File No. 33-62476
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST COMBINED SERIES 189
(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 : September 30, 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
July 21, 1994.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
9,916 UNITS
PROSPECTUS
Part One
Dated September 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, but may be subject to state and local taxes. Capital gains, if any,
are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds, Series 221 (the "Trust") is an
insured and fixed portfolio of interest-bearing obligations issued by or on
behalf of municipalities and other governmental authorities, the interest on
which is, in the opinion of recognized bond counsel to the issuing
governmental authorities, exempt from all Federal income taxes under existing
law. At August 16, 1994, each Unit represented a 1/9,916 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 5.8% of the Public Offering Price (6.157%
of the amount invested). At August 16, 1994, the Public Offering Price per
Unit was $942.58 plus net interest accrued to date of settlement (five
business days after such date) of $7.73 and $16.82 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 5.78% per annum on August 16, 1994, and 5.73% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.91% per annum on August 16, 1994, and 5.85%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust; (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $9,640,000
Number of Units 9,916
Fractional Undivided Interest in the Trust per Unit 1/9,916
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $8,804,549
Aggregate Value of Bonds per Unit $887.91
Sales Charge 6.157% (5.8% of Public Offering Price) $54.67
Public Offering Price per Unit $942.58*
Redemption Price and Sponsor's Repurchase Price per Unit
($54.67 less than the Public Offering Price per Unit) $887.91*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,968,000
</TABLE>
Date Trust Established June 9, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $2,952 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per unit annually
[FN]
*Plus net interest accrued to date of settlement (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $56.12 $56.12
Less: Estimated Annual Expense $2.16 $1.62
Estimated Net Annual Interest Income $53.96 $54.50
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $53.96 $54.50
Divided by 12 and 2, Respectively $4.50 $27.25
Estimated Daily Rate of Net Interest Accrual $.1499 $.1514
Estimated Current Return Based on Public
Offering Price 5.73% 5.78%
Estimated Long-Term Return Based on Public
Offering Price 5.85% 5.91%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 189, The First Trust of Insured Municipal
Bonds, Series 221
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 189, The First
Trust of Insured Municipal Bonds, Series 221 as of May 31, 1994, and the
related statements of operations and changes in net assets for the period from
the Date of Deposit, June 9, 1993, to May 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 May 31, 1994, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 189, The First Trust of Insured Municipal Bonds, Series 221 at May 31,
1994, and the results of its operations and changes in its net assets for the
period from the Date of Deposit, June 9, 1993, to May 31, 1994, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $9,433,704)
(Note 1) $8,781,915
Accrued interest 167,096
Receivable from investment transactions 35,933
Cash 5,798
__________
8,990,742
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 67,394
Unit redemptions payable 35,538
Accrued liabilities 48
__________
102,980
__________
Net assets, applicable to 9,920 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $9,433,704
Net unrealized depreciation (Note 2) (651,789)
Distributable funds 105,847
__________
$8,887,762
==========
Net asset value per unit $895.94
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
PORTFOLIO - See notes to portfolio.
May 31, 1994
<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>
The County of Cook, Illinois, General Obligation, 2001 @ 102
Series 1991 (AMBAC Insured) (e) 6.25% 11/01/2021 2019 @ 100 S.F. AAA $1,435,000 1,387,473
Grant County, South Dakota, Pollution Control
Refunding Revenue (Northwestern Public
Service Company Project), Series 1993B
(MBIA Insured) (c) 5.90 6/01/2023 2003 @ 102 AAA 1,500,000 1,381,365
Independence County, Arkansas, Pollution
Control Revenue Refunding, Series 1993
(Arkansas Power & Light Company Project)
(AMBAC Insured) (c) 6.25 1/01/2021 2003 @ 102 AAA 1,000,000 979,650
County of Logan, Colorado, Health Care Facilities,
Revenue (Western Health Network, Inc.), Series
1993 (MBIA Insured) (c) 5.90 1/01/2019 2003 @ 102 AAA 500,000 470,395
Maine Health and Higher Educational Facilities
Authority, Revenue, Series 1993B (FSA 2003 @ 102
Insured) (c) 5.75 7/01/2023 2014 @ 100 S.F. AAA 350,000 317,576
Marshall County, West Virginia, Pollution Control
Revenue (Ohio Power Company Project), Series D
(MBIA Insured) (c) 5.90 4/01/2022 2003 @ 102 AAA 720,000 663,811
Metropolitan Pier and Exposition Authority
(Illinois), McCormick Place Expansion Project,
Series 1992A (FGIC Insured) (c) -(d) 6/15/2021 AAA 400,000 69,560
Northern Virginia Transportation District Commission,
Commuter Rail Revenue, Series 1990 (Virginia
Railway Express Project) (Capital Guaranty 2000 @ 100
Insured) (e) 6.00 7/01/2014 2011 @ 100 S.F. AAA 390,000 378,050
Regional Transportation Authority, Cook, DuPage,
Kane, Lake, McHenry and Will Counties, Illinois, 2003 @ 102
Series 1993A (FGIC Insured) (c) 5.85 6/01/2023 2014 @ 100 S.F. AAA 650,000 598,332
Rhode Island Health and Higher Educational
Building Corporation, Higher Education Facility
Revenue, Roger Williams University Issue, 2002 @ 102
Series 1992 (Connie Lee Insured) (c) 6.50 11/15/2024 2012 @ 100 S.F. AAA 1,250,000 1,248,275
Romulus Community Schools, County of Wayne, State
of Michigan, 1993 Refunding (General Obligation -
Unlimited Tax) (FGIC Insured) (c) -(d) 5/01/2021 AAA 50,000 8,764
City of Spearfish, South Dakota, Health Care
Facilities Revenue (Western Health Network,
Inc.), Series 1993A (MBIA Insured) (c) 5.90 1/01/2018 2003 @ 102 AAA 500,000 465,745
Washington Health Care Facilities Authority
Revenue, Series 1992 (Multicare Medical Center, 2002 @ 102
Tacoma) (FGIC Insured) (c) 5.75 8/15/2022 2011 @ 100 S.F. AAA 895,000 812,919
______________________
$9,640,000 8,781,915
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
NOTES TO PORTFOLIO
May 31, 1994
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at May 31, 1994.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on the following dates and at the following percentages of
their original principal amount:
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
Metropolitan Pier and Exposition
Authority (Illinois) 1/15/93 15.132
Romulus Community Schools, County
of Wayne, Michigan 5/04/93 18.591
</TABLE>
(e) These Bonds were issued at an original issue discount on the following
dates and at the following percentages of their original principal
amount:
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
County of Cook, Illinois, General
Obligation 8/01/91 91.623
Northern Virginia Transportation
District Commission 2/08/90 87.740
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
NOTES TO PORTFOLIO (continued)
May 31, 1994
(f) The Trust consists of thirteen obligations of issuers located in ten
states. Three Bond issues and two Bond issues aggregating approximately
26% and 21% of the aggregate principal amount of the Bonds in the Trust
are obligations of issuers located in Illinois and South Dakota,
respectively. Two of the Bonds in the Trust, representing approximately
15% of the aggregate principal amount of the Bonds in the Trust, are
general obligations of a governmental entity. The remaining issues are
revenue bonds payable from the income of a specific project or authority
and are divided by purpose of issue as follows: Health Care, 4;
Electric, 3; Transportation, 2; University and School, 1; and
Miscellaneous, 1. Approximately 23% and 33% of the aggregate principal
amount of the Bonds consist of health care revenue bonds and electric
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 54%. The largest such issue represents
approximately 16%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Interest income $553,455
Expenses:
Trustee's fees and related expenses (8,689)
Evaluator's fees (2,591)
Supervisory fees (2,465)
________
Investment income - net 539,710
Net gain (loss) on investments:
Net realized gain (loss) (7,364)
Change in unrealized appreciation
or depreciation (651,789)
________
(659,153)
________
Net increase in net assets resulting
from operations $119,443
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Net increase in net assets resulting
from operations:
Investment income - net $539,710
Net realized gain (loss) on investments (7,364)
Change in unrealized appreciation or
depreciation on investments (651,789)
__________
(119,443)
Distributions to unit holders:
Investment income - net (431,330)
Principal from investment transactions -
__________
(431,330)
Unit redemptions (213):
Principal portion (193,378)
Net interest accrued (4,577)
__________
(197,955)
__________
Total increase (decrease) in net assets (748,728)
Net assets:
At the beginning of the period 9,636,490
__________
At the end of the period (including
distributable funds applicable to
Trust units of $105,847 at May 31, 1994) $8,887,762
==========
Trust units outstanding at the end
of the period 9,920
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
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, June 9, 1993. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to 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 $2,952 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 depreciation at May 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(651,789)
Unrealized appreciation -
_________
$(651,789)
=========
</TABLE>
<PAGE>
3. Insurance
The issuers of all 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 acquired by
an issuer of bonds 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 4.9% of the public offering price which is equivalent to
approximately 5.152% of the net amount invested.
Distributions of net interest income -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period from the
Type of Date of Deposit,
distribution June 9, 1993, to
plan May 31, 1994
<S> <C>
Monthly $42.98*
Semi-annual 43.39
</TABLE>
[FN]
*Excludes $.95 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $63,334, plus net interest
accruing to the first settlement date, June 16, 1993, totaling $9,631, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $1.57 per unit, was paid on September 1, 1993 to all
unit holders of record on August 15, 1993.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
June 9, 1993, to
May 31, 1994
<S> <C>
Interest income $54.90
Expenses (1.36)
_______
Investment income - net 53.54
Distributions to unit holders:
Investment income - net (43.08)
Principal from investment transactions -
Net gain (loss) on investments (65.52)
_______
Total increase (decrease)
in net assets (55.06)
Net assets:
Beginning of the period 951.00
_______
End of the period $895.94
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 221
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 LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
3,015 UNITS
PROSPECTUS
Part One
Dated September 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 Alabama State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Alabama Trust,
Series 20 (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 Alabama, 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 Alabama State and local income taxes
under existing law. At August 16, 1994, each Unit represented a 1/3,015
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 5.8% of the Public Offering Price (6.157%
of the amount invested). At August 16, 1994, the Public Offering Price per
Unit was $939.47 plus net interest accrued to date of settlement (five
business days after such date) of $8.57 and $17.40 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 5.64% per annum on August 16, 1994, and 5.58% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.80% per annum on August 16, 1994, and 5.74%
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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $2,935,000
Number of Units 3,015
Fractional Undivided Interest in the Trust per Unit 1/3,015
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,668,211
Aggregate Value of Bonds per Unit $884.98
Sales Charge 6.157% (5.8% of Public Offering Price) $54.49
Public Offering Price per Unit $939.47*
Redemption Price and Sponsor's Repurchase Price per Unit
($54.49 less than the Public Offering Price per Unit) $884.98*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $592,000
</TABLE>
Date Trust Established June 9, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $888 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $54.57 $54.57
Less: Estimated Annual Expense $2.15 $1.61
Estimated Net Annual Interest Income $52.42 $52.96
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $52.42 $52.96
Divided by 12 and 2, Respectively $4.37 $26.48
Estimated Daily Rate of Net Interest Accrual $.1456 $.1471
Estimated Current Return Based on Public
Offering Price 5.58% 5.64%
Estimated Long-Term Return Based on Public
Offering Price 5.74% 5.80%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 189, The First Trust of Insured Municipal
Bonds - Multi-State, Alabama Trust, Series 20
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 189, The First
Trust of Insured Municipal Bonds - Multi-State, Alabama Trust, Series 20 as of
May 31, 1994, and the related statements of operations and changes in net
assets for the period from the Date of Deposit, June 9, 1993, to May 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 May 31, 1994, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 189, The First Trust of Insured Municipal Bonds - Multi-State, Alabama
Trust, Series 20 at May 31, 1994, and the results of its operations and
changes in its net assets for the period from the Date of Deposit, June 9,
1993, to May 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,868,684)
(Note 1) $2,674,596
Accrued interest 31,843
Cash 17,441
__________
2,723,880
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 17,808
__________
Net assets, applicable to 3,015 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $2,868,684
Net unrealized depreciation (Note 2) (194,088)
Distributable funds 31,476
__________
$2,706,072
==========
Net asset value per unit $897.54
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
PORTFOLIO - See notes to portfolio.
May 31, 1994
<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>
Alabama State University, General Tuition
and Fee Revenue, Series 1993 (MBIA 2003 @ 102
Insured) (c) 5.70% 5/01/2015 2008 @ 100 S.F. AAA $530,000 494,453
Refunding and Capital Outlay Special Tax,
Series 1992, Birmingham - Jefferson Civic
Center Authority (Jefferson County, Alabama)
(MBIA Insured) (c) -(d) 9/01/2021 AAA 70,000 12,008
Water Revenue, Series 1992 of Calhoun County,
Water and Fire Protection Authority 2000 @ 102
(AMBAC Insured) (c) 6.30 10/01/2012 2008 @ 100 S.F. AAA 235,000 241,977
The Utilities Board of the City of Daphne
Water, Gas and Sewer Revenue, Series 1993 2003 @ 102
(AMBAC Insured) (c) 5.80 6/01/2020 2014 @ 100 S.F. AAA 600,000 559,698
Houston County Health Care Authority, Hospital
Revenue, Southeast Alabama Medical Center 2002 @ 102
Series 1992 (MBIA Insured) (c) (e) 5.75 10/01/2022 2013 @ 100 S.F. AAA 500,000 460,135
Water Revenue, Series 1993 of Northeast
Alabama Water, Sewer and Fire Protection 2002 @ 102
District (AMBAC Insured) (c) 5.70 5/01/2023 2015 @ 100 S.F. AAA 500,000 456,570
The Board of Trustees of the University of
Alabama, The University of Alabama in
Huntsville, General Fee Revenue, 2003 @ 102
Series 1993-A (MBIA Insured) (c) 5.50 5/01/2018 2012 @ 100 S.F. AAA 500,000 449,755
______________________
$2,935,000 2,674,596
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
NOTES TO PORTFOLIO
May 31, 1994
(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. None of the Bonds in the Trust are subject
to call within five years.
(b) The ratings shown are those effective at May 31, 1994.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on December 10, 1992 at a price of 14.648% of their original
principal amount.
(e) These Bonds were issued at an original issue discount on August 1, 1992
at a price of 94.232% of their original principal amount.
(f) The Trust consists of seven obligations of issuers located in Alabama.
