoming void, unenforceable or impossible to perform; changes
in the economic availability of raw materials, operating supplies
or facilities necessary for the operation of a project or technological
or other unavoidable changes adversely affecting the operation
of a project; administrative or judicial actions which render
contracts relating to the projects void, unenforceable or impossible
to perform; or, impose unreasonable burdens or excessive liabilities.
The Sponsor cannot predict the causes or likelihood of the redemption
of resource recovery bonds in the Trusts prior to the stated maturity
of the Bonds.
Interest on certain of the Bonds in certain Arkansas, 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, Kansas, Maine, Mississippi and Nebraska
Trusts is an AMT preference item, certain Arkansas, 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 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 and sinking fund provisions described in the section
in Part One for each Trust entitled "Portfolio" or pursuant to
special or extraordinary redemption provisions. 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 refunding is
a method by which a bond issue is redeemed, at or before maturity,
by the proceeds of a new bond issue. 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
Page 9
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. Generally, events
that may permit the extraordinary optional redemption of Bonds
or may require mandatory redemption of Bonds include, among others:
a final determination that the interest on the Bonds is taxable;
the substantial damage or destruction by fire or other casualty
of the project for which the proceeds of the Bonds were used;
an exercise by a local, state or Federal governmental unit of
its power of eminent domain to take all or substantially all of
the project for which the proceeds of the Bonds were used; changes
in the economic availability of raw materials, operating supplies
or facilities or technological or other changes which render the
operation of the project, for which the proceeds of the Bonds
were used, uneconomic; changes in law or an administrative or
judicial decree which renders the performance of the agreement
under which the proceeds of the Bonds were made available to finance
the project impossible or which creates unreasonable burdens or
which imposes excessive liabilities, such as taxes, not imposed
on the date the Bonds are issued on the issuer of the Bonds or
the user of the proceeds of the Bonds; an administrative or judicial
decree which requires the cessation of a substantial part of the
operations of the project financed with the proceeds of the Bonds;
an overestimate of the costs of the project to be financed with
the proceeds of the Bonds resulting in excess proceeds of the
Bonds which may be applied to redeem Bonds; or an underestimate
of a source of funds securing the Bonds resulting in excess funds
which may be applied to redeem Bonds. See also the discussion
of single family mortgage and multi-family mortgage revenue bonds
above for more information on the call provisions of such bonds.
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.
To the extent that any Units of a Trust are redeemed by the Trustee,
the fractional undivided interest in such Trust represented by
each unredeemed Unit will increase, although the actual interest
in such Trust represented by such fraction will remain substantially
unchanged. Units will remain outstanding until redeemed upon tender
to the Trustee by any Unit holder, which may include the Sponsor,
or until the termination of the Trust Agreement.
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 the Estimated Net Annual Interest Income per Unit or
the Public Offering Price 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
Page 10
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 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 takes into account
the amortization of premiums and the accretion of discounts) and
estimated retirements of all of the Bonds in the Trust; (2) takes
into account the expenses and sales charge associated with each
Unit of a Trust; and (3) takes into effect the tax-adjusted yield
from potential capital gains at the Date of Deposit. 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.
Record Dates for the distribution of interest under the semi-annual
distribution plan (if applicable) are the fifteenth day of June
and December with the Distribution Dates being the first day of
the month following each Record Date. It is anticipated that an
amount equal to approximately one-half of the amount of net annual
interest income per Unit will be distributed on or shortly after
each Distribution Date to Unit holders of record on the preceding
Record Date. See Part One for each Trust.
Record Dates for monthly distributions are the fifteenth day of
each month. Record Dates for quarterly distributions (if applicable)
are the fifteenth day of March, June, September and December.
The Distribution Dates for distributions of interest under the
monthly and quarterly distribution plans are as indicated in Part
One. All Unit holders will receive the first distribution of interest
regardless of the plan of distribution chosen and all Unit holders
will receive such distributions, if any, from the Principal Account
as are made as of the Record Dates for monthly distributions.
See Part One for each 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.
Page 11
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?"
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 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 the
Trust (see Part One 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,
beginning with Series 25 and subsequent Series, 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
Page 12
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 the
principal of the Bond or the interest on a Bond, any acceleration
of payment, unless such acceleration is at the sole option of
Financial Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent
on the date such principal or interest becomes due for payment
or on the business day next following the day on which Financial
Guaranty shall have received notice of nonpayment, whichever is
later. The Fiscal Agent will disburse to the Trustee the face
amount of principal and interest which is then due for payment
but is unpaid by reason of nonpayment by the issuer but only upon
receipt by the Fiscal Agent of (i) evidence of the Trustee's right
to receive payment of the principal or interest due for payment
and (ii) evidence, including any appropriate instruments of assignment,
that all of the rights to payment of such principal or interest
due for payment shall thereupon vest in Financial Guaranty. Upon
such disbursement, Financial Guaranty shall become the owner of
the Bond, appurtenant coupon or right to payment of principal
or interest on such Bond and shall be fully subrogated to all
of the Trustee's rights thereunder, including the right to payment
thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained
by an Insured Trust has the right to obtain permanent insurance
with respect to such Bond (i.e., insurance to maturity of the
Bonds regardless of the identity of the holder thereof) (the "Permanent
Insurance") upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. Accordingly,
any Bond in an Insured Trust is eligible to be sold on an insured
basis. It is expected that the Trustee will exercise the right
to obtain Permanent Insurance only if upon such exercise the Insured
Trust would receive net proceeds (sale of Bond proceeds less the
insurance premium attributable to the Permanent Insurance ) from
such sale in excess of the sale proceeds if such Bonds were sold
on an uninsured basis. The insurance premium with respect to each
Bond eligible for Permanent Insurance is determined based upon
the insurability of each Bond as of the 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
("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, 1993, the total capital and surplus of Financial
Guaranty was approximately $777,000,000. 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 is (212) 312-3000) or to the New York State
Insurance Department at 160 West Broadway, 18th Floor, New York,
New York 10013, Attention: Properties Companies Bureau (telephone
number is (212) 602-0389).
In addition, Financial Guaranty is currently authorized to write
insurance in all fifty states and in 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
Page 13
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.
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 company,
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 $1,936,000,000 (unaudited)
and statutory capital of approximately $1,096,000,000 (unaudited)
as of September 30, 1993. 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 Corporation 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.
Page 14
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 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 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.
Municipal Bond Investors Assurance Corporation. Municipal Bond
Investors Assurance 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 a limited liability corporation rather than a several liability
association. MBIA Corporation is domiciled in the State of New
York and licensed to do business in all fifty states, the District
of Columbia and the Commonwealth of Puerto Rico.
As of December 31, 1992 MBIA had admitted assets of $2.6 billion
(audited), total liabilities of $1.7 billion (audited), and total
capital and surplus of $896 million (audited) determined in accordance
with statutory accounting
Page 15
practices prescribed or permitted by insurance regulatory authorities.
As of September 30, 1993, MBIA had admitted assets of $3.0 billion
(unaudited), total liabilities of $2.0 billion (unaudited), and
total capital and surplus of $951 million (unaudited) determined
in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA Corporation
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 know 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, Inc. 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 Corporation rates
all new issues insured by MBIA "AAA."
Capital Guaranty Insurance Company. Capital Guaranty Insurance
Company ("Capital Guaranty") is a "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland, and is
a wholly owned subsidiary of Capital Guaranty Corporation, a Maryland
insurance holding company. Capital Guaranty Corporation is a publicly
owned company whose shares are traded on the New York Stock Exchange.
Capital Guaranty is authorized to provide insurance in 49 states,
the District of Columbia and three U.S. territories. Capital Guaranty
focuses on insuring municipal securities, and its policies guaranty
the timely payment of principal and interest when due for payment
on new issue and secondary market issue municipal bond transactions.
Capital Guaranty's claims-paying ability is rated "Triple-A" by
both Moody's Investors Service, Inc. and Standard & Poor's Corporation.
As of September 30, 1993, Capital Guaranty had $13.6 billion in
net exposure outstanding. The total statutory policyholders' surplus
and contingency reserve of Capital Guaranty was $181,383,432 (unaudited)
and the total admitted assets were $270,021,126 (unaudited) as
reported to the Insurance Department of the State of Maryland
as of September 30, 1993. The address of Capital Guaranty's headquarters
and its telephone number are Steuart Tower, 22nd Floor, One Market
Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance
company which engages only in the business of financial guarantee
and surety insurance. CapMAC is licensed in 49 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and
the territory of Guam. CapMAC insures structured asset-backed,
corporate and other financial obligations in the domestic and
foreign capital markets. CapMAC may also provide financial guarantee
reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation
("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.
Page 16
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 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, 1992 and 1991, CapMAC had statutory capital
and surplus of approximately $148 million and $232 million, respectively,
and had not incurred any debt obligations. On June 26, 1992, CapMAC
made a special distribution (the "Distribution") to Holdings in
connection with the Sale in an aggregate amount that caused the
total of CapMAC's statutory capital and surplus to decline to
approximately $150 million. Holdings applied substantially all
of the proceeds of the Distribution to repay debt owed to Citicorp
that was incurred in connection with the capitalization of CapMAC.
As of June 30, 1992, CapMAC had statutory capital and surplus
of approximately $150 million and had not incurred any debt obligations.
In addition, on December 31, 1992 CapMAC had a statutory contingency
reserve of approximately $15 million, which is also available
to cover claims under surety bonds issued by CapMAC. Article 69
of the New York State Insurance Law requires that CapMAC establishes
and maintains the contingency reserve.
In addition to its capital (including contingency reserve) and
other reinsurance available to pay claims under its surety bonds,
on June 25, 1992, CapMAC entered into a Stop Loss Reinsurance
Agreement (the "Stop Loss Agreement") with Winterthur Swiss Insurance
Company (the "Reinsurer"), which is rated AAA by
Page 17
Standard & Poor's and Aaa by Moody's, pursuant to which the Reinsurer
will be required to pay any losses incurred by CapMAC during the
term of the Stop Loss Agreement on the surety bonds covered under
the Stop Loss Agreement in excess of a specified amount of losses
incurred by CapMAC under such surety bonds (such specified amount
initially being $100 million and increasing annually by an amount
equal to 66 2/3% of the increase in CapMAC's statutory capital
and surplus) up to an aggregate limit payable under the Stop Loss
Agreement of $50 million. The Stop Loss Agreement has an initial
term of seven years, is extendable for one-year periods and is
subject to early termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of
banks rated A1+/P1 by Standard & Poor's and Moody's, respectively,
having a term of 360 days. Under the Liquidity Facility CapMAC
will be able, subject to satisfying certain conditions, to borrow
funds from time to time in order to enable it to fund any claim
payments or payments made in settlement or mitigation of claims
payments under its surety bonds, including the Surety Bond(s).