All issues are revenue bonds payable from the income of a specific
project or authority and are divided by purpose of issue as follows:
Health Care, 1; Utility, 1; Water, 2, University and School, 2; and
Miscellaneous, 1. Approximately 35%, 25% and 20% of the aggregate
principal amount of the Bonds consist of university and school revenue
bonds, water 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
90%. The largest such issue represents approximately 20%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Interest income $162,098
Expenses:
Trustee's fees and related expenses (3,029)
Evaluator's fees (673)
Supervisory fees (741)
________
Investment income - net 157,655
Net gain (loss) on investments:
Net realized gain (loss) (389)
Change in unrealized appreciation
or depreciation (194,088)
________
(194,477)
________
Net increase (decrease) in net assets resulting
from operations $(36,822)
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Net increase (decrease) in net assets resulting
from operations:
Investment income - net $157,655
Net realized gain (loss) on investments (389)
Change in unrealized appreciation or
depreciation on investments (194,088)
__________
(36,822)
Distributions to unit holders:
Investment income - net (124,141)
Principal from investment transactions -
__________
(124,141)
Unit redemptions (29):
Principal portion (27,324)
Net interest accrued (495)
__________
(27,819)
__________
Total increase (decrease) in net assets (188,782)
Net assets:
At the beginning of the period 2,894,854
__________
At the end of the period (including
distributable funds applicable to
Trust units of $31,476 at May 31, 1994) $2,706,072
==========
Trust units outstanding at the end
of the period 3,015
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
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, June 9, 1993. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to 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 $888 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 depreciation at May 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(194,088)
Unrealized appreciation -
_________
$(194,088)
=========
</TABLE>
<PAGE>
3. Insurance
All issues of Bonds in the Trust are insured under insurance obtained by the
issuer of the 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 4.9% of the public offering price which is equivalent to
approximately 5.152% 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
Type of Date of Deposit,
distribution June 9, 1993, to
plan May 31, 1994
<S> <C>
Monthly $40.91*
Semi-annual 41.23
</TABLE>
[FN]
*Excludes $1.02 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $23,148, plus interest
accruing to the first settlement date, June 16, 1993, totaling $3,116, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $4.90 per unit, was paid on October 1, 1993 to all
unit holders of record on September 15, 1993.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
June 9, 1993, to
May 31, 1994
<S> <C>
Interest income $53.37
Expenses (1.46)
_______
Investment income - net 51.91
Distributions to unit holders:
Investment income - net (40.96)
Principal from investment transactions -
Net gain (loss) on investments (64.41)
_______
Total increase (decrease)
in net assets (53.46)
Net assets:
Beginning of the period 951.00
_______
End of the period $897.54
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
ALABAMA TRUST, SERIES 20
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 LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
2,864 UNITS
PROSPECTUS
Part One
Dated September 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 California State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, California Trust,
Series 5 (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 California, 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 California State
and local income taxes under existing law. At August 16, 1994, each Unit
represented a 1/2,864 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 5.8% of the Public Offering Price (6.157%
of the amount invested). At August 16, 1994, the Public Offering Price per
Unit was $929.68 plus net interest accrued to date of settlement (five
business days after such date) of $4.43 and $13.26 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 5.70% per annum on August 16, 1994, and 5.64% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.85% per annum on August 16, 1994, and 5.79%
under the monthly distribution plan. Estimated Current Return is calculated
by dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust; (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $2,790,000
Number of Units 2,864
Fractional Undivided Interest in the Trust per Unit 1/2,864
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,508,171
Aggregate Value of Bonds per Unit $875.76
Sales Charge 6.157% (5.8% of Public Offering Price) $53.92
Public Offering Price per Unit $929.68*
Redemption Price and Sponsor's Repurchase Price per Unit
($53.92 less than the Public Offering Price per Unit) $875.76*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $601,000
</TABLE>
Date Trust Established June 9, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $902 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $54.60 $54.60
Less: Estimated Annual Expense $2.15 $1.62
Estimated Net Annual Interest Income $52.45 $52.98
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $52.45 $52.98
Divided by 12 and 2, Respectively $4.37 $26.49
Estimated Daily Rate of Net Interest Accrual $.1457 $.1472
Estimated Current Return Based on Public Offering
Price 5.64% 5.70%
Estimated Long-Term Return Based on Public Offering
Price 5.79% 5.85%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 189, The First Trust of Insured Municipal
Bonds - Multi-State, California Trust, Series 5
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 189, The First
Trust of Insured Municipal Bonds - Multi-State, California Trust, Series 5 as
of May 31, 1994, and the related statements of operations and changes in net
assets for the period from the Date of Deposit, June 9, 1993, to May 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 May 31, 1994, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 189, The First Trust of Insured Municipal Bonds - Multi-State,
California Trust, Series 5 at May 31, 1994, and the results of its operations
and changes in its net assets for the period from the Date of Deposit, June 9,
1993, to May 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,724,368)
(Note 1) $2,507,063
Accrued interest 40,511
__________
2,547,574
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 16,847
Distributions payable and accrued to unit holders 7,666
Accrued liabilities 30
__________
24,543
__________
Net assets, applicable to 2,864 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $2,724,368
Net unrealized depreciation (Note 2) (217,305)
Distributable funds 15,968
__________
$2,523,031
==========
Net asset value per unit $880.95
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
PORTFOLIO - See notes to portfolio.
May 31, 1994
<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>
Alhambra (California) Redevelopment Agency,
Industrial Redevelopment Project, as Amended,
Tax Allocation Refunding, Series 1993 2002 @ 102
(AMBAC Insured) (c) 5.85 % 5/01/2023 2015 @ 100 S.F. AAA $500,000 466,430
State Public Works Board of the State of
California, Lease Revenue (Department of
Corrections), 1991 Series A (State Prison - 2001 @ 100
Imperial County) (AMBAC Insured) (c) (e) 5.75 9/01/2021 2020 @ 100 S.F. AAA 465,000 430,148
California Statewide Communities Development
Authority, Insured Health Facilities Revenue
Certificates of Participation (UniHealth 2003 @ 102
America), 1993 Series A (AMBAC Insured) (c) 5.75 10/01/2025 2016 @ 100 S.F. AAA 500,000 455,600
Special Tax, Community Facilities District
No. 1987-1, Empire Union School District
(Stanislaus County, California), 2002 @ 102
Series 1992-A (MBIA Insured) (c) 6.50 10/01/2017 2007 @ 100 S.F. AAA 200,000 204,040
Los Angeles County Transportation Commission
(California), Proposition C Sales Tax
Revenue, Second Senior, Series 1992-A 2002 @ 102
(MBIA Insured) (c) (e) 6.00 7/01/2023 2021 @ 100 S.F. AAA 375,000 345,600
Pleasanton - Suisun City Home Financing
Authority (California), Home Mortgage
Revenue, 1984 Series A (MBIA Insured) (c) -(d) 10/01/2016 AAA 135,000 32,183
Poway (California) Redevelopment Agency, Paguay
Redevelopment Project, Subordinated Tax
Allocation Refunding, Series 1993 2003 @ 102
(FGIC Insured) (c) 5.75 12/15/2026 2024 @ 100 S.F. AAA 410,000 373,202
Certificates of Participation (Badillo/Grand
Transmission Main and Terminal Storage Project)
(Walnut Valley Water District) (California), 2001 @ 102
Series 1992 (FGIC Insured) (c) 6.125 2/01/2018 2010 @ 100 S.F. AAA 205,000 199,860
______________________
$2,790,000 2,507,063
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
NOTES TO PORTFOLIO
May 31, 1994
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at May 31, 1994.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on October 25, 1984 at a price of 2.709% of their original
principal amount.
(e) 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>
State Public Works Board of the
State of California 11/1/91 88.966
Los Angeles County Transportation
Commission 10/15/92 91.161
</TABLE>
(f) The Trust consists of eight obligations of issuers located in
California. 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: Health Care, 1; Water, 1; Transportation, 1;
University and School, 1; Multi-family Housing, 1; and Miscellaneous, 3.
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
81%. The two largest issues represent approximately 18% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Interest income $161,961
Expenses:
Trustee's fees and related expenses (3,320)
Evaluator's fees (791)
Supervisory fees (741)
________
Investment income - net 157,109
Net gain (loss) on investments:
Net realized gain (loss) (8,144)
Change in unrealized appreciation
or depreciation (217,305)
________
(225,449)
________
Net increase (decrease) in net assets
resulting from operations $(68,340)
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $157,109
Net realized gain (loss) on investments (8,144)
Change in unrealized appreciation
or depreciation on investments (217,305)
__________
(68,340)
Distributions to unit holders:
Investment income - net (136,488)
Principal from investment transactions -
__________
(136,488)
Unit redemptions (230):
Principal portion (213,270)
Net interest accrued (1,276)
__________
(214,546)
__________
Total increase (decrease) in net assets (419,374)
Net assets:
At the beginning of the period 2,942,405
__________
At the end of the period (including
distributable funds applicable to
Trust units of $15,968 at May 31, 1994) $2,523,031
==========
Trust units outstanding at the end
of the period 2,864
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
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, June 9, 1993. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to 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 $902 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 depreciation at May 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(217,305)
Unrealized appreciation -
_________
$(217,305)
=========
</TABLE>
<PAGE>
3. Insurance
All issues of bonds in the portfolio are insured under insurance obtained by
the issuer of the 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 4.9% of the public offering price which is equivalent to
approximately 5.152% 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
Type of Date of Deposit,
distribution June 9, 1993, to
plan May 31, 1994
<S> <C>
Monthly $45.00*
Semi-annual 45.44
</TABLE>
[FN]
*Excludes $1.02 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $34,085, plus interest
accruing to the first settlement date, June 16, 1993, totaling $3,170, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $4.66 per unit, was paid on September 1, 1993 to all
unit holders of record on August 15, 1993.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
June 9, 1993, to
May 31, 1994
<S> <C>
Interest income $53.51
Expenses (1.60)
_______
Investment income - net 51.91
Distributions to unit holders:
Investment income - net (45.15)
Principal from investment transactions -
Net gain (loss) on investments (76.81)
_______
Total increase (decrease) in net assets (70.05)
Net assets:
Beginning of the period 951.00
_______
End of the period $880.95
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
CALIFORNIA TRUST, SERIES 5
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 LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
3,058 UNITS
PROSPECTUS
Part One
Dated September 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 Missouri State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Missouri Trust,
Series 18 (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 Missouri, 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 Missouri State and
local income taxes under existing law. At August 16, 1994, each Unit
represented a 1/3,058 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 5.8% of the Public Offering Price (6.157%
of the amount invested). At August 16, 1994, the Public Offering Price per
Unit was $951.03 plus net interest accrued to date of settlement (five
business days after such date) of $8.37 and $17.20 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 5.57% per annum on August 16, 1994, and 5.51% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.69% per annum on August 16, 1994, and 5.64%
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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $2,970,000
Number of Units 3,058
Fractional Undivided Interest in the Trust per Unit 1/3,058
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,739,574
Aggregate Value of Bonds per Unit $895.87
Sales Charge 6.157% (5.8% of Public Offering Price) $55.16
Public Offering Price per Unit $951.03*
Redemption Price and Sponsor's Repurchase Price per Unit
($55.16 less than the Public Offering Price per Unit) $895.87*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $594,000
</TABLE>
Date Trust Established June 9, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $891 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $54.75 $54.75
Less: Estimated Annual Expense excluding insurance $2.16 $1.62
Annual Premium on Portfolio Insurance $.16 $.16
Estimated Net Annual Interest Income $52.43 $52.97
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $52.43 $52.97
Divided by 12 and 2, Respectively $4.37 $26.49
Estimated Daily Rate of Net Interest Accrual $.1456 $.1471
Estimated Current Return Based on Public
Offering Price 5.51% 5.57%
Estimated Long-Term Return Based on Public
Offering Price 5.64% 5.69%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 189, The First Trust of Insured Municipal
Bonds - Multi-State, Missouri Trust, Series 18
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 189, The First
Trust of Insured Municipal Bonds - Multi-State, Missouri Trust, Series 18 as
of May 31, 1994, and the related statements of operations and changes in net
assets for the period from the Date of Deposit, June 9, 1993, to May 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 May 31, 1994, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 189, The First Trust of Insured Municipal Bonds - Multi-State, Missouri
Trust, Series 18 at May 31, 1994, and the results of its operations and
changes in its net assets for the period from the Date of Deposit, June 9,
1993, to May 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $2,908,167)
(Notes 1 and 3) $2,736,966
Accrued interest 52,610
Cash 13,241
__________
2,802,817
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 33,254
Accrued liabilities 28
__________
33,282
__________
Net assets, applicable to 3,058 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $2,908,167
Net unrealized depreciation (Note 2) (171,201)
Distributable funds 32,569
__________
$2,769,535
==========
Net asset value per unit $905.67
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
PORTFOLIO - See notes to portfolio.
May 31, 1994
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's 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>
Fort Zumwalt School District of St. Charles
County, Missouri, School (General Obligation)
(Unlimited Tax) (MBIA Insured) (c) 5.60 % 2/01/2011 2003 @ 100 AAA $225,000 214,447
Union Reorganized School District No. R-XI of
Franklin County, Missouri, General Obligation
School Building and Refunding, Series 1993 2003 @ 100
(FGIC Insured) (c) 5.75 3/01/2013 2009 @ 100 S.F. AAA 250,000 241,635
The Junior College District of Metropolitan
Kansas City, Missouri, Lease Certificates of
Participation (Northland Human Services Center
and Independence Campus Projects) Series 1993C 2003 @ 101
(FGIC Insured) (c) 5.60 7/01/2013 2007 @ 100 S.F. AAA 300,000 278,436
Kansas City Municipal Assistance Corporation,
Leasehold Improvement Revenue, Series 1991B
(H. Roe Bartle Convention Center Project) 2001 @ 102
(AMBAC Insured) (c) 6.625 4/15/2015 2011 @ 100 S.F. AAA 500,000 517,010
Health and Educational Facilities Authority of
the State of Missouri, Health Facilities
Refunding, Revenue (SSM Health Care), 2002 @ 102
Series 1992AA (MBIA Insured) (c) 6.25 6/01/2016 2011 @ 100 S.F. AAA 500,000 495,275
Health and Educational Facilities Authority of
the State of Missouri, Health Facilities Revenue
(Lester E. Cox Medical Centers Project),
Series 1992-H (MBIA Insured) (c) -(d) 9/01/2020 AAA 195,000 39,008
City of Sikeston, Missouri, Electric System
Revenue Refunding, 1992 Series 2002 @ 102
(MBIA Insured) (c) 6.25 6/01/2022 2013 @ 100 S.F. AAA 500,000 499,330
City of Springfield, Missouri, Waterworks
Refunding and Improvement Revenue, 2003 @ 102
Series 1993A 5.60 5/01/2023 2020 @ 100 S.F. A+ 500,000 451,825
______________________
$2,970,000 2,736,966
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
NOTES TO PORTFOLIO
May 31, 1994
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at May 31, 1994.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on September 15, 1992, at a price of 15.838% of their original
principal amount.
(e) The Trust consists of eight obligations of issuers located in Missouri.
Two of the Bonds in the Trust, aggregating approximately 16% 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; Electric, 1;
University and School, 1; Water, 1; and Miscellaneous, 1. Approximately
23% of the aggregate principal amount of the Bonds consists of health
care revenue bonds. Each of five Bond issues represents 10% or more of
the aggregate principal amount of the Bonds in the Trust or a total of
approximately 77%. The four largest such issues represent approximately
17% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Interest income $163,680
Expenses:
Trustee's fees and related expenses (2,876)
Insurance expense (Note 3) (489)
Evaluator's fees (708)
Supervisory fees (745)
________
Investment income - net 158,862
Net gain (loss) on investments:
Net realized gain (loss) -
Change in unrealized appreciation
or depreciation (171,201)
________
(171,201)
________
Net increase (decrease) in net assets resulting
from operations $(12,339)
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Net increase (decrease) in net assets resulting
from operations:
Investment income - net $158,862
Net realized gain (loss) on investments -
Change in unrealized appreciation or
depreciation on investments (171,201)
__________
(12,339)
Distributions to unit holders:
Investment income - net (126,293)
Principal from investment transactions -
__________
(126,293)
__________
Total increase (decrease) in net assets (138,632)
Net assets:
At the beginning of the period 2,908,167
__________
At the end of the period (including
distributable funds applicable to
Trust units of $32,569 at May 31, 1994) $2,769,535
==========
Trust units outstanding at the end
of the period 3,058
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of the
Sponsor. The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds,
(3) appraisal or (4) any combination of the above (see Note 3).
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, June 9, 1993. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
In addition to insurance coverage acquired by the Trust (see Note 3), the
Trust pays a fee for Trustee services 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 $891 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 depreciation at May 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(171,201)
Unrealized appreciation -
_________
$(171,201)
=========
</TABLE>
<PAGE>
3. Insurance
The issuers of seven bond issues in the Trust acquired insurance coverage
which provides for the payment, when due, of all principal and interest on
those bonds (see Note (c) to portfolio); the Trust has acquired similar
insurance coverage on the other bond in its portfolio. While insurance
coverage acquired by an issuer of bonds continues in force so long as the
bonds are outstanding and the insurer remains in business, insurance coverage
acquired by the Trust is effective only while the bonds are owned by the Trust
and, in the event of disposition of such a bond by the Trustee, the insurance
terminates as to such bond on the date of disposition. Pursuant to an
irrevocable commitment of Financial Guaranty Insurance Company, in the event
of a sale of a bond covered by the policy obtained by the Trust, the Trustee
has the right to obtain permanent insurance for such bond upon the payment of
a single predetermined insurance premium from the proceeds of the sale of such
bond. Annual insurance premiums payable by the Trust in future years,
assuming no change in the portfolio, would be $500.
The valuation of bonds does not include any amount attributable to the
insurance acquired by the Trust as there has been no default in the payment of
principal or interest on the bonds in the portfolio as of the date of these
financial statements and, in the opinion of the Sponsor, the bonds are being
quoted in the market at a value which does not reflect a significant risk of
such default.
4. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 4.9% of the public offering price which is equivalent to
approximately 5.152% 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
Type of Date of Deposit,
distribution June 9, 1993, to
plan May 31, 1994
<S> <C>
Monthly $39.83*
Semi-annual 40.18
</TABLE>
[FN]
*Excludes $1.02 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $11,606, plus interest
accruing to the first settlement date, June 16, 1993, totaling $3,130, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.05 per unit, was paid on October 1, 1993 to all
unit holders of record on September 15, 1993.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
June 9, 1993, to
May 31, 1994
<S> <C>
Interest income $53.53
Expenses (1.58)
_______
Investment income - net 51.95
Distributions to unit holders:
Investment income - net (41.30)
Principal from investment transactions -
Net gain (loss) on investments (55.98)
_______
Total increase (decrease) in
net assets (45.33)
Net assets:
Beginning of the period 951.00
_______
End of the period $905.67
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 18
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 LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
3,978 UNITS
PROSPECTUS
Part One
Dated September 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 New York State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State New York Trust,
Series 48 (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 New York, 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 New York State and
local income taxes under existing law. At August 16, 1994, each Unit
represented a 1/3,978 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 5.7% of the Public Offering Price (6.045%
of the amount invested). At August 16, 1994, the Public Offering Price per
Unit was $950.06 plus net interest accrued to date of settlement (five
business days after such date) of $8.30 and $17.17 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 5.59% per annum on August 16, 1994, and 5.54% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.72% per annum on August 16, 1994, and 5.66%
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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $3,880,000
Number of Units 3,978
Fractional Undivided Interest in the Trust per Unit 1/3,978
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $3,563,943
Aggregate Value of Bonds per Unit $895.91
Sales Charge 6.045% (5.7% of Public Offering Price) $54.15
Public Offering Price per Unit $950.06*
Redemption Price and Sponsor's Repurchase Price per Unit
($54.15 less than the Public Offering Price per Unit) $895.91*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $779,000
</TABLE>
Date Trust Established June 9, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $1,169 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.25
of the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (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 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
SUMMARY OF ESSENTIAL INFORMATION AS OF AUGUST 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 $54.77 $54.77
Less: Estimated Annual Expense
Excluding Insurance $2.15 $1.62
Estimated Net Annual Interest Income $52.62 $53.15
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $52.62 $53.15
Divided by 12 and 2, Respectively $4.38 $26.58
Estimated Daily Rate of Net Interest Accrual $.1462 $.1477
Estimated Current Return Based on Public
Offering Price 5.54% 5.59%
Estimated Long-Term Return Based on Public
Offering Price 5.66% 5.72%
</TABLE>
Trustee's Annual Fee: $1.05 and $.55 per $1,000 principal amount of Bonds for
those portions of the Trust under the monthly and semi-annual distribution
plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 189, The First Trust of Insured Municipal
Bonds - Multi-State, New York Trust, Series 48
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 189, The First
Trust of Insured Municipal Bonds - Multi-State, New York Trust, Series 48 as
of May 31, 1994, and the related statements of operations and changes in net
assets for the period from the Date of Deposit, June 9, 1993, to May 31, 1994.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 May 31, 1994, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 189, The First Trust of Insured Municipal Bonds - Multi-State, New York
Trust, Series 48 at May 31, 1994, and the results of its operations and
changes in its net assets for the period from the Date of Deposit, June 9,
1993, to May 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 31, 1994
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at value (cost $3,801,157)
(Note 1) $3,555,101
Accrued interest 75,858
__________
3,630,959
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 26,858
Cash overdraft 9,788
Accrued liabilities 29
__________
36,675
__________
Net assets, applicable to 3,994 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $3,801,157
Net unrealized depreciation (Note 2) (246,056)
Distributable funds 39,183
__________
$3,594,284
==========
Net asset value per unit $899.92
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
PORTFOLIO - See notes to portfolio.
May 31, 1994
<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>
Glen Cove Industrial Development Agency, Civic
Facility Revenue (The Regency at Glen Cove),
1992 Series B (AMBAC Insured) (c) (e) -(d) 10/15/2019 AAA $280,000 54,239
Metropolitan Transportation Authority, Transit
Facilities Revenue, Series J (FGIC 2002 @ 100
Insured) (c) (f) 5.50 % 7/01/2022 2019 @ 100 S.F. AAA 390,000 351,027
Metropolitan Transportation Authority,
Transit Facilities Revenue, Series K 2002 @ 101.5
(MBIA Insured) (c) 6.25 7/01/2011 2009 @ 100 S.F. AAA 335,000 340,229
The City of New York, General Obligation,
Fiscal 1992 Series C, Fixed Rate,
Subseries C-1 (MBIA Insured) (c) 6.625 8/01/2013 2002 @ 101.5 AAA 250,000 260,949
New York City Health and Hospitals Corporation, 2003 @ 102
Health System, 1993 Series A (AMBAC Insured) (c) 5.75 2/15/2022 2021 @ 100 S.F. AAA 500,000 457,435
New York City Municipal Water Finance Authority,
Water and Sewer System Revenue, Fiscal 1992 2002 @ 101.5
Series C (AMBAC Insured) (c) 6.20 6/15/2021 2019 @ 100 S.F. AAA 140,000 138,012
Dormitory Authority of the State of New York,
Insured Revenue, Upstate Community Colleges, 2002 @ 102
1992A Issue (Connie Lee Insured) (c) (f) 5.75 7/01/2022 2013 @ 100 S.F. AAA 500,000 457,255
Dormitory Authority of the State of New York,
Marist College, Insured Revenue, Series 1992 2002 @ 102
(MBIA Insured) (c) 6.00 7/01/2022 2013 @ 100 S.F. AAA 500,000 476,555
New York State Medical Care Facilities Finance
Agency, Long-Term Health Care Revenue
(Capital Guaranty Insured Program), 1992 2002 @ 102
Series D (Capital Guaranty Insured) (c) 6.50 11/01/2015 2011 @ 100 S.F. AAA 500,000 514,415
Triborough Bridge and Tunnel Authority,
Special Obligation, Series 1992 2002 @ 101.5
(AMBAC Insured) (c) 6.25 1/01/2012 2009 @ 100 S.F. AAA 500,000 504,985
______________________
$3,895,000 3,555,101
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
NOTES TO PORTFOLIO
May 31, 1994
(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. None of the Bonds in the Trust is subject to call within
five years.
(b) The ratings shown are those effective at May 31, 1994.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds have no stated interest rate ("zero coupon bonds") and,
accordingly, will have no periodic interest payments to the Trust. Upon
maturity, the holders of these Bonds are entitled to receive 100% of the
stated principal amount. The Bonds were issued at an original issue
discount on January 15, 1992 at a price of 15.221% of their original
principal amount.
(e) This Bond is secured by, and payable from, escrowed U.S. Government
securities.
(f) These Bonds were issued at an original issue discount on the following
dates and at the following percentages of their original principal
amount:
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
Metropolitan Transportation
Authority, Series J 2/15/92 85.874
Dormitory Authority Upstate
Community Colleges 8/01/92 94.552
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
NOTES TO PORTFOLIO (continued)
May 31, 1994
(g) The Trust consists of ten obligations of issuers located in New York.
One of the Bonds, representing approximately 6% of the aggregate
principal amount of the Bonds in the Trust, is a general obligation of a
governmental entity. The remaining issues are revenue bonds payable
from the income of a specific project or authority and are divided by
purpose of issue as follows: Water and Sewer, 1; Transportation, 3;
Health Care, 2; University and School, 2; and Miscellaneous, 1.
Approximately 31%, 26% and 26% of the aggregate principal amount of the
Bonds consist of transportation revenue bonds, health care revenue bonds
and university and school revenue bonds, respectively. 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 74%. The five largest
such issues represent approximately 13% each.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Interest income $214,016
Expenses:
Trustee's fees and related expenses (4,258)
Evaluator's fees (1,030)
Supervisory fees (974)
________
Investment income - net 207,754
Net gain (loss) on investments:
Net realized gain (loss) -
Change in unrealized appreciation
or depreciation (246,056)
________
(246,056)
________
Net increase (decrease) in net assets
resulting from operations $(38,302)
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
June 9, 1993, to May 31, 1994
<TABLE>
<S> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $207,754
Net realized gain (loss) on investments -
Change in unrealized appreciation or
depreciation on investments (246,056)
__________
(38,302)
Distributions to unit holders:
Investment income - net (165,609)
Principal from investment transactions -
__________
(165,609)
Unit redemptions (3):
Principal portion (2,931)
Net interest accrued (31)
__________
(2,962)
__________
Total increase (decrease) in net assets (206,873)
Net assets:
At the beginning of the period 3,801,157
__________
At the end of the period (including
distributable funds applicable to
Trust units of $39,183 at May 31, 1994) $3,594,284
==========
Trust units outstanding at the end
of the period 3,994
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
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, June 9, 1993. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services to 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 $1,169 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 depreciation at May 31, 1994 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(246,056)
Unrealized appreciation -
_________
$(246,056)
=========
</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 4.9% of the public offering price which is equivalent to
approximately 5.152% 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
Type of Date of Deposit,
distribution June 9, 1993, to
plan May 31, 1994
<S> <C>
Monthly $40.25*
Semi-annual 40.59
</TABLE>
[FN]
*Excludes $1.03 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $73,535, plus net interest
accruing to the first settlement date, June 16, 1993, totaling $4,105, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $5.16 per unit, was paid on October 1, 1993 to all
unit holders of record on September 15, 1993.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
June 9, 1993, to
May 31, 1994
<S> <C>
Interest income $53.57
Expenses (1.57)
_______
Investment income - net 52.00
Distributions to unit holders:
Investment income - net (41.45)
Principal from investment transactions -
Net gain (loss) on investments (61.63)
_______
Total increase (decrease)
in net assets (51.08)
Net assets:
Beginning of the period 951.00
_______
End of the period $899.92
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 189
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW YORK TRUST, SERIES 48
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 LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The First Trust Combined Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated 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
National Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated June 27, 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 received, if any, on Bonds delivered
after the date the Unit holders pay for their Units and,
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
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 provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that
the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations.
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. 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, Booth & Baron, Special Counsel to
Series 1-3 of The First Trust Combined Series for New York tax
matters, rendered an opinion under then existing income tax laws
of the State and City of New York, substantially to the effect
that each Trust in Series 1-3 of The First Trust Combined Series
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 First Trust
Combined Series for New York tax matters, rendered an opinion
under then existing income tax laws of the State and City of New
York, substantially to the effect that each Trust in Series 4-125
of The First Trust Combined Series is not an association taxable
as a corporation and the income of each Trust in Series 4-125
of The First Trust Combined Series will be treated as the income
of the Unit holder in the same manner as for Federal income tax
purposes (subject to differences in accounting for discount and
premium to the extent the State and/or City of New York do not
conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special
Counsel to The First Trust Combined Series for New York tax matters
for Series 126 and subsequent Series of the First Trust Combined
Series, rendered an opinion under then existing income tax laws
of the State and City of New York, substantially to the effect
that each Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax. Under the income tax laws of the State
and City of New York, the income of each Trust will be considered
the income of the holders of the Units.
LeBoeuf, Lamb, Leiby & MacRae has served as Special Counsel to
Series 8-81, inclusive, of The First Trust of Insured Municipal
Bonds, Booth & Baron has served as Special Counsel to Series 82-147
of The First Trust of Insured Municipal Bonds and Winston & Strawn
(previously named Cole & Deitz) has served as Special Counsel
to Series 148 and subsequent Series of The First Trust Insured
Municipal Bonds for New York tax matters. In the opinion of such
Special Counsels, under the existing income tax laws of the State
and City of New York, each Trust is not an association taxable
as a corporation and the income of each such Trust will be treated
as the income of the Unit holder.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are
to be so construed.
Certain Considerations
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore,
the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output
is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. Since World
War II the economic importance of agriculture for Puerto Rico,
particularly in the dominance of sugar production, has declined.
Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal
maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rico sugar production. The level of tourism
is affected by various factors including the strength of the U.S.
dollar. During periods when the dollar is strong, tourism in foreign
countries becomes relatively more attractive.
Page 4
The Puerto Rican economy is affected by a number of Commonwealth
and Federal investment incentive programs. For example, Section
936 of the Internal Revenue Code provides for a credit against
Federal income taxes for U.S. companies operating on the island
if certain requirements are met. The Omnibus Budget Reconciliation
Act of 1993 imposes limits on such credit, effective for tax years
beginning after 1993. In addition, from time to time proposals
are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment
can be made at this time of the precise effect of such limitation,
it is expected that the limitation of Section 936 credits would
have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily
on Federal programs, and current Federal budgetary policies suggest
that an expansion of aid to Puerto Rico is unlikely. An adverse
effect on the Puerto Rican economy could result from other U.S.
policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such
as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously
proposed legislation, which was not enacted, would have preserved
the federal tax exempt status of the outstanding debts of Puerto
Rico and its public corporations regardless of the outcome of
the referendum, to the extent that similar obligations issued
by the states are so treated and subject to the provisions of
the Internal Revenue Code currently in effect. There can be no
assurance that any pending or future legislation finally enacted
will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to
have both direct and indirect consequences on such matters as
the basic characteristics of future Puerto Rico debt obligations,
the markets for these obligations, and the types, levels and quality
of revenue sources pledged for the payment of existing and future
debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status
of Section 936 benefits otherwise subject to the limitations discussed
above. However, no assessment can be made at this time of the
economic and other effects of a change in federal laws affecting
Puerto Rico as a result of the November 1993 plebiscite.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of Bonds held by
the National Trusts are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of the Bonds,
could affect or could have an adverse impact on the financial
condition of the issuers. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the
issuers of the Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired
by the National Trusts to pay interest on or principal of the
Bonds.