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 ("Financial
Security") is a monoline insurance company incorporated on March
16, 1984 under the laws of the State of New York. The operations
of Financial Security commenced on July 25, 1985, and Financial
Security received its New York State insurance license on September
23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to engage in financial guaranty insurance business
in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively
in the business of writing financial guaranty insurance, principally
in respect of asset-backed and other collateralized securities
offered in domestic and foreign markets. Financial Security and
its subsidiaries also write financial guaranty insurance in respect
of municipal and other obligations and reinsure financial guaranty
insurance policies written by other leading insurance companies.
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 is approximately 91.6% owned by US West, Inc.
and 8.4% owned by The Tokio Marine and Fire Insurance Co., Ltd.
("Tokio Marine"). US West, Inc. operates businesses involved in
communications, data solutions, marketing services and capital
assets, including the provision of telephone services in 14 states
in the western and mid-western United States. Tokio Marine is
the largest property and casualty insurance company in Japan.
No shareholder of Financial Security is obligated to pay any debt
of Financial Security or any claim under any insurance policy
issued by Financial Security or to make any additional contribution
to the capital of Financial Security.
As of March 31, 1993, 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
$479,110,000 (unaudited) and $220,078,000 (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
$628,119,000 (unaudited), and $202,493,000 (unaudited). Copies
of Financial Security's financial statements may be obtained by
writing to Financial Security at 350 Park Avenue, New York, New
York, 10022, Attention Communications Department. Financial Security's
telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written by Financial Security of either of
its subsidiaries 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 reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with
unaffiliated reinsurers under various quota share treaties and
on a transaction-by-transaction
Page 18
basis. Such reinsurance is utilized by Financial Security as a
risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial
Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Corporation,
Nippon Investors Service Inc., Duff & Phelps Inc. and Australian
Ratings 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"), 2445 M Street, N.W., Washington D.C. 20037, is a stock
insurance company incorporated in Wisconsin and a wholly-owned
subsidiary of College Construction Loan Insurance Association
("CCLIA"), a District of Columbia insurance holding company. As
of September 30, 1993, the total policyholders' surplus of Connie
Lee was approximately $104,000,000 (unaudited) and total admitted
assets were approximately $173,000,000 (unaudited), as reported
to the Commissioner of Insurance of the State of Wisconsin.
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 Corporation has assigned to units of
each Insured Trust its "AAA" investment rating. This is the highest
rating assigned to securities by Standard & Poor's Corporation.
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 Corporation or
as a guarantee of the market value of each Insured Trust or the
Units of such Trust. Standard & Poor's has indicated that this
rating is not a recommendation to buy, hold or sell Units nor
does it take into account the extent to which expenses of each
Trust or sales by each Trust of Bonds for less than the purchase
price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds.
There is no guarantee that the "AAA" investment rating with respect
to the Units of an Insured Trust will be maintained.
An objective of portfolio insurance obtained by such Insured Trust
is to obtain a higher yield on the Bonds in the portfolio of such
Trust than would be available if all the Bonds in such portfolio
had the Standard & Poor's Corporation "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 Corporation
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 Corporation or "Aaa" by Moody's Investors Service, Inc.
In selecting Bonds for the portfolio of each Insured Trust, the
Sponsor has applied the criteria hereinbefore described.
Chapman and Cutler, Counsel for the Sponsor, has given an opinion
(if applicable) to the effect that the payment of insurance proceeds
representing maturing interest on defaulted municipal obligations
paid by Financial Guaranty or another insurer would be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations. See "What is the Federal Tax Status
of Unit Holders?" appearing in Part Three of each Trust.
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?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing the Fund, including the cost of the
initial preparation, printing and execution of the Indenture and
the certificates for the Units, legal and accounting expenses,
expenses of the Trustee and other out-of-pocket expenses. The
Sponsor will not receive any fees in connection with its activities
relating to any Trust. However, 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
Page 19
services for the Trust. Such fee is based on the number of Units
outstanding in each Trust on January 1 of each year except for
Trusts which were established subsequent to the last January 1,
in which case the fee will be based on the number of Units outstanding
in such Trusts as of the respective Dates of Deposit. The fee
may exceed the actual costs of providing such supervisory services
for this Fund, but at no time will the total amount received for
portfolio supervisory services rendered to unit investment trusts
of which Nike Securities L.P. is the Sponsor in any calendar year
exceed the aggregate cost to First Trust Advisors L.P. of supplying
such services in such year.
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. Both fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases
under the category "All Services Less Rent of Shelter" in the
Consumer Price Index published by the United States Department
of Labor.
The 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 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
Page 20
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 TURSTEE. 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 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 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:
Page 21
<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 and officers (including their immediate
families and trustees, custodians or a fiduciary for the benefit
of such person) of Nike Securities L.P., the sales charge is reduced
by 2% of the Public Offering Price for purchases of Units during
the secondary offering period.
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer except that with respect to purchases
of Units of $500,000 or more, the Sponsor will reimburse the selling
Underwriter or dealer in an amount equal to $2.50 per Unit (in
the case of a Discount Trust, .25% of the Public Offering Price).
The reduced sales charge structure will apply on all purchases
of Units in a Trust by the same person on any one day from any
one Underwriter or dealer and, for purposes of calculating the
applicable sales charge, purchases of Units in the Fund will be
aggregated with concurrent purchases by the same person from such
Underwriter or dealer of units in any series of tax-exempt unit
investment trusts sponsored by Nike Securities L.P. Additionally,
Units purchased in the name of the spouse of a purchaser or in
the name of a child of such purchaser will be deemed, for the
purpose of calculating the applicable sales charge, to be additional
purchases by the purchaser. The reduced sales charges will also
be applicable to a trustee or other fiduciary purchasing securities
for a single trust estate or single fiduciary account.
Underwriters, dealers and others who, in a single month, sell
Units of any Series of The First Trust GNMA, The First Trust of
Insured Municipal Bonds, The First Trust Combined Series or any
other unit investment trust of which Nike Securities L.P. is the
Sponsor (the "UIT Units"), which sale of UIT Units are in the
aggregate following dollar amounts, will receive additional concessions
as indicated in the following table:
Page 22
<TABLE>
<CAPTION>
Aggregate Monthly
Dollar Amount of
UIT Units Sold at Additional Concession
Public Offering Price (per $1,000 sold)
_____________________ _____________________
<S> <C>
$1,000,000 - $2,499,999 $ .50
$2,500,000 - $4,999,999 $1.00
$5,000,000 - $7,499,999 $1.50
$7,500,000 - $9,999,999 $2.00
$10,000,000 - or more $2.50
</TABLE>
Aggregate Monthly Dollar Amount of UIT Units Sold at Public Offering
Price is based on settled trades for a month, net of redemptions,
and excludes trades without a sales charge at net asset value.
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.
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
whomever from time to time is acting as evaluator (the "Evaluator"),
on the basis of bid prices or offering prices as is appropriate,
(1) on the basis of current market prices for the Bonds obtained
from dealers or brokers who customarily deal in bonds comparable
to those held by the Trust; (2) if such prices are not available
for any of the Bonds, on the basis of current market prices for
comparable bonds; (3) by determining the value of the Bonds by
appraisal; or (4) by any combination of the above. Unless Bonds
are in default in payment of principal or interest or, in the
Sponsor's opinion, in significant risk of such default, the Evaluator
will not attribute any value to the insurance obtained by an Insured
Trust. On the other hand, the value of insurance obtained by the
issuer of Bonds in a Trust is reflected and included in the market
value of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are
in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds")
and which are covered by insurance obtained by an Insured Trust,
the value of the insurance guaranteeing interest and principal
payments. The value of the insurance will be equal to the difference
between (i) the market value of Defaulted Bonds assuming the exercise
of the right to obtain Permanent Insurance (less the insurance
premium
Page 23
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. For a description of the circumstances under which a
full or partial suspension of the right of Unit holders to redeem
their Units may occur, see "Rights of Unit Holders-How May Units
be Redeemed?"
The Evaluator may be attributing value to insurance for the purpose
of computing the price or redemption value of Units for certain
previous series of the First Trust of Insured Municipal Bonds,
an investment company sponsored by Nike Securities L.P. See Part
One for further information with respect to whether value is being
attributed to insurance in determining the value of Units for
that series of the Fund.
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.
The secondary market Public Offering Price of the Units will be
equal to the bid price per Unit of the Bonds in the Trust, plus
(less) any balance (overdraft) in the principal cash account of
such Trust, plus the applicable sales charge and the amount of
Purchased Interest (if any).
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. 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 five business
days following such order or shortly thereafter. See "Rights of
Unit Holders-How May Units Be Redeemed?" for information regarding
the ability to redeem Units ordered for purchase.
How are Units Distributed?
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,
but 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 second preceding sentence. Under the Glass-Steagall
Act, banks are prohibited from underwriting Fund 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.
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?"
Page 24
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.
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?
Interest from each Trust will be distributed on the dates specified
in Part One on a pro rata basis to Unit holders of record as of
the preceding Record Date who are entitled to distributions at
that time under the plan of distribution chosen. All distributions
for a Trust will be net of applicable expenses for such Trust.
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 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) nor 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
Page 25
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 as is consistent
with the distribution plan chosen. Because interest payments are
not received by a Trust at a constant rate throughout the year,
such interest distribution may be more or less than the amount
credited to the Interest Account of such Trust as of the Record
Date. For the purpose of minimizing fluctuations in the distributions
from the Interest Account of a Trust, the Trustee is authorized
to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. 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.