Page 5
National Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: 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 6
Alabama Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated June 27, 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 provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that
the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations.
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. 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.
Alabama Tax Status of Unit Holders
At the time of the closing for each Alabama Trust, Special Counsel
to the Fund for Alabama tax matters rendered an opinion under
then existing Alabama income tax law applicable to taxpayers whose
income is subject to Alabama income taxation substantially to
the effect that:
Each Alabama Trust is not taxable as a corporation for purposes
of the Alabama income tax.
Income of an Alabama Trust, to the extent it is taxable, will
be taxable to the Unit holders, not an Alabama Trust.
Each Unit holder's distributive share of an Alabama Trust's net
income will be treated as the income of the Unit holder for purposes
of the Alabama income tax.
Interest on obligations of the State of Alabama and subdivisions
thereof and on bona fide tax-exempt obligations of the United
States' Possessions held by an Alabama Trust which is exempt from
Alabama income tax will retain its tax-exempt character when the
distributive share thereof is distributed or deemed distributed
to each Unit holder. Any proceeds paid to an Alabama Trust under
insurance policies issued to the Sponsor or under individual policies
obtained by the Sponsor, the issuer or underwriter of the respective
obligations which represent maturing interest on defaulted obligations
held by the Trustee will be exempt from Alabama income tax if
and to the same extent as such interest would be exempt from such
taxes if paid directly by the issuer of such obligations.
Each Unit holder will, for purposes of the Alabama income tax,
treat his distributive share of gains realized upon the sale or
other disposition of the Bonds held by an Alabama Trust as though
the Bonds were sold or disposed of directly by the Unit holders.
Gains realized on the sale or redemption of Units by Unit holders,
who are subject to the Alabama income tax, will be includable
in the Alabama income of such Unit holders.
For information with respect to the Federal income tax status
and other tax matters, see "What is the Federal Tax Status of
Unit Holders?"
Certain Considerations
Alabama Economy. Alabama's economy has experienced a major trend
toward industrialization over the past two decades. By 1990, manufacturing
accounted for 26.7% of Alabama's Real Gross State Product (the
total value of goods and services produced in Alabama). During
the 1960s and 1970s the State's industrial base became more diversified
and balanced, moving away from primary metals into pulp and paper,
lumber, furniture, electrical machinery, transportation equipment,
textiles (including apparel), chemicals, rubber and plastics.
Since the early 1980's, modernization of existing facilities and
an increase in direct foreign investments in the State has made
the manufacturing sector more competitive in domestic and international
markets.
Page 4
Among several leading manufacturing industries have been pulp
and papers and chemicals. In recent years Alabama has ranked as
the fifth largest producer of timber in the nation. The State's
growing chemical industry has been the natural complement of production
of wood pulp and paper. Mining, oil and gas production and service
industries are also important to Alabama's economy. Coal mining
is by far the most important mining activity.
Major service industries that are deemed to have significant growth
potential include the research and medical training and general
health care industries, most notably represented by the University
of Alabama medical complex in Birmingham and the high technology
research and development industries concentrated in the Huntsville
area.
Real Gross State Product. Real Gross State Product (RGSP) is a
comprehensive measure of economic performance for the State of
Alabama. Alabama's RGSP is defined as the total value of all final
goods and services produced in the State in constant dollar terms.
Hence, changes in RGSP reflect changes in final output. From 1984
to 1990 RGSP originating in manufacturing increased by 22.99%
whereas RGSP originating in all the non-manufacturing sectors
grew by 17.88%.
Those non-manufacturing sectors exhibiting large percentage increases
in RGSP originating between 1984 and 1990 were 1) Services; 2)Trade;
3) Farming; and 4) Finance, Insurance, and Real Estate. From 1984
to 1990 RGSP originating in Services increased by 35.07%; Trade
grew by 21.53%; Farming increased by 19.78%; and the gain in Finance,
Insurance and Real Estate was 19.19%. The present movement toward
diversification of the State's manufacturing base and a similar
present trend toward enlargement and diversification of the service
industries in the State are expected to lead to increased economic
stability.
Employment. The recent national economic recession was felt severely
in Alabama. The manufacturing growth described above reached a
peak in 1979, and was followed by a decrease in activity. The
national economic recession was principally responsible for this
decline. The State's industrial structure is particularly sensitive
to high interest rates and monetary policy, and the resulting
unemployment during 1981-1984 was acute. Unemployment rates have
improved as the impact of the national economic recovery has benefited
the State. The economic recovery experienced on the national level
since 1982 has been experienced in Alabama as well, but to a different
degree and with a time lag.
Among other risks, the State of Alabama's economy depends upon
cyclical industries such as iron and steel, natural resources,
and timber and forest products. As a result, economic activity
may be more cyclical than in certain other Southeastern states.
The national economic recession in the early 1980s caused a decline
in manufacturing activity and natural resource consumption, and
Alabama's unemployment rate was 14.4% in 1982, significantly higher
than the national average. Unemployment remains high in certain
rural areas of the State. A trend towards diversification of the
State's economic base and an expansion of service industries may
lead to improved economic stability in the future, although there
is no assurance of this.
Political subdivisions of the State of Alabama have limited taxing
authority. In addition, the Alabama Supreme Court has held that
a governmental unit may first use its taxes and other revenues
to pay the expenses of providing necessary governmental services
before paying debt service on its bonds, warrants or other indebtedness.
The State has statutory budget provisions which result in a proration
procedure in the event estimated budget resources in a fiscal
year are insufficient to pay in full all appropriations for that
year. Proration has a materially adverse effect on public entities
that are dependent upon State funds subject to proration.
Deterioration of economic conditions could adversely affect both
tax and other governmental revenues, as well as revenues to be
used to service various revenue obligations, such as industrial
development obligations. Such difficulties could adversely affect
the market value of the bonds held by the Alabama Trust and thereby
adversely affect Unit holders.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore,
the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar)
Page 5
and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source
of semi-finished manufactured articles on which further manufacturing
operations are performed in Puerto Rico. Since World War II the
economic importance of agriculture for Puerto Rico, particularly
in the dominance of sugar production, has declined. Nevertheless,
the Commonwealth-controlled sugar monopoly remains an important
economic factor and is largely dependent upon Federal maintenance
of sugar prices, the discontinuation of which could severely affect
Puerto Rico sugar production. The level of tourism is affected
by various factors including the strength of the U.S. dollar.
During periods when the dollar is strong, tourism in foreign countries
becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth
and Federal investment incentive programs. For example, Section
936 of the Internal Revenue Code provides for a credit against
Federal income taxes for U.S. companies operating on the island
if certain requirements are met. The Omnibus Budget Reconciliation
Act of 1993 imposes limits on such credit, effective for tax years
beginning after 1993. In addition, from time to time proposals
are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment
can be made at this time of the precise effect of such limitation,
it is expected that the limitation of Section 936 credits would
have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily
on Federal programs, and current Federal budgetary policies suggest
that an expansion of aid to Puerto Rico is unlikely. An adverse
effect on the Puerto Rican economy could result from other U.S.
policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such
as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously
proposed legislation, which was not enacted, would have preserved
the federal tax exempt status of the outstanding debts of Puerto
Rico and its public corporations regardless of the outcome of
the referendum, to the extent that similar obligations issued
by the states are so treated and subject to the provisions of
the Internal Revenue Code currently in effect. There can be no
assurance that any pending or future legislation finally enacted
will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to
have both direct and indirect consequences on such matters as
the basic characteristics of future Puerto Rico debt obligations,
the markets for these obligations, and the types, levels and quality
of revenue sources pledged for the payment of existing and future
debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status
of Section 936 benefits otherwise subject to the limitations discussed
above. However, no assessment can be made at this time of the
economic and other effects of a change in federal laws affecting
Puerto Rico as a result of the November 1993 plebiscite.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of Bonds held by
the Alabama Trusts are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of the Bonds,
could affect or could have an adverse impact on the financial
condition of the issuers. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the
issuers of the Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired
by the Alabama Trusts to pay interest on or principal of the Bonds.
Page 6
Alabama Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: 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
California Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated June 27, 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 provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that
the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations.
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. 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
Page 3
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 First Trust
Combined Series for New York tax matters, rendered an opinion
under then existing income tax laws of the State and City of New
York, substantially to the effect that each Trust in Series 4-125
of The First Trust Combined Series is not an association taxable
as a corporation and the income of each Trust in Series 4-125
of The First Trust Combined Series will be treated as the income
of the Unit holder in the same manner as for Federal income tax
purposes (subject to differences in accounting for discount and
premium to the extent the State and/or City of New York do not
conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special
Counsel to The First Trust Combined Series for New York tax matters
for Series 126 and subsequent Series of The First Trust Combined
Series, rendered an opinion under then existing income tax laws
of the State and City of New York, substantially to the effect
that each Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax. Under the income tax laws of the State
and City of New York, the income of each Trust will be considered
the income of the holders of the Units.
Booth & Baron has served as Special Counsel to Series 1-9 of The
First Trust of Insured Municipal Bonds-Multi-State, inclusive,
and Winston & Strawn (previously named Cole & Deitz) has served
as Special Counsel to Series 10 and 11 of The First Trust of Insured
Municipal Bonds-Multi-State for New York tax matters. In the opinion
of such Special Counsels, under the existing income tax laws of
the State and City of New York, each Trust is not an association
taxable as a corporation and the income of each such Trust will
be treated as the income of the Unit holder.
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.
California Tax Status of Unit Holders
At the time of the closing for each California Trust, Special
Counsel to the Fund for California tax matters rendered an opinion
under then existing California income and property tax law applicable
to taxpayers whose income is subject to California income taxation
substantially to the effect that:
Each California Trust is not an association taxable as a corporation
and the income of a California Trust will be treated as the income
of the Unit holders under the income tax laws of California.
Interest on the underlying securities (which may include bonds
or other obligations issued by the governments of Puerto Rico,
the Virgin Islands, Guam or the Northern Mariana Islands) which
is exempt from tax under California personal income tax and property
tax laws when received by a California Trust will, under such
laws, retain its status as tax-exempt interest when distributed
to Unit holders. However, interest on the underlying securities
attributed to a Unit holder which is a corporation subject to
the California franchise tax laws may be includable in its gross
income for purposes of determining its California franchise tax.
Under California income tax law, each Unit holder in a California
Trust will have a taxable event when a California Trust disposes
of a security (whether by sale, exchange, redemption or payment
at maturity) or when the Unit holder redeems or sells Units. Because
of the requirement that tax cost basis be reduced to reflect amortization
of bond premium, under some circumstances a Unit holder may realize
taxable gain when Units are sold or redeemed for an amount equal
to, or less than, their original cost. The total tax cost of each
Unit to a Unit holder is allocated among each of the bond issues
held in a California Trust (in accordance with the proportion
of a California Trust comprised by each bond issue) in order to
determine his per unit tax cost for each bond issue; and the tax
cost reduction requirements relating to amortization of bond premium
will apply separately to the per unit
Page 4
cost of each bond issue. Unit holders' bases in their Units, and
the bases for their fractional interest in each California Trust
asset, may have to be adjusted for their pro rata share of accrued
interest received, if any, on securities delivered after the Unit
holders' respective settlement dates.
Under the California personal property tax laws, bonds (including
the bonds in a California Trust as well as "regular-way" and "when-issued"
contracts for the purchase of bonds) or any interest therein is
exempt from such tax.
Any proceeds paid under an insurance policy issued to the Trustee
of a Trust with respect to the bonds in a California Trust as
well as "regular-way" and "when-issued" contracts for the purchase
of bonds which represent maturing interest on defaulted obligations
held by the Trustee will be exempt from California personal income
tax if, and to the same extent as, such interest would have been
so exempt if paid by the issuer of the defaulted obligations.
Under Section 17280(b)(2) of the California Revenue and Taxation
Code, interest on indebtedness incurred or continued to purchase
or carry Units of a California Trust is not deductible for the
purposes of the California personal income tax. While there presently
is no California authority interpreting this provision, Section
17280(b)(2) directs the California Franchise Tax Board to prescribe
regulations determining the proper allocation and apportionment
of interest costs for this purpose. The Franchise Tax Board has
not yet proposed or prescribed such regulations. In interpreting
the generally similar Federal provision, the Internal Revenue
Service has taken the position that such indebtedness need not
be directly traceable to the purchase or carrying of Units (although
the Service has not contended that a deduction for interest on
indebtedness incurred to purchase or improve a personal residence
or to purchase goods or services for personal consumption will
be disallowed). In the absence of conflicting regulations or other
California authority, the California Franchise Tax Board generally
has interpreted California statutory tax provisions in accord
with Internal Revenue Service interpretations of similar Federal
provisions.
For information with respect to the Federal income tax status
and other tax matters, see "What is the Federal Tax Status of
Unit Holders?"
Certain Considerations
Economic Factors. Each California Trust is susceptible to political,
economic or regulatory factors affecting issuers of California
municipal obligations (the "California Municipal Obligations").
These include the possible adverse effects of certain California
constitutional amendments, legislative measures, voter initiatives
and other matters that are described below. The following information
provides only a brief summary of the complex factors affecting
the financial situation in California (the "State") and is derived
from sources that are generally available to investors and are
believed to be accurate. No independent verification has been
made of the accuracy or completeness of any of the following information.
It is based in part on information obtained from various State
and local agencies in California or contained in Official Statements
for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental
finances generally, will not adversely affect the market value
of California Municipal Obligations held in the portfolio of the
Trust or the ability of particular obligors to make timely payments
of debt service on (or relating to) those obligations.
Economic Overview. California's economy is the largest among the
50 states and one of the largest in the world. The State's population
of almost 32 million represents 12.3% of the total United States
population and grew by 27% in the 1980s. Total personal income
in the State, at an estimated $662 billion in 1992, accounts for
13% of all personal income in the nation. Total employment is
almost 14 million, the majority of which is in the service, trade
and manufacturing sectors.
Reports issued by the State Department of Finance and the Commission
on State Finance (the "COSF") indicate that the State's economy
is suffering its worst recession since the 1930s, with prospects
for recovery slower than for the nation as a whole. The State
has experienced the worst job losses in any postwar recession
and employment levels are not expected to stabilize until late
1994 or 1995. Pre-recession job levels
Page 5
may not be reached until near the end of the decade. The largest
job losses have been in Southern California, led by declines in
the aerospace and construction industries. Weakness statewide
occurred in manufacturing, construction, services and trade. Additional
military base closures will have further adverse effects on the
State's economy later in the decade. Unemployment averaged over
9% in 1993 and is expected to remain high in 1994. The State's
economy is only expected to pull out of the recession slowly,
once the national recovery has begun. Delay in recovery will exacerbate
shortfalls in State revenues.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations
may be obligations of issuers which rely in whole or in part,
directly or indirectly, on ad valorem property taxes as a source
of revenue. The taxing powers of California local governments
and districts are limited by Article XIIIA of the California Constitution,
enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally
restricts the reassessment of property to 2% per year, except
upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem
taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date
of acquisition (or as of March 1, 1975, if acquired earlier),
subject to certain adjustments. This system has resulted in widely
varying amounts of tax on similarly situated properties. Several
lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13 and on June 18, 1992 the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues
through ad valorem property taxes above the 1% limit; it also
requires voters of any governmental unit to give two-thirds approval
to levy any "special tax." Court decisions, however, allowed non-voter
approved levy of "general taxes" which were not dedicated to a
specific use. In response to these decisions, the voters of the
State in 1986 adopted an initiative statute which imposed significant
new limits on the ability of local entities to raise or levy general
taxes,except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62," have been overturned
in recent court cases. An initiative proposed to re-enact the
provisions of Proposition 62 as a constitutional amendment was
defeated by the voters in November 1990, but such a proposal may
be renewed in the future.