Record Dates for monthly distributions will be the fifteenth day
of each month, Record Dates for quarterly distributions (if applicable)
will be the fifteenth day of March, June, September and December
and Record Dates for semi-annual distributions (if applicable)
will be the fifteenth day of June and December. Distributions
will be made on the dates specified in Part One.
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 (assuming the Trust
has more than one distribution option) 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.
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, capital gains 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.
Page 26
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, including capital gains, 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 use the card attached
to this prospectus to request a prospectus describing each Series
and a form by which such person may elect to become a participant
in a Distribution Reinvestment Option with respect to a Series.
Each distribution of interest income or principal, including capital
gains, 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,
Page 27
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 seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading on the New York Stock Exchange, the date of tender
is the next day on which such Exchange is open for trading and
such Units will be deemed to have been tendered to the Trustee
on such day for redemption at the redemption price computed on
that day. Units so redeemed shall be cancelled.
Purchased Interest (if any) and other accrued interest to the
settlement date paid on redemption shall be withdrawn from the
Interest Account of the Trust or, if the balance therein is insufficient,
from the Principal Account of such Trust. All other amounts paid
on redemption shall be withdrawn from the Principal Account of
the Trust.
The Redemption Price per Unit (Public Offering Price) will be
determined on the basis of the bid price of the Bonds in the Trust
and the amount of Purchased Interest of a 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 the Trust
(1) on the basis of current bid prices of the Bonds obtained from
dealers or brokers who customarily deal in bonds comparable to
those held by such Trust, (2) on the basis of bid prices for bonds
comparable to any Bonds for which bid prices are not available,
(3) by determining the value of the Bonds by appraisal, or (4)
by any combination of the above. In determining the Redemption
Price per Unit for an Insured Trust, no value will be attributed
to the portfolio insurance covering the Bonds in such Trust unless
such Bonds are in default in payment of principal or interest
or in significant risk of such default. On the other hand, Bonds
insured under a policy obtained by the Bond issuer, the underwriters,
the Sponsor or others are entitled to the benefits of such insurance
at all times and such benefits are reflected and included in the
market value of such Bonds. See "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.
Page 28
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 Trustee may obtain Permanent Insurance on the
Bonds in an Insured Trust. Accordingly, any Bonds so insured must
be sold on an insured basis (as will Bonds on which insurance
has been obtained by the Bond issuer, the underwriters, the Sponsor
or others).
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.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Bonds in each
Trust on a list furnished by the Sponsor as the Trustee in its
sole discretion may deem necessary. 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 "Rights of Unit Holders-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
Page 29
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 $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,743,032 (audited). (This paragraph relates only to
the Sponsor and not to the Trust or to any series thereof or to
any other Underwriter. The information is included herein only
for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Fund may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the Securities. For information relating to
the responsibilities of the Trustee under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
30 days after notification, the retiring trustee may apply to
a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only
when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
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
Page 30
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 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
Page 31
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, will act 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 the section of the Prospectus describing
the state tax status of Unit holders appearing herein.
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, 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.
DESCRIPTION OF BOND RATINGS*
*As published by the rating companies.
Standard & Poor's Corporation. A brief description of the applicable
Standard & Poor's Corporation 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.**
**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 Corporation.
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.
Page 32
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category
than for bonds in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The
investor should exercise his/her own judgment with respect to
such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit
ratings. A listing, however, does not mean a rating change is
inevitable. Since S&P continuously monitors all of its ratings,
Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit
Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds 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.
Page 33
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.
Page 34
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Page 35
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
The First Trust Combined Series:
What is The First Trust Combined Series? 3
What are Estimated Long-Term Return and
Estimated Current Return? 10
How are Purchased Interest and Accrued
Interest Treated? 11
Why and How are the Insured Trusts Insured? 12
What is the Federal Tax Status of Unit Holders? 19
What are the Expenses and Charges? 20
Public Offering:
How is the Public Offering Price Determined? 21
How are Units Distributed? 24
What are the Sponsor's Profits? 24
Rights of Unit Holders:
How are Certificates Issued and Transferred? 25
How are Interest and Principal Distributed? 25
How can Distributions to Unit Holders be
Reinvested? 26
What Reports will Unit Holders Receive? 27
How May Units be Redeemed? 28
How May Units be Purchased by the Sponsor? 29
How May Bonds be Removed from the Fund? 29
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 30
Who is the Trustee? 30
Limitations on Liabilities of Sponsor and Trustee 30
Who is the Evaluator? 31
Other Information:
How May the Indenture be Amended or
Terminated? 31
Legal Opinions 32
Experts 32
Description of Bond Ratings 32
</TABLE>
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
March 31, 1994
First Trust registered trademark
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
AND PART THREE.
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE
Page 36
Pennsylvania Trust Series
The First Trust Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1994 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. 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. (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.) It should be noted that under provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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. Tax-exempt interest received
by each of the Trusts on Bonds deposited therein will retain its
status as tax-exempt interest, for Federal income tax purposes,
when distributed to a Unit holder except that the alternative
minimum tax and the environmental tax (the "Superfund Tax") applicable
to corporate Unit holders may, in certain circumstances, include
in the amount on which such tax is calculated, 75% of the interest
income received by the Trust. See "Certain Tax Matters Applicable
to Corporate Unit Holders";
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code") and will have a taxable event when the Trust disposes
of a Bond, or when the Unit holder redeems or sells his Units.
Unit holders must reduce the tax basis of their Units for their
share of accrued interest
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
received, if any, on Bonds delivered after the date the Unit holders
pay for their Units and, consequently, such Unit holders may have
an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee
disposes of Bonds (whether by sale, payment on maturity, redemption
or otherwise), gain or loss is recognized to the Unit holder.
The amount of any such gain or loss is measured by comparing the
Unit holder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed
of. In the case of a Unit holder who purchases his Units, such
basis is determined by apportioning the tax basis for the Units
among each of the Trust assets ratably according to value as of
the date of acquisition of the Units. The basis of each Unit and
of each Bond which was issued with original issue discount must
be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by a Trust at a premium must be reduced by the annual amortization
of Bond premium. The tax cost reduction requirements of said Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
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 compounded 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 accrued 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. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
appearing in Part One for each Trust for information relating
to Bonds, if any, issued at an original issue discount.
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). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities, or persons related thereto,
for periods while such securities are held by such a user or related
person, will not be excludable from Federal gross income, although
interest on such securities received by others would be excludable
from Federal gross income. "Substantial user" and "related person"
are defined under 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 Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"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 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. THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
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. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding 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). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Page 3
Unit holders are urged to consult their own 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.
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 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 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 will be subject to Pennsylvania Personal
Income Tax and, for residents of Philadelphia, to Philadelphia
School District Investment Income Tax. For Unit holders which
are corporations, the distributed gains will be subject to Corporate
Net Income Tax or Mutual Thrift Institutions Tax. Gains which
are not distributed by a Pennsylvania Trust will nevertheless
be taxable to Unit holders if derived by a Pennsylvania Trust
from the sale, exchange or other disposition
Page 4
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. However, for gains from the sale, exchange or other disposition
of these Bonds to be taxable under the Philadelphia School District
Investment Income Tax, the Bonds must be held for six months or
less; and
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.
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. The major new 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 $3.5 billion in crop and livestock products
annually, while agribusiness and food related industries support
$38 billion in economic activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1
percent during the recessionary period from 1980 to 1983. In 1984,
the declining trend was reversed as employment grew by 2.9 percent
over 1983 levels. From 1983 to 1990, Commonwealth employment continued
to grow each year, increasing an additional 14.3 percent. For
the last two years, unemployment in the Commonwealth has declined
1.9 percent. The growth in employment experienced in Pennsylvania
is comparable to the growth in employment in the Middle Atlantic
Region which has occurred during this period.
Back-to-back recessions in the early 1980s reduced the manufacturing
sector's employment levels moderately during 1980 and 1981, sharply
during 1982, and even further in 1983. Non-manufacturing employment
has increased steadily since 1980 to its 1992 level of 81.3 percent
of total Commonwealth employment. Consequently, manufacturing
employment constitutes a diminished share of total employment
within the Commonwealth. Manufacturing, contributing 18.7 percent
of 1992 non-agricultural employment, has fallen behind both the
services sector and the trade sector as the largest single source
of employment within the Commonwealth. In 1992 the services sector
accounted for 29.3 percent of all non-agricultural employment
while the trade sector accounted for 22.7 percent.
From 1983 to 1989, Pennsylvania's annual average unemployment
rate dropped from 11.8 percent to 4.5 percent, 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 percent in 1991 and 7.5
percent in 1992. As of February 1994, the seasonally adjusted
unemployment rate for the Commonwealth was 5.1 percent compared
to 6.5 percent for the United States.
The five-year period from fiscal 1989 through fiscal 1993 was
marked by public health and welfare costs growing at a rate double
the growth for all the state expenditures. Rising case loads,
increased utilization of services and rising prices joined to
produce the rapid rise of public health and welfare costs at a
time when a national recession caused tax revenues to stagnate
and even decline. During the period from fiscal 1989 through fiscal
1993, public health and welfare costs rose by an average annual
rate of 10.9 percent while tax revenues were growing at an average
rate of 5.5 percent. Consequently, spending on other budget programs
was restrained to a growth rate below 5.0 percent and sources
of revenues other than taxes became larger components of fund
revenues. Among those sources are transfers from other funds and
hospital and nursing home pooling of contributions to use as federal
matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession
in the economy. A $2.7 billion tax increase enacted for fiscal
1992 brought financial stability to the General Fund. That tax
increase included several
Page 5
taxes with retroactive effective dates which generated some one-time
revenues during fiscal 1992. The absence of those revenues in
fiscal 1993 contributed to the decline in tax revenues shown for
fiscal 1993.
It should be noted that the creditworthiness of obligations issued
by local Pennsylvania issuers may be unrelated to the creditworthiness
of obligations issued by the Commonwealth of Pennsylvania, and
there is no obligation on the part of the Commonwealth to make
payment on such local obligations in the event of default.
Financial information for the General Fund is maintained on a
budgetary basis of accounting. A budgetary basis of accounting
is used for the purpose of ensuring compliance with the enacted
operating budget and is governed by applicable statutes of the
Commonwealth and by administrative procedures. The Commonwealth
also prepares annual financial statements in accordance with generally
accepted accounting principles ("GAAP"). The budgetary basis financial
information maintained by the Commonwealth to monitor and enforce
budgetary control is adjusted at fiscal year-end to reflect appropriate
accruals for financial reporting in conformity with GAAP.