Appropriations Limits. California and its local governments are
subject to an annual "appropriations limit" imposed by Article
XIIIB of the California Constitution, enacted by the voters in
1979 and significantly amended by Propositions 98 and 111 in 1988
and 1990, respectively. Article XIIIB prohibits the State or any
covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consist of tax revenues, and certain
other funds, including proceeds from regulatory licenses, user
charges or other fees, to the extent that such proceeds exceed
the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No
limit is imposed on appropriations of funds which are not "proceeds
of taxes," such as reasonable user charges or fees, and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized
prior to January 1, 1979, or subsequently authorized by the voters,
(2) appropriations arising from certain emergencies declared by
the Governor, (3) appropriations for certain capital outlay projects,
(4) appropriations by the State of post-1989 increases in gasoline
taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to
reflect changes in cost of living and population, and any transfers
of service responsibilities between government units. The definitions
for such adjustments were liberalized in 1990 to follow more closely
growth in California's economy.
"Excess" revenues are measured over a two-year cycle. Local governments
must return any excess to taxpayers by rate reduction. The State
must refund 50% of any excess, with the other 50% paid to schools
and
Page 6
community colleges. With more liberal annual adjustment factors
since 1988, and depressed revenues since 1990 because of the recession,
few governments are currently operating near their spending limits,
but this condition may change over time. Local governments may
by voter approval exceed their spending limits for up to four
years.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies
in their terms, and the impossibility of predicting future appropriations
or changes in population and cost of living, and the probability
of continuing legal challenges, it is not currently possible to
determine fully the impact of Article XIIIA or Article XIIIB on
California Municipal Obligations or on the ability of California
or local governments to pay debt service on such California Municipal
Obligations. It it not presently possible to predict the outcome
of any pending litigation with respect to the ultimate scope,
impact or constitutionality of either Article XIIIA or Article
XIIIB, or the impact of any such determinations upon State agencies
or local governments, or upon their ability to pay debt service
on their obligations. Future initiatives or legislative changes
in laws or the California Constitution may also affect the ability
of the State or local issuers to repay their obligations.
Obligations of the State of California. As of April 1, 1994, California
had approximately $18.1 billion of general obligation bonds outstanding,
and $5.6 billion remained authorized but unissued. In addition,
at June 30, 1993, the State had lease-purchase obligations, payable
from the State's General Fund, of approximately $4.0 billion.
Four general obligation bond propositions, totaling $5.9 billion,
will be on the June 1994 ballot. In fiscal year 1992-93, debt
service on general obligation bonds and lease-purchase debt was
approximately 4.1% of General Fund revenues. The State has paid
the principal of and interest on its general obligation bonds,
lease-purchase debt and short-term obligations when due.
Recent Financial Results. The principal sources of General Fund
revenues in 1992-1993 were the California personal income tax
(44% of total revenues), the sales tax (38%), bank and corporation
taxes (12%), and the gross premium tax on insurance (3%). California
maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a
reserve to meet cash needs of the General Fund.
General. Throughout the 1980's, State spending increased rapidly
as the State population and economy also grew rapidly, including
increased spending for many assistance programs to local governments,
which were constrained by Proposition 13 and other laws. The largest
State program is assistance to local public school districts.
In 1988, an initiative (Proposition 98) was enacted which (subject
to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college
districts a minimum share of State General Fund revenues (currently
about 34%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession
seriously affected State tax revenues. It also caused increased
expenditures for health and welfare programs. The State is also
facing a structural imbalance in its budget with the largest programs
supported by the General Fund (education, health, welfare and
corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result,
the State entered a period of budget imbalance, with expenditures
exceeding revenues for four of the five fiscal years ending in
1991-92.
As the State fell into a deep recession in the summer of 1990,
the State budget fell sharply out of balance in the 1990-91 and
1991-92 fiscal years, despite significant expenditure cuts and
tax increases. The State had accumulated a $2.8 billion budget
deficit by June 30, 1992. This deficit also severely reduced the
State's cash resources, so that it had to rely on external borrowing
in the short-term markets to meet its cash needs.
1992-93 Fiscal Year. With the failure to enact a budget by July
1, 1992, the State had no legal authority to pay many of its vendors
until the budget was passed; nevertheless, certain obligations
(such as debt service, school apportionments, welfare payments,
and employee salaries) were payable because of continuing or special
appropriations, or court orders. However, the State Controller
did not have enough cash to pay
Page 7
as they came due all of these ongoing obligations, as well as
valid obligations incurred in the prior fiscal year.
Because of the delay in enacting the budget, the State could not
carry out its normal cash flow borrowing and, starting on July
1, 1992, the Controller was required to issue "registered warrants"
in lieu of normal warrants backed by cash to pay many State obligations.
Available cash was used to pay constitutionally mandated and priority
obligations. Between July 1 and September 3, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered
warrants, all of which were called for redemption by September
4, 1992 following enactment of the 1992-93 Budget Act and issuance
by the State of $3.3 billion of Interim Notes.
The 1992-93 Budget Act, when finally adopted, was projected to
eliminate the State's accumulated deficit, with additional expenditure
cuts and a $1.3 billion transfer of State education funding costs
to local governments by shifting local property taxes to school
districts. However, as the recession continued longer and deeper
than expected, revenues once again were far below projections,
and only reached a level just equal to the amount of expenditures.
Thus, the State continued to carry its $2.8 billion budget deficit
at June 30, 1993.
The 1993-94 Budget Act was similar to the prior year, in reliance
on expenditure cuts and an additional $2.6 billion transfer of
costs to local government, particularly counties. A major feature
of the budget was a two-year plan to eliminate the accumulated
deficit by borrowing into the 1994-95 fiscal year. With the recession
still continuing longer than expected the 1994-95 Governor's Budget
now projects that in the 1993-94 Fiscal Year, the General Fund
will have $900 million less revenue and $800 million higher expenditures
than budgeted. As a result revenues will only exceed expenditures
by about $400 million. If this projection is met, it will be the
first operating surplus in four years; however, some budget analysts
outside the Department of Finance project revenues in the balance
of 1993-94 will not even meet the revised, lower projection. In
addition, the General Fund may have some unplanned costs for relief
related to the January 17, 1994, Northridge earthquake.
The State has implemented its short-term borrowing as part of
the deficit elimination plan, and has borrowed additional sums
to cover cash flow shortfalls in the spring of 1994, for a total
of $3.2 billion, coming due in July and December 1994. Repayment
of these short-term notes will require additional borrowing, as
the State's cash position continues to be adversely affected.
The Governor's 1994-95 Budget proposal recognizes the need to
bridge a gap of around $5 billion by June 30, 1995. Over $3.1
billion of this amount is being requested from the federal government
as increased aid, particularly for costs associated with incarcerating,
educating and providing health and welfare services to undocumented
immigrants. However, President Clinton has not included these
costs in his proposed Fiscal 1995 Budget. The rest of the budget
gap is proposed to be closed with expenditure cuts and projected
$600 million of new revenue assuming the State wins a tax case
presently pending in the U.S. Supreme Court. Thus the State will
once again face significant uncertainties and very difficult choices
in the 1994-95 budget, as tax increases are unlikely and many
cuts and budget adjustments have been made in the past three years.
The State's severe financial difficulties for the current and
upcoming budget years will result in continued pressure upon almost
all local governments, particularly school districts and counties
which depend on State aid. Despite efforts in recent years to
increase taxes and reduce governmental expenditures, there can
be no assurance that the State will not face budget gaps in the
future.
Bond Rating. State general obligation bonds are currently rated
"Aa" by Moody's and "A+" by S&P. Both of these ratings were recently
reduced from"AAA" levels which the State held until late 1991.
There can be no assurance that such ratings will be maintained
in the future. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated
to the creditworthiness of obligations issued by the State of
California, and that there is no obligation on the part of the
State to make payment on such local obligations in the event of
default.
Page 8
Legal Proceedings. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if
decided against the State, may require the State to make significant
future expenditures or may substantially impair revenues. The
U.S. Supreme Court has granted review of two cases challenging
California's "unitary" method of taxing multinational corporations.
Although this taxing method has since been changed, if the State
loses these cases, it could be liable for tax refunds and lost
receipts of taxes assessed totalling $3.5 billion to $4 billion.
Obligations of Other Issuers
Other Issuers of California Municipal Obligations. There are a
number of state agencies, instrumentalities and political subdivisions
of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private
borrowers. These entities are subject to various economic risks
and uncertainties, and the credit quality of the securities issued
by them may vary considerably from the credit quality of the obligations
backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently,
the California Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies,
the reallocation of certain State revenues to local agencies and
the assumption of certain governmental functions by the State
to assist municipal issuers to raise revenues. Total local assistance
(including public schools) accounted for approximately 75% of
General Fund expenditures, including the effect of implementing
reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts
caused local governments to transfer $3.9 billion of property
tax revenues to school districts, representing loss of almost
all of the post-Proposition 13 "bailout" aid. The largest share
of these transfers came from counties, and the balance from cities,
special districts and redevelopment agencies. In order to make
up this shortfall, the Legislature has proposed and voters approved
dedicating 0.5% of the sales tax to counties and cities for public
safety purposes. In addition, the Legislature has changed laws
to relieve local governments of certain mandates, allowing them
to reduce costs.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition
98, or other fiscal considerations, the absolute level, or the
rate of growth, of State assistance to local governments may be
reduced. Any such reductions in State aid could compound the serious
fiscal constraints already experienced by many local governments,
particularly counties. The Richmond Unified School District (Contra
Costa County) entered bankruptcy proceedings in May 1991 but the
proceedings have been dismissed.
Assessment Bonds. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate
values or a slowdown in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time
of issuance but anticipated to be developed within a few years
after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments
or taxes securing these bonds are not the personal liability of
the owners of the property assessed, the lien on the property
is the only security for the bonds. Moreover, in most cases the
issuer of these bonds is not required to make payments on the
bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established
for the bonds.
California Long-Term Lease Obligations. Certain California long-term
lease obligations, though typically payable from the general fund
of the municipality, are subject to "abatement" in the event the
facility being leased is unavailable for beneficial use and occupancy
by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders
of the certificates evidencing the lease obligation in the event
abatement occurs. The most common cases of abatement are failure
to complete construction of the facility before the end of the
period during which lease payments have been capitalized and uninsured
casualty losses to the facility (e.g., due to earthquake). In
the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may
not be paid when due.
Page 9
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties
of the District were sold and leased back in order to obtain funds
to cover operating deficits. Following a fiscal crisis in which
the District's finances were taken over by a State receiver (including
a brief period under bankruptcy court protection), the District
failed to make rental payments on this lease, resulting in a lawsuit
by the Trustee for the Certificate of Participation holders, in
which the State was named defendant (on the grounds that it controlled
the District's finances). One of the defenses raised in answer
to this lawsuit was the invalidity of the District's lease. The
trial court has upheld the validity of the lease and the case
has been settled. Any judgement in a future case against the position
asserted by the Trustee in the Richmond case may have adverse
implications for lease transactions of a similar nature by other
California entities.
Other Considerations. The repayment of industrial development
securities secured by real property may be affected by California
laws limiting foreclosure rights of creditors. Securities backed
by health care and hospital revenues may be affected by changes
in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect
"tax allocation" bonds issued by California redevelopment agencies.
Such bonds are secured solely by the increase in assessed valuation
of a redevelopment project area after the start of redevelopment
activity. In the event that assessed values in the redevelopment
project decline (e.g., because of a major natural disaster such
as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's
and S&P suspended ratings on California tax allocation bonds after
the enactment of Articles XIIIA and XIIIB, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires
that all revenues produced by a tax rate increase go directly
to the taxing entity which increased such tax rate to repay that
entity's general obligation indebtedness. As a result, redevelopment
agencies (which, typically, are the issuers of tax allocation
securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes
upon the ability of California municipal securities issuers to
pay interest and principal on their obligations remains unclear.
Furthermore, other measures affecting the taxing or spending authority
of California or its political subdivisions may be approved or
enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures
or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes
or increase existing taxes. It is not presently possible to predict
the extent to which any such legislation will be enacted. Nor
is it presently possible to determine the impact of any such legislation
on California Municipal Obligations in which the Fund may invest,
future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on,
or repay the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region
subject to major seismic activity. Any California Municipal Obligation
in the California Insured Trust could be affected by an interruption
of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment
reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform
on its contracts of insurance in the event of widespread losses;
or (iii) the Federal or State government to appropriate sufficient
funds within their respective budget limitations.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore,
the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated
Page 10
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output
is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. Since World
War II the economic importance of agriculture for Puerto Rico,
particularly in the dominance of sugar production, has declined.
Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal
maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rico sugar production. The level of tourism
is affected by various factors including the strength of the U.S.
dollar. During periods when the dollar is strong, tourism in foreign
countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth
and Federal investment incentive programs. For example, Section
936 of the Internal Revenue Code provides for a credit against
Federal income taxes for U.S. companies operating on the island
if certain requirements are met. The Omnibus Budget Reconciliation
Act of 1993 imposes limits on such credit, effective for tax years
beginning after 1993. In addition, from time to time proposals
are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment
can be made at this time of the precise effect of such limitation,
it is expected that the limitation of Section 936 credits would
have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily
on Federal programs, and current Federal budgetary policies suggest
that an expansion of aid to Puerto Rico is unlikely. An adverse
effect on the Puerto Rican economy could result from other U.S.
policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such
as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously
proposed legislation, which was not enacted, would have preserved
the federal tax exempt status of the outstanding debts of Puerto
Rico and its public corporations regardless of the outcome of
the referendum, to the extent that similar obligations issued
by the states are so treated and subject to the provisions of
the Internal Revenue Code currently in effect. There can be no
assurance that any pending or future legislation finally enacted
will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to
have both direct and indirect consequences on such matters as
the basic characteristics of future Puerto Rico debt obligations,
the markets for these obligations, and the types, levels and quality
of revenue sources pledged for the payment of existing and future
debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status
of Section 936 benefits otherwise subject to the limitations discussed
above. However, no assessment can be made at this time of the
economic and other effects of a change in federal laws affecting
Puerto Rico as a result of the November 1993 plebiscite.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of Bonds held by
the California Trusts are subject. Additionally, many factors
including national economic, social and environmental policies
and conditions, which are not within the control of the issuers
of the Bonds, could affect or could have an adverse impact on
the financial condition of the issuers. The Sponsor is unable
to predict whether or to what extent such factors or other factors
may affect the issuers of the Bonds, the market value or marketability
of the Bonds or the ability of the respective issuers of the Bonds
acquired by the California Trusts to pay interest on or principal
of the Bonds.
Page 11
California Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: 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 12
Missouri Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated June 27, 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 provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that
the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations.
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. 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
Page 3
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.