Fiscal 1991 Financial Results. GAAP Basis: During fiscal 1991
the General Fund experienced an $861.2 million operating deficit
resulting in a fund balance deficit of $980.9 million at June
30, 1991. The operating deficit was a consequence of the effect
of a national recession that restrained budget revenues and pushed
expenditures above budgeted levels. At June 30, 1991, a negative
unreserved-undesignated balance of $1,146.2 million was reported.
During fiscal 1991, the balance in the Tax Stabilization Reserve
Fund was used to maintain vital state spending.
Budgetary Basis: A deficit of $453.6 million was recorded by the
General Fund at June 30, 1991. The deficit was a consequence of
higher-than-budgeted expenditures and lower-than-estimated revenues
during the fiscal year brought about by the national economic
recession that began during the fiscal year. The budgetary basis
deficit at June 30, 1991 was carried into the 1992 fiscal year
and funded in the fiscal 1992 budget. A number of actions were
taken throughout the fiscal year by the Commonwealth to mitigate
the effects of the recession on budget revenues and expenditures.
Actions taken, together with normal appropriation lapses, produced
$871 million in expenditure reductions and revenue increases for
the fiscal year. The most significant of these actions were a
$214 million transfer from the Pennsylvania Industrial Development
Authority, a $134 million transfer from the Tax Stabilization
Reserve Fund, and a pooled financing program to match federal
Medicaid funds replacing $145 million of state funds.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992
the General Fund reported a $1.1 billion operating surplus. This
operating surplus was achieved through legislated tax rate increases
and tax base broadening measures enacted in August 1991 and by
controlling expenditures through numerous cost reduction measures
implemented throughout the fiscal year. As a result of the fiscal
1992 operating surplus, the fund balance has increased to $87.5
million and the unreserved-undesignated deficit has dropped to
$138.6 million from its fiscal 1991 level of $1,146.2 million.
Budgetary Basis: Eliminating the budget deficit carried into fiscal
1992 from fiscal 1991 and providing revenues for fiscal 1992 budgeted
expenditures required tax revisions that are estimated to have
increased receipts for the 1992 fiscal year by over $2.7 billion.
Total revenues for the fiscal year were $14,516.8 million, a $2,654.5
million increase over cash revenues during fiscal 1991. Originally
based on forecasts for an economic recovery, the budget revenue
estimates were revised downward during the fiscal year to reflect
continued recessionary economic activity. Largely due to the tax
revisions enacted for the budget, corporate tax receipts totalled
$3,761.2 million, up from $2,656.3 million in fiscal 1991, sales
tax receipts increased by $302 million to $4,499.7 million, and
personal income tax receipts totalled $4,807.4 million, an increase
of $1,443.8 million over receipts in fiscal 1991.
As a result of the lowered revenue estimate during the fiscal
year, increased emphasis was placed on restraining expenditure
growth and reducing expenditure levels. A number of cost reductions
were implemented during the fiscal year and contributed to $296.8
million of appropriation lapses. These appropriation lapses
Page 6
were responsible for the $8.8 million surplus at fiscal year-end,
after accounting for the required ten percent transfer of the
surplus to the Tax Stabilization Reserve Fund.
Spending increases in the fiscal 1992 budget were largely accounted
for by increases for education, social services and corrections
programs. Commonwealth funds for the support of public schools
were increased by 9.8 percent to provide a $438 million increase
to $4.9 billion for fiscal 1992. The fiscal 1992 budget provided
additional funds for basic and special education and included
provisions designed to help restrain the annual increase of special
education costs, an area of recent rapid cost increases. Child
welfare appropriations supporting county operated child welfare
programs were increased $67 million, more than 31.5 percent over
fiscal 1991. Other social service areas such as medical and cash
assistance also received significant funding increases as costs
have risen quickly as a result of the economic recession and high
inflation rates of medical care costs. The costs of corrections
programs, reflecting the marked increase in the prisoner population,
increased by 12 percent. Economic development efforts, largely
funded from bond proceeds in fiscal 1991, were continued with
General Fund appropriations for fiscal 1992.
The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135 million
of Commonwealth funds, allowing total spending under the budget
to increase by an equal amount.
Fiscal 1993 Financial Results-GAAP Basis. The fund balance of
the General Fund increased by $611.4 million during the fiscal
year, led by an increase in the unreserved balance of $576.8 million
over the prior fiscal year balance. At June 30, 1993, the fund
balance totaled $698.9 and the unreserved/undesignated balance
totaled $64.4 million. A continuing recovery of the Commonwealth's
financial condition from the effects of the national economic
recession of 1990 and 1991 is demonstrated by this increase in
the balance and a return to a positive unreserved/undesignated
balance. The previous positive unreserved/undesignated balance
was recorded in fiscal 1987. For the second consecutive fiscal
year the increase in the unreserved/undesignated balance exceeded
the increase recorded in the budgetary basis unappropriated surplus
during the fiscal year.
Budgetary Basis. The 1993 fiscal year closed with revenues higher
than anticipated and expenditures about as projected, resulting
in an ending unappropriated balance surplus (prior to the ten
percent transfer to the Tax Stabilization Reserve Fund) of $242.3
million, slightly higher than estimated in May 1993. Cash revenues
were $41.5 million above the budget estimate and totaled $14.633
billion representing less than a one percent increase over revenues
for the 1992 fiscal year. A reduction in the personal income tax
rate in July 1992 and revenues from retroactive corporate tax
increases received in fiscal 1992 were responsible, in part, for
the low revenue growth in fiscal 1993.
Appropriations less lapses totaled an estimated $513.870 billion
representing a 1.1 percent increase over those during fiscal 1992.
The low growth in spending is a consequence of a low rate of revenue
growth, significant one-time expenses during fiscal 1992, increased
tax refund reserves to cushion against adverse decisions on pending
litigations, and the receipt of federal funds for expenditures
previously paid out of Commonwealth funds.
By state statute, ten percent of the budgetary basis unappropriated
surplus at the end of a fiscal year is to be transferred to the
Tax Stabilization Reserve Fund. The transfer for the fiscal 1993
balance is $24.2 million. The remaining unappropriated surplus
of $218.0 million was carried forward into the 1994 fiscal year.
Fiscal 1994 Budget (Budgetary Basis). The enacted 1994 fiscal
year budget provides for $14.995 billion of appropriations of
Commonwealth funds. The largest increase in appropriations is
the Department of Public Welfare-$235 million-to meet the increasing
costs of medical care and rising case loads. Other large increases
are eduction-$196 million-including $129 million to increase state
educational subsidies for the most needy school districts and
$104 million for correctional institutions to pay operating costs
and lease payments for five new prisons and to expand the capacity
of two existing facilities.
The continuing rise in medical assistance costs cannot be met
from the resources provided by a much slower growing tax revenue
base. Consequently, program and financial changes must be implemented
to keep costs within budget limits. For fiscal 1994, the Commonwealth
plans to save $247 million by receiving federal
Page 7
reimbursement for hospital services provided to state general
assistance recipients. Prior to this time, those costs were fully
paid by the Commonwealth. In addition, the Commonwealth will continue
to use pooled financing for medical assistance costs using intergovernmental
transfers in place of voluntary contributions as was done in earlier
fiscal years. Through the pooled financing, additional federal
reimbursements may be drawn to support the medical assistance
program. The pooled financing is anticipated to replace $99 million
of Commonwealth funds in the 1994 fiscal year budget.
The budget estimates revenue growth of 3.7 percent over fiscal
1993 actual revenues. The revenue estimate is based on an expectation
of continued economic recovery, but at a slow rate. Sales tax
receipts are projected to rise 4.4 percent over 1993 receipts
while personal income tax receipts are projected to increase by
3.3 percent, a rate that is low because of the tax rate reduction
in July 1992.
In February 1994, the Governor recommended $46.4 million of additional
appropriations be enacted for fiscal 1994, raising total appropriations
to $15,041.7 million. The largest increase in additional appropriations
is $27.3 million to make audit payments to the federal Department
of Health and Human Services. No change to the aggregate commonwealth
revenue estimate was made although individual tax estimates have
been revised to reflect actual receipts to date and the tax refund
estimate was reduced to reflect a favorable ruling in Philadelphia
Suburban Corp. vs. Commonwealth. Through February 1994, revenues
are slightly ($1.1million or 0.01 percent) above estimate as below
estimate corporate tax receipts are being offset by above estimate
sales tax, personal income tax and non-tax revenue receipts.
Upon completion of a review of actual expenditures and revised
estimates for the remainder of fiscal 1994, lapses of current
and prior years' appropriations are projected to be $163.0 million.
The projected lapses and the beginning unappropriated surplus
contribute to a projected ending unappropriated surplus of $296.8
million before the required ten percent transfer to the Tax Stabilization
Reserve Fund.
Proposed Fiscal 1995 Budget. For the fiscal year beginning July
1, 1994, the Governor has proposed a budget containing a 4.1 percent
increase in appropriations over the actual and proposed supplemental
appropriations for fiscal 1994. Total appropriations recommended
amount to $15,665 million. The budget is balanced by drawing down
of a projected $267 million unappropriated surplus for fiscal
1994. The fastest growing portion of the budget continues to be
medical assistance which is proposed to receive the largest increase,
$264 million or 42.4 percent of the proposed net increase in spending.
Other program areas budgeted to receive major increases are education-$165
million-and corrections-$126 million. The proposed budget recommends
a tightening of eligibility criteria for state-financed welfare
benefits as a cost reduction measure. Those individuals not meeting
the revised criteria would only qualify for 60 days of cash grants
in a two-year period.
The Governor's proposal also includes a recommended reduction
in the corporate net income tax rate from 12.25 percent to 9.99
percent over a three-year period. The corporate tax cut and a
proposed increase in poverty exemption for the personal income
tax are estimated to cost $124.7 million in fiscal 1995.
The recommended budget includes Commonwealth revenue growth of
4.7 percent without the effect of the proposed tax reduction.
The revenue estimate is based on the expectation of a continued
slow national economic recovery and continued economic growth
of the Pennsylvania economy at a rate slightly below the national
rate. Total estimate Commonwealth revenue, adjusted for refunds
and the proposed tax reduction, is $15,400 million.
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.
Page 8
For the fiscal year ending June 30, 1991, Philadelphia experienced
a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992, place
the Cumulative General Fund balance deficit at $224.9.
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 6, 1992.
Full implementation of the five-year plan was delayed due to labor
negotiations that were not completed until October 1992, three
months after the expiration of the old labor contracts. The terms
of the new labor contracts are estimated to cost approximately
$144.0 million more than what was budgeted in the original five-year
plan. An amended five-year plan was approved by PICA in May 1993.
The audit findings show a surplus of approximately $3 million
for the fiscal year ending June 30, 1993. The fiscal 1994 budget
projects no deficit and a balanced budget for the year ending
June 30, 1994. The Mayor presented the latest update of the five-year
financial plan on January 13, 1994; it will be considered by PICA
in the spring of 1994.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue
Bonds to provide financial assistance to Philadelphia and to liquidate
the cumulative General Fund balance deficit. In July 1993, PICA
issued $643,430,000 of Special Tax Revenue Bonds to refund certain
general obligation bonds of the city and to fund additional capital
projects.
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. Any explanation concerning the significance
of such ratings must be obtained from the rating agencies. There
is no assurance that any ratings will continue for any period
of time or that they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of
some of the financial difficulties which may impact certain issuers
of bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of the Bonds in
a Pennsylvania Trust are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of Bonds, could
have an adverse impact on the financial condition of the State
and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent
such factors or other factors may affect the issuers of Bonds,
the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by a Pennsylvania
Trust to pay interest on or principal of the Bonds.
Page 9
Pennsylvania Trust Series
The First Trust Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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 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, 1994 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. 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. (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.) It should be noted that under provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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. Tax-exempt interest received
by each of the Trusts on Bonds deposited therein will retain its
status as tax-exempt interest, for Federal income tax purposes,
when distributed to a Unit holder except that (i) interest income
on certain Bonds in certain Kansas Trusts will be included as
an item of tax preference in calculating the Alternative Minimum
Tax applicable to both individuals and corporations and (ii) the
alternative minimum tax and the environmental tax (the "Superfund
Tax") applicable to corporate Unit holders may, in certain circumstances,
include in the amount on which such tax is calculated, 75% of
the interest income received by the Trust. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code")
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
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, if any, on Bonds delivered after the date the
Unit holders pay for their Units and, consequently, such Unit
holders may have an increase in taxable gain or reduction in capital
loss upon the disposition of such Units. Gain or loss upon the
sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units.
If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized
to the Unit holder. The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds
from such disposition with his basis for his fractional interest
in the asset disposed of. In the case of a Unit holder who purchases
his Units, such basis is determined by apportioning the tax basis
for the Units among each of the Trust assets ratably according
to value as of the date of acquisition of the Units. The basis
of each Unit and of each Bond which was issued with original issue
discount must be increased by the amount of accrued original issue
discount and the basis of each Unit and of each Bond which was
purchased by a Trust at a premium must be reduced by the annual
amortization of Bond premium. The tax cost reduction requirements
of said Code relating to amortization of bond premium may, under
some circumstances, result in the Unit holder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to
or less than his original cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
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 compounded 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 accrued 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. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
appearing in Part One for each Trust for information relating
to Bonds, if any, issued at an original issue discount.
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). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
Page 2
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities, or persons related thereto,
for periods while such securities are held by such a user or related
person, will not be excludable from Federal gross income, although
interest on such securities received by others would be excludable
from Federal gross income. "Substantial user" and "related person"
are defined under 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 Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"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 for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. EXCEPT AS OTHERWISE NOTED
IN PART ONE FOR CERTAIN KANSAS TRUSTS, THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
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. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding 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). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of
Page 3
corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Unit holders are urged to consult their own 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.
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, Special 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 a Kansas Trust, and the income and deductions
of a 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
Page 4
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 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.
Certain Considerations
Since the Fund will invest substantially all of its assets in
Kansas municipal securities, the Fund is susceptible to political
and economic factors affecting issuers of Kansas municipal securities.
According to the 1990 census, 2,477,574 people lived in Kansas,
representing a 4.8% increase over the 1980 census. Based on these
numbers, Kansas ranked thirty-second in the nation in population
size. During Fiscal Year 1993 (July 1, 1992 to June 30, 1993),
the population of Kansas reached 2,523,000 with a growth rate
projected at 1.1%.
Based on statistics provided by the Kansas Department of Commerce
& Housing, real personal income in Kansas grew at a rate of 3.9%
in 1992, and for calendar year 1993 the projected rate is 4.3%.
Both rates are slowed by the loss of high-paying manufacturing
jobs. Kansas ranks 20th in the United States in average per capita
income of $20,300.
In Fiscal Year 1993, non-farm wage and salary employment in Kansas
showed an increase of 37,100 jobs (3.3%) with a total of 1,142,500
persons employed. Despite heavy layoffs in the transportation
sector (a 10.6% loss), total manufacturing employment decreased
only 1%. Layoffs by major employers in the wholesale and retail
sectors were offset by general growth with an additional 6,800
jobs added during Fiscal Year 1993, a 2.4% increase. The service
sector added 5,400 jobs during this period. The unemployment rate
for calendar year 1992 was 4.2%, and the preliminary seasonally
adjusted rate for December 1993 was 4.8%.
Kansas continues to be among the nation's top agricultural states,
ranking first in wheat and sorghum production. The total value
of crops produced in Kansas in Fiscal Year 1993 was $86.5 billion,
with Kansas ranking seventh in cash receipts from farm marketing.
Kansas also ranks fifth in the nation in livestock production,
accounting for $4.7 billion in farm income.
Total Kansas exports of manufactured goods increased 18% to $2.38
billion during the 1992 calendar year while agricultural exports
showed an increase of 25% to $2.48 billion. These two export figures
show the real diversity of the Kansas economy. Leading the way
in exports for manufactured goods is transportation equipment
with $767 million. Agricultural exports continue to be led by
wheat/flour as that group's leading export commodity.
In Fiscal Year 1993, revenues rose in Kansas to $2.9 billion,
a 19% increase over 1992 revenues. This increase was attributable
to both larger income and sales taxes, as the economy continued
to expand and a higher sales tax rate became effective. An 8%
increase in Fiscal Year 1993 expenditures permitted Kansas to
realize an operating surplus of $242 million. The state budgeted
a 1994 revenue increase equal to 3.5% and an expenditure increase
equal to 17.1%. The increase in expenditures is attributable to
a $244 million, or 21%, expansion of local school aid funding.
Prior to the 1993 surplus, Kansas incurred three consecutive operating
deficits which aggregated $318 million. The state plans 1994 and
1995 operating deficits equal to $115 and $32 million, respectively.
These deficits have been planned in order to comply with statutory
requirements which limit General Fund ending balances to 7.5%
of expenditures for 1995 and each year thereafter. The General
Fund 1993 ending balance was an ample 14.3% of expenditures.
Kansas is prohibited from incurring general obligation debt. It
has incurred a minimal amount of annual appropriation debt and
net tax-supported debt in the approximate amount of $835 million.
Debt per capita in Kansas in Fiscal Year 1993 amounted to $235,
and annual debt service as a percentage of expenditures was approximately
1.4%. Kansas is not expected, over the intermediate term, to issue
significant amounts of tax-supported debt. However, it is expected
to issue before 1998 approximately $515 million of revenue bonds,
the proceeds of which will be used for highway improvements.
Page 5
Expenditures totaling $6.7 billion from all funding sources were
approved for Fiscal Year 1994. Approximately 59.2 percent of the
total budget is for aid to local units of government (32.9 percent)
or for direct assistance payments to or on behalf of individuals
(26.3 percent). Aid to local school districts, community colleges
and area vocational-technical schools accounts for 82.1 percent
of the aid expenditures. The aid recommendation also includes
$127.7 million for local road and bridge programs.
The State General Fund for Fiscal Year 1994 accounts for 46.8
percent of the State's financing, Special Revenue Funds accounts
for 32.3 percent, Trust and Agency Funds 9.9 percent, and the
Highway Fund 8.8 percent. The State General Fund is obtained from
individual income taxes (38.1 percent), sales and use taxes (39.4
percent), corporate income tax (6.4 percent) and other income
and excise taxes and other revenue (16.1 percent).
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 in a Kansas Trust
are subject. Additionally, many factors including national economic,
social, and environmental policies and conditions, which are not
within the control of the issuers of Bonds, could affect or could
have an adverse impact on the financial condition of the State
and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent
such factors or other factors may affect the issuers of Bonds,
the market value or marketability of the Bonds, or the ability
of the respective issuers of the Bonds acquired by a Kansas Trust
to pay interest on or principal of the Bonds.
Page 6
Kansas Trust Series
The First Trust 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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
Maine Trust Series
The First Trust Combined Series
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1994 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. 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. (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.) It should be noted that under provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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. Tax-exempt interest received by each
of the Trusts on Bonds deposited therein will retain its status
as tax-exempt interest, for Federal income tax purposes, when
distributed to a Unit holder except that (i) interest income on
certain Bonds in certain Maine Trusts will be included as an item
of tax preference in calculating the Alternative Minimum Tax applicable
to both individuals and corporations and (ii) the alternative
minimum tax and the environmental tax (the "Superfund Tax") applicable
to corporate Unit holders may, in certain circumstances, include
in the amount on which such tax is calculated, 75% of the interest
income received by the Trust. See "Certain Tax Matters Applicable
to Corporate Unit Holders";
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code") and will have a taxable event when the Trust disposes
of a Bond, or when the Unit holder redeems or
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
sells his Units. Unit holders must reduce the tax basis of their
Units for their share of accrued interest received, if any, on
Bonds delivered after the date the Unit holders pay for their
Units and, consequently, such Unit holders may have an increase
in taxable gain or reduction in capital loss upon the disposition
of such Units. Gain or loss upon the sale or redemption of Units
is measured by comparing the proceeds of such sale or redemption
with the adjusted basis of the Units. If the Trustee disposes
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The
amount of any such gain or loss is measured by comparing the Unit
holder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed
of. In the case of a Unit holder who purchases his Units, such
basis is determined by apportioning the tax basis for the Units
among each of the Trust assets ratably according to value as of
the date of acquisition of the Units. The basis of each Unit and
of each Bond which was issued with original issue discount must
be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by a Trust at a premium must be reduced by the annual amortization
of Bond premium. The tax cost reduction requirements of said Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
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 compounded 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 accrued 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. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
appearing in Part One for each Trust for information relating
to Bonds, if any, issued at an original issue discount.