Missouri Tax Status of Unit Holders
The assets of each Trust will consist of interest-bearing obligations
issued by or on behalf of the State of Missouri (the "State")
or counties, municipalities, authorities or political subdivisions
thereof (the "Missouri 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 each 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 and (iii) interest on the Missouri Bonds, if received
directly by a Unit holder, would be exempt from the Missouri income
tax applicable to individuals and corporations ("Missouri State
Income Tax"). The opinion set forth below does not address the
taxation of persons other than full time residents of Missouri.
At the time of the closing for each Missouri Trust, Chapman and
Cutler, Special Counsel to the Fund for Missouri tax matters rendered
an opinion under then existing Missouri tax law applicable to
taxpayers whose income is subject to Missouri income taxation
substantially to the effect that:
Each Trust is not an association taxable as a corporation for
Missouri income tax purposes, and each Unit holder of a Trust
will be treated as the owner of a pro rata portion of the Trust
and the income of such portion of the Trust will be treated as
the income of the Unit holder for Missouri State Income Tax purposes.
Interest paid and original issue discount, if any, on the Bonds
which would be exempt from the Missouri State Income Tax if received
directly by a Unit holder will be exempt from the Missouri State
Income Tax when received by a Trust and distributed to such Unit
holder; however, no opinion is expressed herein regarding taxation
of interest paid and original issue discount, if any, on the Bonds
received by a Trust and distributed to Unit holders under any
other tax imposed pursuant to Missouri law, including but not
limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
To the extent that interest paid and original issue discount,
if any, derived from a Trust by a Unit holder with respect to
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 paid and original
issue discount, if any, will not be subject to the Missouri State
Income Tax; however, no opinion is expressed herein regarding
taxation of interest paid and original issue discount, if any,
on the Bonds received
Page 4
by a Trust and distributed to Unit holders under any other tax
imposed pursuant to Missouri law, including but not limited to
the franchise tax imposed on financial institutions pursuant to
Chapter 148 of the Missouri Statutes.
Each Unit holder of a Trust will recognize gain or loss for Missouri
State 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 Trust to the extent that such a transaction
results in a recognized gain or loss to such Unit holder for Federal
income tax purposes. Due to the amortization of bond premium and
other basis adjustments required by the Internal Revenue Code,
a Unit holder, under some circumstances, may realize taxable gain
when his or her Units are sold or redeemed for an amount equal
to their original cost.
Any insurance proceeds paid under policies which represent maturing
interest on defaulted obligations which are excludable from gross
income for Federal income tax purposes will be excludable from
Missouri State Income Tax to the same extent as such interest
would have been so excludable if paid by the issuer of such Bonds
held by a Trust; however, no opinion is expressed herein regarding
taxation of interest paid and original issue discount, if any,
on the Bonds received by a Trust and distributed to Unit holders
under any other tax imposed pursuant to Missouri law, including
but not limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
The Missouri State Income Tax does not permit a deduction of interest
paid or incurred on indebtedness incurred or continued to purchase
or carry Units in a Trust, the interest on which is exempt from
such Tax.
The Trust will not be subject to the Kansas City, Missouri Earnings
and Profits Tax and each Unit holder's share of income of the
Bonds held by a Trust will not generally be subject to the Kansas
City, Missouri Earnings and Profits Tax or the City of St. Louis
Earnings Tax (except in the case of certain Unit holders, including
corporations, otherwise subject to the St. Louis City Earnings
Tax).
For information with respect to the Federal income tax status
and other tax matters see "What is the Federal Tax Status of Unit
Holders?"
Certain Considerations
The following discussion regarding constitutional limitations
and the economy of the State of Missouri is included for the purpose
of providing general information that may or may not affect issuers
of the Bonds in Missouri.
In November 1981, the voters of Missouri adopted a tax limitation
amendment to the constitution of the State of Missouri (the "Amendment").
The Amendment prohibits increases in local taxes, licenses, or
fees by political subdivisions without approval of the voters
of such political subdivision. The Amendment also limits the growth
in revenues and expenditures of the State to the rate of growth
in the total personal income of the citizens of Missouri. The
limitation may be exceeded if the General Assembly declares an
emergency by a two-thirds vote.
Although the June 1993 revenue estimate had been revised downward
by $27.5 million, the State budget for Fiscal Year 1993 remained
balanced due primarily to delayed spending for desegregation capital
projects. The downward revision in revenues was considered necessary
because of weak economic performance, and more importantly an
economic outlook for the second half of Fiscal Year 1993 which
projected slower growth than was anticipated in June 1992.
For Fiscal Year 1994, the majority of revenues for the State of
Missouri will be obtained from individual income taxes (53.1%),
sales and use taxes (30.0%), corporate income taxes (5.9%) and
county foreign insurance taxes (3.0%). Major expenditures for
Fiscal Year 1994 include elementary and secondary education (30.6%),
human services (25.4%), higher education (14.8%) and desegregation
(8.9%).
The Fiscal Year 1994 budget balances resources and obligations
based on the consensus revenue and refund estimate and an opening
balance resulting from continued withholdings and delayed spending
for desegregation capital projects. The total general revenue
operating budget for Fiscal Year 1994 exclusive of desegregation
is $3,844.6 million. The court-ordered desegregation estimate
is $377.7 million, an increase of $30.7 million over the revised
Fiscal Year 1993 estimate.
Page 5
The economy of Missouri is diverse and includes manufacturing,
retail and wholesale trade, services, agriculture, tourism, and
mining. In recent years, growth in the wholesale and retail trade
has offset the more slowly growing manufacturing and agricultural
sectors of the economy. According to the United States Bureau
of Labor Statistics, the 1992 unemployment rate in Missouri was
5.7%, the 1993 rate was 6.4%, and the preliminary seasonally adjusted
rate for February of 1994 was 5.4%. There can be no assurance
that the general economic condition or the financial circumstances
of Missouri or its political subdivisions will not adversely affect
the market value of the Bonds or the ability of the obligor to
pay debt service on such Bonds.
Currently, Moody's Investors Service rates Missouri general obligation
bonds "Aaa" and Standard & Poor's Corporation rates Missouri general
obligation bonds "AAA." Although these ratings indicate that the
State of Missouri is in relatively good economic health, there
can be, of course, no assurance that this will continue or that
particular bond issues may not be adversely affected by changes
in the State or local economic or political conditions.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore,
the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output
is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. Since World
War II the economic importance of agriculture for Puerto Rico,
particularly in the dominance of sugar production, has declined.
Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal
maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rico sugar production. The level of tourism
is affected by various factors including the strength of the U.S.
dollar. During periods when the dollar is strong, tourism in foreign
countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth
and Federal investment incentive programs. For example, Section
936 of the Internal Revenue Code provides for a credit against
Federal income taxes for U.S. companies operating on the island
if certain requirements are met. The Omnibus Budget Reconciliation
Act of 1993 imposes limits on such credit, effective for tax years
beginning after 1993. In addition, from time to time proposals
are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment
can be made at this time of the precise effect of such limitation,
it is expected that the limitation of Section 936 credits would
have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily
on Federal programs, and current Federal budgetary policies suggest
that an expansion of aid to Puerto Rico is unlikely. An adverse
effect on the Puerto Rican economy could result from other U.S.
policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such
as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously
proposed legislation, which was not enacted, would have preserved
the federal tax exempt status of the outstanding debts of Puerto
Rico and its public corporations regardless of the outcome of
the referendum, to the extent that similar obligations issued
by the states are so treated and subject to the provisions of
the Internal Revenue Code currently in effect. There can be no
assurance that any pending or future legislation finally enacted
will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to
have both direct and indirect consequences on such matters as
the basic characteristics of future Puerto Rico debt obligations,
the markets for these obligations, and the types, levels and quality
of revenue sources pledged for the payment of existing and future
debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking
Page 6
restoration of the status of Section 936 benefits otherwise subject
to the limitations discussed above. However, no assessment can
be made at this time of the economic and other effects of a change
in federal laws affecting Puerto Rico as a result of the November
1993 plebiscite.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of Bonds held by
the Missouri Trusts are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of the Bonds,
could affect or could have an adverse impact on the financial
condition of the issuers. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the
issuers of the Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired
by the Missouri Trusts to pay interest on or principal of the
Bonds.
Page 7
Missouri Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: 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 8
New York Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-New York Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
The First Trust Advantage-New York Discount
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated June 27, 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;
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
(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 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 provided that, at the time such policies
are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectation that
the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations.
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
Page 2
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, 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
Page 3
(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.
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 First Trust Combined Series for New York tax
matters, rendered an opinion under then existing income tax laws
of the State and City of New York, substantially to the effect
that each Trust in Series 1-3 of The First Trust Combined Series
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 First Trust
Combined Series for New York tax matters, rendered an opinion
under then existing income tax laws of the State and City of New
York, substantially to the effect that each Trust in Series 4-125
of The First Trust Combined Series is not an association taxable
as a corporation and the income of each Trust in Series 4-125
of The First Trust Combined Series will be treated as the income
of the Unit holder in the same manner as for Federal income tax
purposes (subject to differences in accounting for discount and
premium to the extent the State and/or City of New York do not
conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special
Counsel to The First Trust Combined Series for New York tax matters
for Series 126 and subsequent Series of The First Trust Combined
Series, rendered an opinion under then existing income tax laws
of the State and City of New York, substantially to the effect
that each Trust will not constitute an association taxable as
a corporation under New York law, and accordingly will not be
subject to the New York State franchise tax or the New York City
general corporation tax. Under the income tax laws of the State
and City of New York, the income of each Trust will be considered
the income of the holders of the Units.
Booth & Baron has served as Special Counsel to Series 1-9 of The
First Trust of Insured Municipal Bonds-Multi-State, inclusive,
and to all Series of the New York Trust included in a Series of
The First Trust of Insured Municipal Bonds-New York. Winston &
Strawn (previously named Cole & Deitz) has served as Special Counsel
to Series 10 and 11 of The First Trust of Insured Municipal Bonds-Multi-State
for New York tax matters. In the opinion of such Special Counsels,
under the existing income tax laws of the State and City of New
York, each Trust is not an association taxable as a corporation
and the income of each such Trust will be treated as the income
of the Unit holder.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are
to be so construed.
New York Tax Status of Unit Holders
At the time of the closing for Series 1, 2 and 3 of The First
Trust Combined Series; Series 1-9 of The First Trust of Insured
Municipal Bonds-Multi-State; and all Series of the New York Trust
included in a Series of The First Trust of Insured Municipal Bonds-New
York; Booth & Baron, Special Counsel to these Series for New York
tax matters, rendered an opinion under then existing New York
income tax law applicable to taxpayers whose income is subject
to New York income taxation substantially to the effect that:
Each New York Trust is not an association taxable as a corporation
and the income of a New York Trust will be treated as the income
of the Unit holders under the existing income tax laws of the
State and City of New York;
Individuals who reside in New York State or City will not be subject
to State and City personal income tax on interest income which
is exempt from Federal income tax under section 103 of the Internal
Revenue Code of 1986 and derived from the Bonds, although they
will be subject to New York State and City tax with respect to
any gains realized when such obligations are sold, redeemed or
paid at maturity or when any such Units are sold or redeemed;
and
Page 4
Any proceeds paid under the insurance policy to the Trustee of
a New York Trust which represent maturing interest on defaulted
obligations held by the Trustee will be excludable from New York
State or City personal income tax if, and to the same extent as,
such interest would have been so excludable if paid by the issuer
of the defaulted obligations.
At the time of the closing for Series 4-125 of The First Trust
Combined Series and Series 10-11 of The First Trust Insured Municipal
Bonds-Multi-State, Winston & Strawn (previously named Cole & Deitz),
New York, Special Counsel to these Series for New York tax matters,
rendered an opinion under then existing New York income tax law
applicable to taxpayers whose income is subject to New York income
taxation substantially to the effect that:
Each New York Trust is not an association taxable as a corporation
and the income of a New York Trust will be treated as the income
of the Unit holders under the existing income tax laws of the
State and City of New York in the same manner as for Federal income
tax purposes (subject to differences in accounting for discount
and premium to the extent the State and/or City of New York do
not conform to current Federal law); and
Individuals who reside in New York State or City will not be subject
to State and City personal income tax on interest income which
is excludable from Federal gross income tax under section 103
of the Internal Revenue Code of 1986 and derived from the Bonds,
although they will be subject to New York State and City personal
income tax with respect to any gains realized when such obligations
are sold, redeemed or paid at maturity or when any such Units
are sold or redeemed; and
For individuals who reside in New York State or City, any proceeds
paid to the Trustee under the applicable insurance policies which
represent maturing interest on defaulted obligations held by the
Trustee will be excludable from New York State or City personal
income tax if, and to the same extent as, such interest would
have been so excludable from Federal gross income tax under section
103 of the Internal Revenue Code of 1986 if paid by the issuer
of the defaulted obligations.
At the time of the closing for Series 126 and subsequent Series
of The First Trust Combined Series, Carter, Ledyard & Milburn,
Special Counsel to Series 126 and subsequent Series of The First
Trust Combined Series for New York tax matters, rendered an opinion
under then existing New York income tax law applicable to taxpayers
whose income is subject to New York income taxation substantially
to the effect that:
Each New York Trust is not an association taxable as a corporation
and the income of a New York Trust will be treated as the income
of the Unit holders under the existing income tax laws of the
State and City of New York in the same manner as for Federal income
tax purposes (subject to differences in accounting for discount
and premium to the extent the State and/or City of New York do
not conform to current Federal law);
Individuals holding Units of a New York Trust who reside in New
York State or City will not be subject to State and City personal
income tax on interest income which is excludable from Federal
gross income under section 103 of the Internal Revenue Code of
1986 and derived from any obligation of New York State or a political
subdivision thereof, or of the Government of Puerto Rico or a
political subdivision thereof, or of the Government of Guam or
by its authority, although they will be subject to New York State
and City personal income tax with respect to any gains realized
when such obligations are sold, redeemed or paid at maturity or
when any such Units are sold or redeemed; and
For individuals holding Units of a New York Trust who reside in
New York State or City, any proceeds paid to the Trustee under
the applicable insurance policies which represent maturing interest
on defaulted obligations held by the Trustee will not be subject
to New York State or City personal income tax if, and to the same
extent as, such interest would not have been subject to New York
State or City personal income tax if paid by the issuer of the
defaulted obligations.
Page 5
Certain Considerations
Each New York Trust includes obligations issued by New York State
(the "State"), by its various public bodies (the "Agencies"),
and/or by other entities located within the State, including the
City of New York (the "City").
Some of the more significant events and conditions relating to
the financial situation in New York are summarized below. This
section provides only a brief summary of the complex factors affecting
the financial situation in New York and is derived from sources
that are generally available to investors and is believed to be
accurate. It is based in part on Official Statements and prospectuses
issued by, and on other information reported by the State, the
City, and the Agencies in connection with the issuance of their
respective securities.
There can be no assurance that current or future statewide or
regional economic difficulties, and the resulting impact on State
or local government finances generally, will not adversely affect
the market value of New York Municipal Obligations held in the
portfolio of the Trust or the ability of particular obligors to
make timely payments of debt service on (or relating to) those
obligations.
The State. The State has historically been one of the wealthiest
states in the nation. For decades, however, the State economy
has grown more slowly than that of the nation as a whole, gradually
eroding the State's relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration
of the more affluent to the suburbs and an influx of generally
less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and
the West have had in attracting people and business. The City
has also had to face greater competition as other major cities
have developed financial and business capabilities which make
them less dependent on the specialized services traditionally
available almost exclusively in the City.