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). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
Page 2
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities, or persons related thereto,
for periods while such securities are held by such a user or related
person, will not be excludable from Federal gross income, although
interest on such securities received by others would be excludable
from Federal gross income. "Substantial user" and "related person"
are defined under 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 Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"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 for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. EXCEPT AS OTHERWISE NOTED
IN PART ONE FOR CERTAIN MAINE TRUSTS, THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
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. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding 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). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Page 3
Unit holders are urged to consult their own 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.
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.
Maine Tax Status of Unit Holders
The assets of each Maine Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Maine (the
"State") or counties, municipalities, authorities or political
subdivisions thereof (the "Maine Bonds") or by the Commonwealth
of Puerto Rico, Guam and the United States Virgin Islands (the
"Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined
the Bonds to be deposited in and held in a Maine 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 excludable from gross income for Federal income
tax purposes, (iii) interest on the Maine Bonds, if received directly
by a Unit holder, would be exempt from the Maine income tax applicable
to individuals, trusts and estates and corporations ("Maine Income
Tax") and (iv) interest on the Bonds will not be taken into account
by individuals and corporations in computing an additional tax
("Maine Minimum Tax") imposed under the Maine Income Tax, or in
the case of corporations, a surcharge ("Maine Corporate Income
Tax Surcharge") enacted in 1991 and scheduled to apply to tax
years beginning in 1991 and 1992. The opinion set forth below
does not address the taxation of persons other than full time
residents of Maine.
At the time of the closing for each Maine Trust, Chapman and
Cutler, Special Counsel to the Fund for Maine tax matters rendered
an opinion under then existing Maine income tax law applicable
to taxpayers whose income is subject to Maine income taxation
substantially to the effect that:
(1) each Maine Trust is not an association taxable as a corporation,
thus each Unit holder of a Maine Trust will be essentially treated
as the owner of a pro rata portion of a Maine Trust and the income
of such portion of a Maine Trust will be treated as the income
of the Unit holder for Maine Income Tax purposes;
(2) interest on the Bonds which is exempt from the Maine Income
Tax when received by a Maine Trust, and which would be exempt
from the Maine Income Tax and the Maine Minimum Tax if received
directly by a Unit holder, will retain its status as exempt from
the Maine Income Tax and the Maine Minimum Tax when received by
a Maine Trust and distributed to the Unit holder;
(3) to the extent that interest derived from a Maine Trust by
a Unit holder with respect to the Possession Bonds is excludable
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 the Maine Income Tax;
Page 4
(4) each Unit holder of a Maine Trust will recognize gain or
loss for Maine 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 a Maine Trust to the extent that
such a transaction results in a recognized gain or loss to such
Unit holder for Federal income tax purposes; and
(5) the Maine Income Tax does not permit a deduction of interest
paid or incurred on indebtedness incurred or continued to purchase
or carry Units in a Maine Trust, the interest on which is exempt
from the Tax.
Prospective purchasers subject to the Maine Franchise Tax should
be advised that for purposes of the Maine Franchise Tax, interest
on the Bonds received by a Maine Trust and distributed to a Unit
holder subject to such tax will be added to the Unit holder's
Federal taxable income and therefore will be taxable.
Certain Considerations
The State of Maine, which includes nearly one-half of the total
land area of the six New England states, has a population of approximately
1,235,000.
During the 1980s Maine's economy grew rapidly. However, due largely
to an overheating of the New England construction/real estate
markets in 1987-88, the New England and Maine economies were much
softer in 1989 and the first portion of 1990. The Maine Economic
Growth Index, a broad measure of overall growth corrected for
inflation, declined 2.9% in 1991 and rose 2.0% in 1992. The United
States Economic Growth Index reflected a decline of 1.4% in 1991
and an increase of 1.4% in 1992, during the same period.
The largest industries in Maine in 1993 were services (134,000
jobs) and retail and wholesale trade (130,100 jobs) followed by
government (95,000 jobs), finance, insurance and real estate (25,600
jobs) and transportation and public utilities (21,900 jobs).
The unemployment rates for Maine in 1992 and 1993 were 7.1% and
7.9%, respectively. According to the Maine State Planning Office,
per capita income in Maine was $17,125 in 1990, $17,442 in 1991
and $18,226 in 1992. The corresponding U.S. per capita income
figures were $18,635, $19,091 and $19,841 for 1990, 1991 and 1992
respectively.
The Constitution of the State of Maine provides that the Legislature
shall not create any debt which exceeds $2,000,000 except to suppress
insurrection, to repel invasion or for purposes of war except
when two-thirds of the Legislature and a majority of the voters
authorize the issuance of debt. The Constitution also provides
that tax anticipation loans must be repaid during the fiscal year
of issuance. Constitutional amendments have been adopted which
also allow the Legislature to authorize the issuance of bonds:
to insure payments on revenue bonds of up to $4,800,000 for local
public school building projects; in the amount of up to $4,000,000
to guarantee student loans; to insure payments on up to $1,000,000
of mortgage loans for Indian housing; to insure payments on up
to $4,000,000 of mortgage loans or small business loans to war
veterans; and to insure payments on up to $90,000,000 of mortgage
loans for industrial, manufacturing, fishing, agricultural, and
recreational enterprises. This last authorization has been limited
statutorily to a maximum of $87,500,000 available for issue through
the Finance Authority of Maine.
The State operates under a biennial budget which is formulated
in even-numbered years and presented for approval to the Legislature
in odd-numbered years. The First Regular Session of the 116th
Legislature convened in January, 1993 and on June 30, 1993 adopted
budgets for the fiscal years ending June 30, 1994 and June 30,
1995. As enacted, the budgets provide in fiscal year 1994 for
General Fund expenditures of $1,577,877,634 and Highway Fund expenditures
of $196,051,619 and for fiscal year 1995 General Fund expenditures
of $1,626,771,903 and Highway Fund expenditures of $197,593,241.
The budgets for the biennium include the extension of the one
cent increase in the sales tax that was temporarily enacted for
the previous two year period and statutory language that would
continue the increase if certain economic conditions exist. The
budgets also include the introduction of a 7% gross receipts tax
on prepared meals in establishments licensed for consumption of
alcoholic beverages and for nursing home receipts, and a 35 year
reamortization of the unfunded liability of the Maine State Retirement
System. Proposed General Fund expenditures for fiscal year 1994
reflect a reduction of .16% from fiscal year 1993 and a 3.17%
increase from fiscal year 1994 to fiscal year 1995.
Page 5
Maine's outstanding general obligations are currently rated AA+
by Standard & Poor's Corporation and Aa by Moody's Investors Service,
Inc.
The Portfolio may contain obligations of the Maine Municipal Bond
Bank. All Maine Municipal Bond Bank debt is secured by loan repayments
of borrowing municipalities and the State's moral obligation pledge.
The state of the economy in Maine could impact the ability of
municipalities to pay debt service on their obligations. Maine
Municipal Bond Bank debt continues to carry a A+ rating from Standard
& Poor's Corporation and a Aa rating from Moody's Investors Service,
Inc.
The Portfolio may contain obligations issued by Regional Waste
Systems, Inc., a quasi-municipal corporation organized pursuant
to an interlocal agreement among approximately 20 Southern Maine
communities ("RWS") or other quasi-municipal solid waste disposal
facilities. RWS and other similar solid waste disposal projects
operate regional solid waste disposal facilities and process the
solid waste of the participating municipalities as well as the
solid waste of other non-municipal users. The continued viability
of such facilities is dependent, in part, upon the approach taken
by the State of Maine with respect to solid waste disposal generally.
Pursuant to Public Law 1989 Chapter 585, the newly formed Maine
Waste Management Agency is charged with preparation and adoption
by rule of an analysis and a plan for the management, reduction
and recycling of solid waste for the State of Maine. The plan
to be developed by the Maine Waste Management Agency is based
on the waste management priorities and recycling goals established
by State law. Pursuant to State law, Maine has established minimum
goals for recycling and composting requiring that a minimum of
25% of the municipal solid waste stream be recycled or composted
by 1992 and 50% be recycled or composted by 1994. Although RWS
may participate in the mandated recycling activities, its principal
existing facility consists of a mass burn 250 ton per day furnace
boiler with associated equipment for production of electric energy.
Thus, the source material for the RWS' primary facility could
be substantially reduced as a result of implementation of the
State's recycling goals. Other mass burn solid waste disposal
facilities in the State have experienced seasonal shortages in
waste fuel.
Revenue bonds are issued by the Maine Health and Higher Education
Facilities Authority to finance hospitals and other health care
facilities. The revenues of such facilities consist, in varying
but typically material amounts, of payment from insurers and third-party
reimbursement programs, including Medicaid, Medicare and Blue
Cross. The health care industry in Maine is becoming increasingly
competitive. The utilization of new programs and modified benefits
by third-party reimbursement programs and the advent of alternative
health care delivery systems such as health maintenance organizations
contribute to the increasingly competitive nature of the health
care industry. This increase in competition could adversely impact
the ability of health care facilities in Maine to satisfy their
financial obligations.
Further, health care providers are subject to regulatory actions,
changes in law and policy changes by agencies that administer
third-party reimbursement programs and regulate the health care
industry. Any such changes could adversely impact the financial
condition of such facilities.
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 in a Maine Trust
are subject. Additionally, many factors including national economic,
social and environmental policies and conditions, which are not
within the control of the issuers of Bonds, could affect or could
have an adverse impact on the financial condition of the State
and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent
such factors or other factors may affect the issuers of Bonds,
the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by a Maine Trust
to pay interest on or principal of the Bonds.
Page 6
Maine Trust Series
The First Trust 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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
Minnesota Trust Series
The First Trust 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, 1994 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. 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. (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.) It should be noted that under provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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. Tax-exempt interest received
by each of the Trusts on Bonds deposited therein will retain its
status as tax-exempt interest, for Federal income tax purposes,
when distributed to a Unit holder except that the alternative
minimum tax and the environmental tax (the "Superfund Tax") applicable
to corporate Unit holders may, in certain circumstances, include
in the amount on which such tax is calculated, 75% of the interest
income received by the Trust. See "Certain Tax Matters Applicable
to Corporate Unit Holders";
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code") and will have a taxable event when the Trust disposes
of a Bond, or when the Unit holder redeems or sells his Units.
Unit holders must reduce the tax basis of their Units for their
share of accrued interest
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
received, if any, on Bonds delivered after the date the Unit holders
pay for their Units and, consequently, such Unit holders may have
an increase in taxable gain or reduction in capital loss upon
the disposition of such Units. Gain or loss upon the sale or redemption
of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee
disposes of Bonds (whether by sale, payment on maturity, redemption
or otherwise), gain or loss is recognized to the Unit holder.
The amount of any such gain or loss is measured by comparing the
Unit holder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed
of. In the case of a Unit holder who purchases his Units, such
basis is determined by apportioning the tax basis for the Units
among each of the Trust assets ratably according to value as of
the date of acquisition of the Units. The basis of each Unit and
of each Bond which was issued with original issue discount must
be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by a Trust at a premium must be reduced by the annual amortization
of Bond premium. The tax cost reduction requirements of said Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
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 compounded 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 accrued 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. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
appearing in Part One for each Trust for information relating
to Bonds, if any, issued at an original issue discount.
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). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities,
Page 2
or persons related thereto, for periods while such securities
are held by such a user or related person, will not be excludable
from Federal gross income, although interest on such securities
received by others would be excludable from Federal gross income.
"Substantial user" and "related person" are defined under 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 Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"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 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. THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
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. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding 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). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Page 3
Unit holders are urged to consult their own 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.
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.
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 (and the term "Bonds" as used herein refers only to such
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.
Based on the foregoing, and in reliance upon the opinion of Chapman
and Cutler with respect to the Federal tax treatment of a Minnesota
Trust and its Unit holders, it is the opinion of Special Counsel
that Minnesota tax law applies to a Minnesota Trust and its Unit
holders in the following manner:
"Taxable income" for Minnesota income tax purposes is the same
as "taxable income" for Federal income tax purposes with certain
modifications that (with one exception) do not apply to the present
circumstances. The exception is that corporations must add to
Federal taxable income the amount of any interest received on
the obligations of states and their agencies and instrumentalities,
political and governmental subdivisions, and municipalities. The
terms "trust" and "corporation" have the same meanings for Minnesota
income tax purposes, as relevant to the Minnesota tax status of
a Minnesota Trust, as for federal income tax purposes.
In view of the relationship between Federal and Minnesota law
described in the preceding paragraph and the opinion of Chapman
and Cutler with respect to the Federal tax treatment of a Minnesota
Trust and its Unit holders, (1) each Minnesota Trust will be treated
as a trust rather than a corporation for Minnesota income tax
purposes and will not be deemed the recipient of any Minnesota
taxable income; (2) each Unit holder of a Minnesota Trust will
be treated as the owner of a pro rata portion of such Minnesota
Trust for Minnesota income tax purposes, and the income of such
Minnesota Trust will therefore be treated as the income
Page 4
of the Unit holders under Minnesota law; (3) interest on the Bonds
will be exempt from Minnesota income taxation of Unit holders
who are individuals, trusts and estates when received by a Minnesota
Trust and attributed to such Unit holders and when distributed
to such Unit holders (except as hereinafter provided with respect
to "industrial development bonds" and "private activity bonds"
held by "substantial users"); (4) interest on the Bonds will be
includable in the Minnesota taxable income (subject to allocation
and apportionment) of Unit holders that are corporations; (5)
each Unit holder will realize taxable gain or loss when a Minnesota
Trust disposes of a Bond (whether by sale, exchange, redemption
or payment at maturity) or when the Unit holder redeems or sells
Units at a price that differs from original cost as adjusted for
amortization of bond discount or premium and other basis adjustments
(including any basis reduction that may be required to reflect
a Unit holder's share of interest, if any, accruing on Bonds during
the interval between the Unit holder's settlement date and the
date such Bonds are delivered to a Minnesota Trust, if later);
(6) tax cost reduction requirements relating to amortization of
bond premium may, under some circumstances, result in Unit holders
realizing taxable gain when their Units are sold or redeemed for
an amount equal to or less than their original cost; (7) any proceeds
paid under the insurance policy issued to the Trustee with respect
to the Bonds which represent maturing interest on defaulted obligations
held by the Trustee will be excludible from Minnesota gross income
if, and to the same extent as, such interest would have been so
excludible if paid by the issuer of the defaulted obligations;
(8) any proceeds 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
gross 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 obligations; (9) net capital gains of Unit holders
attributable to the Bonds will be fully includable in the Minnesota
taxable income of Unit holders (subject to allocation and apportionment
in the case of corporate Unit holders); and (10) interest on bonds
includable in the computation of "alternative minimum taxable
income" for Federal income tax purposes will also be includable
in the computation of "alternative minimum taxable income" for
Minnesota income tax purposes.
Interest income attributable to Bonds that are "industrial development
bonds" or "private activity bonds," as those terms are defined
in the Internal Revenue Code, will be taxable under Minnesota
law to a Unit holder who is a "substantial user" of the facilities
financed by the proceeds of such Bonds (or a "related person"
to such a "substantial user") to the same extent as if such Bonds
were held directly by such Unit holder.
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. As a consequence, the State's revenues
were significantly lower than anticipated in the July 1, 1979
to June 30, 1981 biennium and the July 1, 1981 to June 30, 1983
biennium.
In response to revenue shortfalls, the legislature broadened and
increased the State sales tax, increased income taxes (by increasing
rates and eliminating deductions), reduced appropriations and
deferred the payment of State aid, including appropriations for
and aids to local governmental units. The State's fiscal problems
affected other governmental units within the State, such as local
governments, school districts and state agencies, which, in varying
degrees, also faced cash flow difficulties. In certain cases,
revenues of local governmental units and agencies were reduced
by the recession.
Because of the State's fiscal problems, Standard & Poor's Corporation
reduced its rating on the State's outstanding general obligation
bonds from AAA to AA+ in August 1981 and to AA in March 1982.
Moody's Investors Service, Inc. lowered its rating on the State's
outstanding general obligation bonds from Aaa to Aa in April 1982.
The State's economy recovered in the July 1, 1983 to June 30,
1985 biennium, and substantial reductions in the individual income
tax were enacted in 1984 and 1985. Standard & Poor's raised its
rating on the State's outstanding general obligation bonds to
AA+ in January 1985. In 1986, 1987 and 1991 legislation was required
to eliminate projected budget deficits by raising additional revenue,
reducing expenditures,
Page 5
including aid to political subdivisions and higher education,
and making other budgetary adjustments. A budget forecast released
by the Minnesota Department of Finance on February 27, 1992 projected
a $569 million budget shortfall, primarily attributable to reduced
income tax receipts, for the biennium ending June 30, 1993. Planning
estimates for the 1994-95 biennium projected a budget shortfall
of $1.75 billion (less a $400 million reserve). The State responded
by enacting legislation that made substantial accounting changes,
reduced the budget reserve (cash flow account) by $160 million
to $240 million, reduced appropriations for state agencies and
higher education, and imposed a sales tax on purchases by local
governmental units and adopted other tax and spending changes.
The 1993 legislature enacted further tax and spending changes.
An end-of-legislative-session budget forecast released by the
Department of Finance on June 15, 1993 for the biennium ending
June 30, 1995 projects a General Fund surplus of $16 million at
the end of the biennium, after applying a projected $297 million
surplus from June 30, 1993 and after reserving $360 million for
the cash flow account. Total budgeted expenditures and transfers
for the biennium are $16.5 billion.
State grants and aids represent a large percentage of the total
revenues of cities, towns, counties and school districts in Minnesota.
Even with respect to bonds that are revenue obligations and not
general obligations of the issuer, there can be no assurance that
the fiscal problems referred to above will not adversely affect
the market value or marketability of the bonds or the ability
of the respective obligors to pay interest on and principal of
the bonds.
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 in a Minnesota
Trust are subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which
are not within the control of the issuers of Bonds, could affect
or could have an adverse impact on the financial condition of
the State and various agencies and political subdivisions located
in the State. The Sponsor is unable to predict whether or to what
extent such factors or other factors may affect the issuers of
Bonds, the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by a Minnesota
Trust to pay interest on or principal of the bonds.
Page 6
Minnesota Trust Series
The First Trust 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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
Nebraska Trust Series
The First Trust Combined Series
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 1994 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. 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. (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.) It should be noted that under provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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. Tax-exempt interest received
by each of the Trusts on Bonds deposited therein will retain its
status as tax-exempt interest, for Federal income tax purposes,
when distributed to a Unit holder except that (i) interest income
on certain Bonds in certain Nebraska Trusts will be included as
an item of tax preference in calculating the Alternative Minimum
Tax applicable to both individuals and corporations and (ii) the
alternative minimum tax and the environmental tax (the "Superfund
Tax") applicable to corporate Unit holders may, in certain circumstances,
include in the amount on which such tax is calculated, 75% of
the interest income received by the Trust. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code")
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
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, if any, on Bonds delivered after the date the
Unit holders pay for their Units and, consequently, such Unit
holders may have an increase in taxable gain or reduction in capital
loss upon the disposition of such Units. Gain or loss upon the
sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units.
If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized
to the Unit holder. The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds
from such disposition with his basis for his fractional interest
in the asset disposed of. In the case of a Unit holder who purchases
his Units, such basis is determined by apportioning the tax basis
for the Units among each of the Trust assets ratably according
to value as of the date of acquisition of the Units. The basis
of each Unit and of each Bond which was issued with original issue
discount must be increased by the amount of accrued original issue
discount and the basis of each Unit and of each Bond which was
purchased by a Trust at a premium must be reduced by the annual
amortization of Bond premium. The tax cost reduction requirements
of said Code relating to amortization of bond premium may, under
some circumstances, result in the Unit holder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to
or less than his original cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
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 compounded 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 accrued 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. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
appearing in Part One for each Trust for information relating
to Bonds, if any, issued at an original issue discount.