The State has for many years had a very high state and local tax
burden relative to other states. The burden of State and local
taxation, in combination with the many other causes of regional
economic dislocation, has contributed to the decisions of some
businesses and individuals to relocate outside, or not locate
within, the State.
Slowdown of Regional Economy. A national recession commenced
in mid-1990. The downturn continued throughout the State's 1990-91
fiscal year and was followed by a period of weak economic growth
during the 1991 calendar year. For calendar year 1992, the national
economy continued to recover, although at a rate below all post-war
recoveries. For calendar year 1993, the economy is expected to
grow faster than in 1992, but still at a very moderate rate, as
compared to other recoveries. The national recession has been
more severe in the State because of factors such as significant
retrenchment in the financial services industry, cutbacks in defense
spending, and an overbuilt real estate market.
1993-94 Fiscal Year. On April 5, 1993, the State Legislature
approved a $32.08 billion budget. Following enactment of the budget
the 1993-94 State Financial Plan was formulated on April 16, 1993.
This Plan projects General Fund receipts and transfers from other
funds at $32.367 billion and disbursements and transfers to other
funds at $32.300 billion. In comparison to the Governor's recommended
Executive Budget for the 1993-94 fiscal year, as revised on February
18, 1993, the 1993-94 State Financial Plan reflects increases
in both receipts and disbursements in the General Fund of $811
million.
While a portion of the increased receipts was the result of a
$487 million increase in the State's 1992-93 positive year-end
margin at March 31, 1993 to $671 million, the balance of such
increased receipts is based upon (i) a projected $269 million
increase in receipts resulting from improved 1992-93 results and
the expectation of an improving economy, (ii) projected additional
payments of $200 million from the Federal government as reimbursements
for indigent medical care, (iii) the early payment of $50 million
of personal tax returns in 1992-93 which otherwise would have
been paid in 1993-94; offset by (iv) the State Legislature's failure
to enact $195 million of additional revenue-raising recommendations
proposed by the Governor. There can be no assurances that all
of the projected receipts referred to above will be received.
Despite the $811 million increase in disbursements included in
the 1993-94 State Financial Plan, a reduction in aid to some local
government units can be expected. To offset a portion of such
reductions, the 1993-94
Page 6
State Financial Plan contains a package of mandate relief, cost
containment and other proposals to reduce the costs of many programs
for which local governments provide funding. There can be no assurance,
however, that localities that suffer cuts will not be adversely
affected, leading to further requests for State financial assistance.
There can be no assurance that the State will not face substantial
potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring
receipts base and the spending required to maintain State programs
at current levels. To address any potential budgetary imbalance,
the State may need to take significant actions to align recurring
receipts and disbursements.
1992-93 Fiscal Year. Before giving effect to a 1992-93 year-end
deposit to the refund reserve account of $671 million, General
Fund receipts in 1992-93 would have been $716 million higher than
originally projected. This year-end deposit effectively reduced
1992-93 receipts by $671 million and made those receipts available
for 1993-94.
The State's favorable performance primarily resulted from income
tax collections that were $700 million higher than projected which
reflected both stronger economic activity and tax-induced one-time
acceleration of income into 1992. In other areas larger than projected
business tax collections and unbudgeted receipts offset the loss
of $200 million of anticipated Federal reimbursement and losses
of, or shortfalls in, other projected revenue sources.
For 1992-93 disbursements and transfers to other funds (including
the deposit to the refund reserve account discussed above) totalled
$30.829 billion, an increase of $45 million above projections
in April 1992. After adjusting for a $150 million payment from
the Medical Malpractice Insurance Association to health insurers
pursuant to legislation adopted in January 1993, actual disbursements
were $105 million lower than projected.
Fiscal year 1992-93 was the first time in four years that the
State did not incur a cash-basis operating deficit in the General
Fund requiring the issuance of deficit notes or other bonds, spending
cuts or other revenue raising measures.
Indebtedness. As of March 31, 1993, the total amount of long-term
State general obligation debt authorized but unissued stood at
$2.4 billion. As of the same date, the State had approximately
$5.4 billion in general obligation bonds. The State issued $850
million in tax and revenue anticipation notes ("TRANS") on April
28, 1993. The State does not project the need to issue additional
TRANS during the State's 1993-94 fiscal year.
The State anticipates that its borrowings for capital purposes
during the State's 1993-94 fiscal year will consist of $460 million
in general obligation bonds and $140 million in bonds for the
purpose of redeeming outstanding bond anticipation notes. The
Legislature has authorized the issuance of up to $85 million in
certificates of participation during the State's 1993-94 fiscal
year for personal and real property acquisitions. The projection
of the State regarding its borrowings for the 1993-94 fiscal year
may change if actual receipts fall short of State projections
or if other circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation (LGAC), a public benefit corporation
empowered to issue long-term obligations to fund certain payments
to local governments traditionally funded through the State's
annual seasonal borrowing. To date, LGAC has issued its bonds
to provide net proceeds of $3.28 billion. LGAC has been authorized
to issue additional bonds to provide net proceeds of $703 million
during the State's 1993-94 fiscal year.
Ratings. The $850 million in TRANS issued by the State in April
1993 were rated SP-1-Plus by S&P on April 26, 1993, and MIG-1
by Moody's on April 23, 1993, which represents the highest ratings
given by such agencies and the first time the State's TRANS have
received these ratings since its May 1989 TRANS issuance. Both
agencies cited the State's improved fiscal position as a significant
factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at
A on April 23, 1993, and S&P's rating stood at A- with a stable
outlook on April 26, 1993, an improvement from S&P's negative
outlook prior to April 1993. Previously, Moody's lowered its rating
to A on June 6, 1990, its rating having been A1 since May 27,
Page 7
1986. S&P lowered its rating from A to A- on January 13, 1992.
S&P's previous ratings were A from March 1990 to January 1992,
AA - from August 1987 to March 1990 and A+ from November 1982
to August 1987.
Moody's, in confirming its rating of the State's general obligation
bonds, and S&P, in improving its outlook on such bonds from negative
to stable, noted the State's improved fiscal condition and reasonable
revenue assumptions contained in the 1993-94 State budget.
The City and the Municipal Assistance Corporation ("MAC"). The
City accounts for approximately 41% of the State's population
and personal income, and the City's financial health affects the
State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took
a number of steps to assist the City in returning to fiscal stability.
Among other actions, the State Legislature (i) created MAC to
assist with long-term financing for the City's short-term debt
and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the
City's budgets and City four-year financial plans (the financial
plans also apply to certain City-related public agencies (the
"Covered Organizations")).
Over the past three years, the rate of economic growth in the
City has slowed substantially, and the City's economy is currently
in recession. The Mayor is responsible for preparing the City's
four-year financial plan, including the City's current financial
plan. The City Comptroller has issued reports concluding that
the recession of the City's economy will be more severe and last
longer than is assumed in the financial plan.
Fiscal Year 1993 and 1993-1996 and 1994-1997 Financial Plan.
The City's 1993 fiscal year results are projected to be balanced
in accordance with generally accepted accounting principles ("GAAP").
The City was required to close substantial budget gaps in its
1990, 1991 and 1992 fiscal years in order to maintain balanced
operating results.
The City's modified 1993-1996 Financial Plan dated February 9,
1993 covering fiscal years 1993-1996 projects budget gaps for
1994 through 1996, and is dependent upon a gap-closing program,
certain elements of which the staff of Control Board identified
on March 25, 1993 to be at risk due to projected levels of State
and Federal aid and revenue and expenditures estimates which may
not be achievable. On June 4, 1993, the Office of the State Deputy
Comptroller ("OSDC") reported that expenditures for the 1994 fiscal
year could be $280 million higher than projected in May 1993 by
the City and revenues for the same period could be $111 million
lower than projected. The OSDC also noted possible increases in
budget gaps forecast by the City.
The City Council adopted a balanced budget for Fiscal Year 1993-1994
on June 14, 1993. The State Comptroller on that date criticized
efforts by the Mayor and the City Council to balance the City's
budget which rely primarily on one-shot revenues. The State Comptroller
added that the City's budget should be based on "recurring revenues
that fund recurring expenditures." In a report issued on June
15, 1993, the Control Board also criticized the reliance by the
City on $1 billion of such one-shot revenues to balance the budget.
On June 30, 1993, S&P announced that it was concerned with budget
gaps in post-1994 fiscal years and the inability of the City to
restrain spending and, due to this concern, it was reviewing the
rating of the City's general obligation bonds.
In response to S&P's announcement, the Mayor's Office and the
City Comptroller met with staff of S&P and proposed $130 million
of additional cuts in the recently adopted budget for fiscal year
1994 through reduced spending for capital projects, savings through
workforce attrition and other measures. In addition, the Mayor
proposed $400 million in cuts from the City's fiscal year 1995
budget. Following review of the proposed cuts, S&P announced on
July 2, 1993 that it would maintain its current A- rating of the
City's general obligation bonds, but S&P indicated that it remains
concerned about budgets for fiscal year 1995 and thereafter.
On July 6, 1993, the City prepared its Financial Plan for fiscal
years 1994-1997 which projects a balanced budget for fiscal year
1994 and identifies approximately $2.0 billion in gap-closing
measures including productivity savings, service reductions, sale
of delinquent real property tax receivables, transfers from fiscal
year 1993, reduced debt service costs, increased State and Federal
aid, a continuation of the personal income
Page 8
tax surcharge and other actions to reduce expenditures and increase
revenues. This 1994-1997 Financial Plan projects budget gaps of
$1.3 billion, $1.8 billion and $2.0 billion in fiscal years 1995
through 1997, respectively. On August 4, 1993, the City Comptroller
in a report on the 1994-1997 Financial Plan identified risks of
$340 million, $1.5 billion, $2.0 billion, and $2.2 billion in
fiscal years 1994 through 1997, respectively, which could negatively
affect gap-closing efforts. The City Comptroller noted uncertainties
associated with anticipated Federal aid, projected proceeds from
the sale or reorganization of Off Track Betting operations and
approval of certain productivity savings relating to teachers.
An August 5, 1993 report of the Control Board on the 1994-1997
Financial Plan also identified risks in the City's proposed budget
gap reductions, including items identified by the City Comptroller
and uncertainties associated with the level of State aid and the
City's revenue and expenditure estimates. The Control Board estimated
gap-closing risks to be slightly higher than indicated in the
City Comptroller's report, $687 million, $1.9 billion, $2.4 billion
and $2.5 billion in fiscal years 1994 through 1997, respectively.
OSDC's report on the 1994-1997 Financial Plan released on August
10, 1993, also projected that budget gaps could be higher than
those set forth in such Plan. The OSDC report stated that in fiscal
year 1994 expenditures could be $240 million higher and revenues
$182 million lower than projected by the City. OSDC also noted
that budget gaps could increase by $556 million, $561 million
and $515 million in fiscal years 1995 through 1997, respectively,
above City projections as the result of higher payments to Covered
Organizations, higher overtime costs, and lower than anticipated
lottery and tax receipts. Given the foregoing factors, there can
be no assurance that the City will continue to maintain a balanced
budget, or that it can maintain a balanced budget without additional
tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to State law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections.
The City is required to submit its financial plans to review bodies,
including the Control Board. If the City were to experience certain
adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access
to the public credit markets to satisfy the City's capital and
seasonal financial requirements, the Control Board would be required
by State law to exercise certain powers, including prior approval
of City financial plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements.
If the State experiences revenue shortfalls or spending increases
beyond its projections during its 1993 fiscal year or subsequent
years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance
that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures
as a result of such delays.
The City projections set forth in its financial plan are based
on various assumptions and contingencies which are uncertain and
which may not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its budget
as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include
the timing of any regional and local economic recovery, the absence
of wage increases in excess of the increases assumed in its financial
plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets,
levels of education expenditures as may be required by State law,
adoption of future City budgets by the New York City Council,
and approval by the Governor or the State Legislature and the
cooperation of MAC with respect to various other actions proposed
in such financial plan.
The City's ability to maintain a balanced operating budget is
dependent on whether it can implement necessary service and personnel
reduction programs successfully. As discussed above, the City
must identify additional expenditure reductions and revenue sources
to achieve balanced operating budgets for fiscal years 1994 and
thereafter. Any such proposed expenditure reductions will be difficult
to implement because
Page 9
of their size and the substantial expenditure reductions already
imposed on City operations in the past two years.
Attaining a balanced budget is also dependent upon the City's
ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1994 through
1997 contemplates capital spending of $16.2 billion, which will
be financed through issuance of $10.5 billion of general obligation
bonds, $4.3 billion of Water Authority Revenue Bonds and the balance
by Covered Organization obligations, and will be utilized primarily
to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make capital investments. A significant
portion of such bond financing is used to reimburse the City's
general fund for capital expenditures already incurred. In addition,
the City issues revenue and tax anticipation notes to finance
its seasonal working capital requirements. The terms and success
of projected public sales of City general obligation bonds and
notes will be subject to prevailing market conditions at the time
of the sale, and no assurance can be given that the credit markets
will absorb the projected amounts of public bond and note sales.
In addition, future developments concerning the City and public
discussion of such developments, the City's future financial needs
and other issues may affect the market for outstanding City general
obligation bonds and notes. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from
meeting its planned operating and capital expenditures.
Fiscal Years 1990, 1991 and 1992. The City achieved balanced
operating results as reported in accordance with GAAP for the
1992 fiscal year. During the 1990 and 1991 fiscal years, the City
implemented various actions to offset a projected budget deficit
of $3.2 billion for the 1991 fiscal year, which resulted from
declines in City revenue sources and increased public assistance
needs due to the recession. Such actions included $822 million
of tax increases and substantial expenditure reductions.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced
and claims asserted against the City arising out of alleged constitutional
violations, torts, breaches of contracts, and other violations
of law and condemnation proceedings. While the ultimate outcome
and fiscal impact, if any, on the proceedings and claims are not
currently predictable, adverse determinations in certain of them
might have a material adverse effect upon the City's ability to
carry out its financial plan. As of June 30, 1992, legal claims
in excess of $341 billion were outstanding against the City for
which the City estimated its potential future liability to be
$2.3 billion.
Ratings. As of the date of this prospectus, Moody's rating of
the City's general obligation bonds stood at Baa1 and S&P's rating
stood at A-. On February 11, 1991, Moody's had lowered its rating
from A.
On June 30, 1993, in confirming its Baa1 rating, Moody's noted
that:
The recent trend of declining reliance on [one-shot revenues]
is notable, and it is too early to predict that the increased
reliance on one-shots in the fiscal 1994 budget represents the
beginning of a continuing upward movement in the use of one-shots
. . . Moody's recognized in February of 1991, when the [C]ity's
rating was lowered from an A to Baa1, that the [C]ity faced structural
budgetary imbalances which were unlikely to be cured in the near
term. Moody's continues to expect the [C]ity's progress toward
achieving structural balance to be slow and uneven, but that the
[C]ity will be diligent and prudent in closing each year's gap,
factors which are consistent with the Baa1 rating level.
On August 11, 1993, Moody's confirmed the City's Baa1 rating in
connection with the City's $300 million general obligation bond
issue on that date.
On March 30, 1993, S&P affirmed its A- rating with a negative
outlook, stating that:
The City's key credit factors are marked by a high and growing
debt burden, and taxation levels that are relatively high, but
stable. The City's economy is broad-based and diverse, but currently
is in prolonged recession, with slow growth prospects for the
foreseeable future.