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). Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized
as ordinary income by the Unit holders when principal payments
are received on the Bond, upon sale or at redemption (including
early redemption) or upon the sale or redemption of the Units,
unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these
rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
Page 2
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities, or persons related thereto,
for periods while such securities are held by such a user or related
person, will not be excludable from Federal gross income, although
interest on such securities received by others would be excludable
from Federal gross income. "Substantial user" and "related person"
are defined under 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 Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"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 for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. EXCEPT AS OTHERWISE NOTED
IN PART ONE FOR CERTAIN NEBRASKA TRUSTS, THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
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. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding 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). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of
Page 3
corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Unit holders are urged to consult their own 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.
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.
Nebraska Tax Status of Unit Holders
The assets of a Nebraska Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Nebraska (the
"State") or counties, municipalities, authorities or political
subdivisions thereof (the "Nebraska Bonds") or by the Commonwealth
of Puerto Rico, Guam and the United States Virgin Islands (the
"Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined
the Bonds to be deposited in and held in a Nebraska Trust. With
respect to certain Nebraska bonds which may be held by a Nebraska
Trust, the opinions of bond counsel to the issuing authorities
for such bonds have indicated that the interest on such bonds
is included in computing the Nebraska Alternative Minimum Tax
imposed by Section 77-2715 (2) of the Revised Nebraska Statutes
(the "Nebraska Minimum Tax") (the "Nebraska AMT Bonds"). 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, (iii) none of the Bonds (other than the Nebraska
AMT Bonds, if any) are "specified private activity bonds" the
interest on which is included as an item of tax preference in
the computation of the Alternative Minimum Tax for federal income
tax purposes, (iv) interest on the Nebraska Bonds (other than
the Nebraska AMT Bonds, if any), if received directly by a Unit
holder, would be exempt from both the Nebraska income tax, imposed
by Section 77-2714 et. seq. of the Revised Nebraska Statutes (other
than the Nebraska Minimum Tax) (the "Nebraska State Income Tax")
and the Nebraska Minimum Tax imposed by Section 77-2715 (2) of
the Revised Nebraska Statutes (the "Nebraska Minimum Tax") and
(v) interest on the Nebraska AMT Bonds, if any, if received directly
by a Unit holder, would be exempt from the Nebraska State Income
Tax. The opinion set forth below does not address the taxation
of persons other than full time residents of Nebraska.
At the time of the closing for each Nebraska Trust, Chapman and
Cutler, Special Counsel to the Fund for Nebraska tax matters,
rendered an opinion under existing Nebraska law based upon the
assumptions set forth above:
Each Nebraska Trust is not an association taxable as a corporation,
each Unit holder of a Nebraska Trust will be treated as the owner
of a pro rata portion of a Nebraska Trust, and the income of such
portion of a Nebraska Trust will therefore be treated as the income
of the Unit holder for both Nebraska State Income Tax and the
Nebraska Minimum Tax purposes;
Page 4
Interest on the Bonds which is exempt from both the Nebraska State
Income Tax and the Nebraska Minimum Tax when received by a Nebraska
Trust, and which would be exempt from both the Nebraska State
Income Tax and the Nebraska Minimum Tax if received directly by
a Unit holder, will retain its status as exempt from such taxes
when received by a Nebraska Trust and distributed to a Unit holder.
Interest on the Nebraska AMT Bonds, if any, which is exempt from
the Nebraska State Income Tax but is included in the computation
of the Nebraska Minimum Tax when received by a Nebraska Trust,
and which would be exempt from the Nebraska State Income Tax but
would be included in the computation of the Nebraska Minimum Tax
if received directly by a Unit holder, will retain its status
as exempt from the Nebraska State Income Tax but included in the
computation of the Nebraska Minimum Tax;
To the extent that interest derived from a Nebraska Trust by a
Unit holder with respect to the Possession Bonds is excludable
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 Nebraska
State Income Tax or the Nebraska Minimum Tax;
Each Unit holder of a Nebraska Trust will recognize gain or loss
for both Nebraska State Income Tax and Nebraska Minimum 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
a Nebraska Trust to the extent that such a transaction results
in a recognized gain or loss to such Unit holder for Federal income
tax purposes;
The Nebraska State Income Tax does not permit a deduction for
interest paid or incurred on indebtedness incurred or continued
to purchase or carry Units in a Nebraska Trust, the interest on
which is exempt from such Tax; and
In the case of a Unit holder subject to the State financial institutions
franchise tax, the income derived by such Unit holder from his
pro rata portion of the Bonds held by a Nebraska Trust may affect
the determination of such Unit holder's maximum franchise tax.
Special Counsel has not examined any of the Bonds to be deposited
and held in a Nebraska Trust or the proceedings for the issuance
thereof or the opinions of bond counsel with respect thereto,
and therefore expresses no opinion as to the exemption from either
the Nebraska State Income Tax or the Nebraska Minimum Tax of interest
on the Nebraska Bonds if received directly by a Unit holder.
Certain Considerations
Unemployment. The Nebraska unemployment rate has been among the
lowest in the nation in recent years. In December 1993, the Nebraska
unemployment rate was 2.3 percent, the lowest in the nation; the
national average was 6.4 percent. The annual average Nebraska
unemployment rates during the last several years have been 3.1
percent in 1989, 2.2 percent in 1990, 2.7 percent in 1991, and
2.9 percent in 1992, compared to 5.2 percent, 5.4 percent, 6.6
percent, and 7.4 percent overall in the United States.
Job Growth. Growth in non-farm payroll employment in Nebraska
has generally been positive in recent years. In 1989, the average
number of Nebraska employees on non-farm payrolls was 708,000,
advancing 3.1 percent to 730,100 in 1990, and another 0.8 percent
to 736,200 in 1991. However, it declined 2.7 percent to 716,000
in 1992. Over the same period, U.S. non-agricultural employment
increased 1.5 percent from 1989 to 1990, then dropped 0.9 percent
from 1990 to 1991, and increased slightly by 0.1 percent from
1991 to 1992. From November 1992 to November 1993, non-farm payroll
employment increased by 4,200 in Nebraska, or by 0.6 percent.
Nationally, employment increased 1.8 percent during the same period.
Manufacturing Job Growth. Manufacturing jobs have grown in Nebraska
in recent years, while generally declining nationally. The number
of manufacturing jobs in Nebraska rose from an average of 94,100
in 1989 to 97,800 in 1990 (3.9 percent); to 99,300 in 1991 (1.5
percent); to 99,382 in 1992 (0.08 percent). Overall in the United
States, the number of manufacturing jobs dropped 1.7 percent from
1989 to 1990; declined another 3.5 percent in 1991; and fell 1.4
percent in 1992. Nebraska manufacturing jobs totaled 103,200 in
November 1993, 2.3 percent more than a year earlier. Nationally,
the number of manufacturing jobs declined 1.1 percent from November
1992 to November 1993.
Page 5
Income. Nebraska's per capita income has historically been below
the average of the United States, although the gap has closed
in recent years. Per capita personal income in the state grew
from $17,365 in 1990 to $18,041 in 1991, a 3.9 percent increase,
and to $18,957 in 1992, a 5.1 percent increase. From 1991 to 1992,
national per capita income grew from $19,169 to $20,114, a 4.9
percent increase. In 1990, Nebraska ranked twenty-sixth among
the states in per capita income; by 1992, the state ranked twenty-fourth.
Personal income growth in Nebraska increased 5.9 percent in 1992,
or from $28,744,000,000 in 1991 to $30,438,000,000 in 1992. That
was only slightly below the national growth rate of 6.1 percent.
Cost of Living. The cost of living in Nebraska is generally below
the national average. Where the national average is 100.0, the
five Nebraska communities surveyed averaged a composite 89.7 rating
in the third quarter of 1993. In individual cost of living sectors,
Nebraska scored well below the national average in the indices
for housing, utilities, and health care. Four of the five Nebraska
communities in the survey, including Omaha and Lincoln, were above
the national average in transportation costs; the state's three
non-metropolitan cities in the survey, Scottsbluff, Hastings,
and Kearney, were close to the national average for grocery items.
Population. With Nebraska's economic gains in recent years have
come population increases through positive net migration. Reversing
a long period of net out-migration from 1974 to 1990, an estimated
2,300 more people moved to Nebraska than left from 1990 to 1991.
Net in-migration ceased in 1992, but a natural increase (births
exceeding deaths) helped boost the state's total population from
the 1,578,385 recorded in the 1990 Census to an estimated 1,603,998
in 1992.
Economic Future. Although the Nebraska economy avoided the national
recession of the early 1990s, it will grow at a slightly slower
rate during the next two years even though the national economy
is expanding. The Bureau of Business Research of the University
of Nebraska-Lincoln estimates that annual average non-farm employment
in the state will grow 1.3 percent in 1994 and 1.4 percent in
1995, or at about the same rate as in 1993. Personal income is
expected to grow at a slightly higher rate than in 1993, or 5.6
percent in 1994 and 5.1 percent in 1995. Consequently, taxable
retail sales are expected to grow 5.0 percent in 1994 and 4.3
percent in 1995.
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 in a Nebraska Trust
are subject. Additionally, many factors including national economic,
social and environmental policies and conditions, which are not
within the control of the issuers of Bonds, could affect or could
have an adverse impact on the financial condition of the State
and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent
such factors or other factors may affect the issuers of Bonds,
the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by a Nebraska
Trust to pay interest on or principal of the bonds.
Page 6
Nebraska Trust Series
The First Trust 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: United States Trust Company of New York
770 Broadway
New York, New York 10003
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
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
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 126, 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 March 31, 1994.
THE FIRST TRUST COMBINED SERIES 126
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title* Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) March 31, 1994
the General Partner )
of Nike Securities L.P. )
)
) Carlos E. Nardo
) 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 Special
Situations Trust, Series 18 (File No. 33-42683) 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 February 25, 1994 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated March
22, 1994.
ERNST & YOUNG
Chicago, Illinois
March 21, 1994