The rating outlook is negative, reflecting the continued fiscal
pressure facing the City, driven by continued weakness in the
local economy, rising spending pressures for eduction and labor
costs of city employees, and increasing costs associated with
rising debt for capital construction and repair.
Page 10
The current financial plan for the City assumes substantial increases
in aid from national and state governments. Maintenance of the
current rating, and stabilization of the rating outlook, will
depend on the City's success in realizing budgetary aid from these
governments, or replacing those revenues with ongoing revenue-raising
measures or spending reductions under the City's control. However,
increased reliance on non-recurring budget balancing measures
that would support current spending, but defer budgetary gaps
to future years, would be viewed by S&P as detrimental to New
York City's single A- rating.
As discussed above under Fiscal Year 1993 and 1993-1996 Financial
Plan, on July 2, 1993 after a review of the City's budget for
fiscal year 1994, its proposed budget for fiscal year 1995 and
certain additional cuts in both proposed by the Mayor and the
City Comptroller, S&P confirmed its A- rating with a negative
outlook of the City's general obligation bonds.
On May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated
the $900 million Notes then being sold MIG-2. On April 30, 1991
Moody's confirmed its MIG-2 rating for the outstanding revenue
anticipation notes and for the $1.25 billion in notes then being
sold. On April 29, 1991, S&P revised downward its rating on City
revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1992, the City and MAC had, respectively, $20.3
billion and $4.7 billion of outstanding net long-term indebtedness.
The State Agencies. Certain Agencies of the State have faced
substantial financial difficulties which could adversely affect
the ability of such Agencies to make payments of interest on,
and principal amounts of, their respective bonds. The difficulties
have in certain instances caused the State (under so-called "moral
obligation" provisions which are non-binding statutory provisions
for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover,
it is expected that the problems faced by these Agencies will
continue and will require increasing amounts of State assistance
in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having
financial difficulties to meet their obligations could result
in a default by one or more of the Agencies. Such default, if
it were to occur, would be likely to have a significant adverse
effect on investor confidence in, and therefore the market price
of, obligations of the defaulting Agencies. In addition, any default
in payment on any general obligation of any Agency whose bonds
contain a moral obligation provision could constitute a failure
of certain conditions that must be satisfied in connection with
Federal guarantees of City and MAC obligations and could thus
jeopardize the City's long-term financing plans.
As of September 30, 1992, the State reported that there were eighteen
Agencies that each had outstanding debt of $100 million or more.
These eighteen Agencies had an aggregate of $62.2 billion of outstanding
debt, including refunding bonds, of which the State was obligated
under lease-purchase, contractual obligation or moral obligation
provisions on $25.3 billion.
State Litigation. The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance
of routine governmental operations. Such litigation includes,
but is not limited to, claims asserted against the State arising
from alleged torts, alleged breaches of contracts, condemnation
proceedings, and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number
of cases challenging the constitutionality or the adequacy and
effectiveness of a variety of significant social welfare programs
primarily involving the State's mental hygiene programs. Adverse
judgments in these matters generally could result in injunctive
relief coupled with prospective changes in patient care which
could require substantial increased financing of the litigated
programs in the future.
The State is also engaged in a variety of claims wherein significant
monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally
taken from the Indians in violation of various treaties and agreements
during the eighteenth and nineteenth
Page 11
centuries. The claimants seek recovery of approximately six million
acres of land as well as compensatory and punitive damages.
The U.S. Supreme Court on March 30, 1993, referred to a Special
Master for determination of damages an action by the State of
Delaware to recover certain unclaimed dividends, interest and
other distributions made by issuers of securities held by New
York based-brokers incorporated in Delaware (State of Delaware
v. State of New York). The State had taken such unclaimed property
under its Abandoned Property Law. The State expects that it may
pay a significant amount in damages during fiscal year 1993-94
but it has indicated that it has sufficient funds on hand to pay
any such award, including funds held in contingency reserves.
The State's 1993-94 Financial Plan includes the establishment
of a $100 million contingency reserve fund which would be available
to fund such an award which some reports have estimated at $100-$300
million.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz
1993"), petitioners have challenged the constitutionality of mass
transportation bonding programs of the New York State Thruway
Authority and the Metropolitan Transportation Authority. On May
24, 1993, the Supreme Court, Albany County, temporarily enjoined
the State from implementing those bonding programs. In previous
actions Mr. Schulz and others have challenged on similar grounds
bonding programs for the New York State Urban Development Corporation
and the New York Local Government Assistance Corporation. While
there have been no decisions on the merits in such previous actions,
by an opinion dated May 11, 1993, the New York Court of Appeals
held in a proceeding commenced on April 29, 1991 in the Supreme
Court, Albany County (Schulz v. State of New York), that petitioners
had standing as voters under the State Constitution to bring such
action.
Petitioners in Schulz 1993 have asserted that issuance of bonds
by the two Authorities is subject to approval by statewide referendum.
At this time there can be no forecast of the likelihood of success
on the merits by the petitioners, but a decision upholding this
constitutional challenge could restrict and limit the ability
of the State and its instrumentalities to borrow funds in the
future. The State has not indicated that the temporary injunction
issued by the Supreme Court in this action will have any immediate
impact on its financial condition or interfere with projects requiring
immediate action.
On July 1, 1993, the Appellate Division of the State Supreme Court
affirmed the decision of the Supreme Court, Albany County in three
actions, declaring unconstitutional State legislation affecting
actuarial funding methods for determining State and local contributions
to the State employee retirement system. The State Comptroller's
office has projected that the impact of the decision with respect
to 1990-91 fiscal year contributions alone could require additional
State and local employer contributions of approximately $800 million.
A final adverse decision in these three actions could have a material
adverse effect on the financial condition of the State and its
local governments.
Adverse developments in the foregoing proceedings or new proceedings
could adversely affect the financial condition of the State in
the future.
Other Municipalities. Certain localities in addition to New York
City could have financial problems leading to requests for additional
State assistance. The potential impact on the State of such actions
by localities is not included in projections of State receipts
and expenditures in the State's 1993-94 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the
City of Yonkers (the "Yonkers Board") by the State in 1984. The
Yonkers Board is charged with oversight of the fiscal affairs
of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $31.6 billion,
of which $16.8 billion was debt of New York City (excluding $6.7
billion in MAC debt). State law requires the Comptroller to review
and make recommendations concerning the budgets of those local
government units other than New York City authorized by State
law to issue debt to finance deficits during the period that such
deficit financing is outstanding. Fifteen localities had outstanding
indebtedness for state financing at the close of their
Page 12
fiscal year ending in 1991. In 1992, an unusually large number
of local government units requested authorization for deficit
financings. According to the Comptroller, ten local government
units have been authorized to issue deficit financing in the aggregate
amount of $131.1 million.
Certain proposed Federal expenditure reductions could reduce,
or in some cases eliminate, Federal funding of some local programs
and accordingly might impose substantial increased expenditure
requirements on affected localities. If the State, New York City
or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within
the State, including notes or bonds in the New York Insured Trust,
could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation,
judicial decisions, and long-range economic trends. The longer-range
potential problems of declining urban population, increasing expenditures,
and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Other Issuers of New York Municipal Obligations. There are a
number of other agencies, instrumentalities and political subdivisions
of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private
borrowers. These entities are subject to various economic risks
and uncertainties, and the credit quality of the securities issued
by them may vary considerably from the credit quality of obligations
backed by the full faith and credit of the State.
The following information applies to all Series of the First Trust
Advantage: New York Discount Trust.
The current yields of discount bonds will be lower than the current
yields of comparably rated bonds of similar type newly issued
at current interest rates because discount bonds tend to increase
in market value as they approach maturity and the full principal
amount becomes payable. A discount bond held to maturity will
have a larger portion of its total return in the form of capital
gain and less in the form of tax-exempt interest income than a
comparable bond newly issued at current market rates. Discount
bonds with a longer term to maturity tend to have a higher current
yield and a lower current market value than otherwise comparable
bonds with a shorter term to maturity. If interest rates rise,
the value of discount bonds will decrease; and if interest rates
decline, the value of discount bonds will increase. The discount
does not necessarily indicate a lack of market confidence in the
issuer.
Certain of the Bonds in the Discount 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. The current
value of an original issue discount bond reflects the present
value of its stated redemption price at maturity. The market value
tends to increase in greater increments as the Bonds approach
maturity.
Certain of the original issue discount bonds in the Discount Trusts
may be Zero Coupon Bonds (including bonds known as multiplier
bonds, money multiplier bonds, capital appreciation bonds, capital
accumulator bonds, compound interest bonds and discount maturity
payment bonds). 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 Discount Trusts may have been acquired
at a market premium from par value at maturity. Certain of these
Bonds are subject to redemption pursuant to call provisions in
approximately 5-8 years after the Date of Deposit and may be currently
redeemable. 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
Page 13
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 a 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. See "Part One" for each Trust for
the earliest scheduled call date and the current redemption price
for each Bond.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore,
the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output
is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. Since World
War II the economic importance of agriculture for Puerto Rico,
particularly in the dominance of sugar production, has declined.
Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal
maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rico sugar production. The level of tourism
is affected by various factors including the strength of the U.S.
dollar. During periods when the dollar is strong, tourism in foreign
countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth
and Federal investment incentive programs. For example, Section
936 of the Internal Revenue Code provides for a credit against
Federal income taxes for U.S. companies operating on the island
if certain requirements are met. The Omnibus Budget Reconciliation
Act of 1993 imposes limits on such credit, effective for tax years
beginning after 1993. In addition, from time to time proposals
are introduced in Congress which, if enacted into law, would eliminate
some or all of the benefits of Section 936. Although no assessment
can be made at this time of the precise effect of such limitation,
it is expected that the limitation of Section 936 credits would
have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily
on Federal programs, and current Federal budgetary policies suggest
that an expansion of aid to Puerto Rico is unlikely. An adverse
effect on the Puerto Rican economy could result from other U.S.
policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such
as food stamps, curtailment of military spending and policies
which could lead to a stronger dollar.
Page 14
In a plebiscite held in November 1993, the Puerto Rican electorate
chose to continue Puerto Rico's Commonwealth status. Previously
proposed legislation, which was not enacted, would have preserved
the federal tax exempt status of the outstanding debts of Puerto
Rico and its public corporations regardless of the outcome of
the referendum, to the extent that similar obligations issued
by the states are so treated and subject to the provisions of
the Internal Revenue Code currently in effect. There can be no
assurance that any pending or future legislation finally enacted
will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to
have both direct and indirect consequences on such matters as
the basic characteristics of future Puerto Rico debt obligations,
the markets for these obligations, and the types, levels and quality
of revenue sources pledged for the payment of existing and future
debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status
of Section 936 benefits otherwise subject to the limitations discussed
above. However, no assessment can be made at this time of the
economic and other effects of a change in federal laws affecting
Puerto Rico as a result of the November 1993 plebiscite.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of Bonds held by
the New York Trusts are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of the Bonds,
could affect or could have an adverse impact on the financial
condition of the issuers. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the
issuers of the Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired
by the New York Trusts to pay interest on or principal of the
Bonds.
Page 15
New York Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-New York Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
The First Trust Advantage-New York Discount
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 16
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 189, 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 September 30, 1994.
THE FIRST TRUST COMBINED SERIES 189
(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, ) September 30, 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 August 31, 1994 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated
September 22, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
September 21, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 221
<NAME> NATIONAL INSURED 221
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-09-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 9,433,704
<INVESTMENTS-AT-VALUE> 8,781,915
<RECEIVABLES> 203,029
<ASSETS-OTHER> 5,798
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,990,742
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,980
<TOTAL-LIABILITIES> 102,980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,433,704
<SHARES-COMMON-STOCK> 9,920
<SHARES-COMMON-PRIOR> 10,133
<ACCUMULATED-NII-CURRENT> 105,847
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (651,789)
<NET-ASSETS> 8,887,762
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 553,455
<OTHER-INCOME> 0
<EXPENSES-NET> 13,745
<NET-INVESTMENT-INCOME> 539,710
<REALIZED-GAINS-CURRENT> (7,364)
<APPREC-INCREASE-CURRENT> (651,789)
<NET-CHANGE-FROM-OPS> (119,443)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 431,330
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 213
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (748,728)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 020
<NAME> ALABAMA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-09-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 2,868,684
<INVESTMENTS-AT-VALUE> 2,674,596
<RECEIVABLES> 31,843
<ASSETS-OTHER> 17,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,723,880
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,808
<TOTAL-LIABILITIES> 17,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,868,684
<SHARES-COMMON-STOCK> 3,015
<SHARES-COMMON-PRIOR> 3,044
<ACCUMULATED-NII-CURRENT> 31,476
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (194,088)
<NET-ASSETS> 2,706,072
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 162,098
<OTHER-INCOME> 0
<EXPENSES-NET> 4,443
<NET-INVESTMENT-INCOME> 157,655
<REALIZED-GAINS-CURRENT> (389)
<APPREC-INCREASE-CURRENT> (194,088)
<NET-CHANGE-FROM-OPS> (36,822)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 124,141
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 29
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (188,782)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective AMendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> CALIFORNIA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-09-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 2,724,368
<INVESTMENTS-AT-VALUE> 2,507,063
<RECEIVABLES> 40,511
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,547,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,543
<TOTAL-LIABILITIES> 24,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,724,368
<SHARES-COMMON-STOCK> 2,864
<SHARES-COMMON-PRIOR> 3,094
<ACCUMULATED-NII-CURRENT> 15,968
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (217,305)
<NET-ASSETS> 2,523,031
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 161,961
<OTHER-INCOME> 0
<EXPENSES-NET> 4,852
<NET-INVESTMENT-INCOME> 157,109
<REALIZED-GAINS-CURRENT> (8,144)
<APPREC-INCREASE-CURRENT> (217,305)
<NET-CHANGE-FROM-OPS> (68,340)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 136,488
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 230
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (419,374)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 018
<NAME> MISSOURI TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-09-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 2,908,167
<INVESTMENTS-AT-VALUE> 2,736,966
<RECEIVABLES> 52,610
<ASSETS-OTHER> 13,241
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,802,817
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,282
<TOTAL-LIABILITIES> 33,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,908,167
<SHARES-COMMON-STOCK> 3,058
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 32,569
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (171,201)
<NET-ASSETS> 2,769,535
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 163,680
<OTHER-INCOME> 0
<EXPENSES-NET> 4,818
<NET-INVESTMENT-INCOME> 158,862
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (171,201)
<NET-CHANGE-FROM-OPS> (12,339)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (126,293)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (138,632)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to form S-6.
</LEGEND>
<SERIES>
<NUMBER> 048
<NAME> NEW YORK TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-09-1993
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 3,801,157
<INVESTMENTS-AT-VALUE> 3,555,101
<RECEIVABLES> 75,858
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,630,959
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,675
<TOTAL-LIABILITIES> 36,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,801,157
<SHARES-COMMON-STOCK> 3,994
<SHARES-COMMON-PRIOR> 3,997
<ACCUMULATED-NII-CURRENT> 39,183
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (246,056)
<NET-ASSETS> 3,594,284
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 214,016
<OTHER-INCOME> 0
<EXPENSES-NET> 6,262
<NET-INVESTMENT-INCOME> 207,754
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (246,056)
<NET-CHANGE-FROM-OPS> (38,302)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 165,609
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (206,873)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
