File No. 33-67708
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 7
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 199
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : December 29, 2000
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS
MULTI-STATE - FLORIDA TRUST, SERIES 7 - INTERMEDIATE
1,275 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
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 Florida State and local income
taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Florida Trust,
Series 7 - Intermediate (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 Florida, 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
Florida State and local income taxes under existing law. At November 16,
2000, each Unit represented a 1/1,275, 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, plus Purchased Interest, divided by the
number of Units outstanding, plus a sales charge of 3.0% of the Public
Offering Price (3.093% of the amount invested). At November 16, 2000, the
Public Offering Price per Unit was $982.10 plus net interest accrued to date
of settlement (three business days after such date) of $.11 (see "Market for
Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 4.19% per annum on November 16,
2000. Estimated Long-Term Return to Unit holders was 3.34% per annum on
November 16, 2000. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price.
Estimated Long-Term Return is calculated using a formula which (1) takes into
consideration and determines and factors in the relative weightings of the
market values, yields (which take into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the Bonds
in the Trust and (2) takes into account a compounding factor and the expenses
and sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the Trust
will change, there is no assurance that the present Estimated Current Return
and Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS
MULTI-STATE - FLORIDA TRUST, SERIES 7 - INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $1,210,000
Number of Units 1,275
Fractional Undivided Interest in the Trust per Unit 1/1,275
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $1,209,303
Aggregate Value of Bonds per Unit $948.47
Purchased Interest $5,311
Purchased Interest per Unit $4.17
Sales Charge 3.093% (3.0% of Public Offering Price) $29.46
Public Offering Price per Unit $982.10*
Redemption Price and Sponsor's Repurchase Price per Unit
($29.46 less than the Public Offering Price per Unit) $952.64*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $586,000
</TABLE>
Date Trust Established September 29, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $879 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
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS
MULTI-STATE - FLORIDA TRUST, SERIES 7 - INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $43.79
Less: Estimated Annual Expense $2.64
Estimated Net Annual Interest Income $41.15
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $41.15
Divided by 12 $3.43
Estimated Daily Rate of Net Interest Accrual $.1143
Estimated Current Return Based on Public
Offering Price 4.19%
Estimated Long-Term Return Based on Public
Offering Price 3.34%
</TABLE>
Trustee's Annual Fee: $1.11 per Unit.
Computation Dates: Fifteenth day of the month.
Distribution Dates: Last day of the month.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 199, The First Trust of Insured Municipal
Bonds - Multi-State, Florida Trust, Series 7 - Intermediate
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 199, The First
Trust of Insured Municipal Bonds - Multi-State, Florida Trust, Series 7 -
Intermediate as of August 31, 2000, and the related statements of operations
and changes in net assets for each of the three years in the period then
ended. These financial statements are the responsibility of the Trust's
Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 199, The First Trust of Insured Municipal Bonds - Multi-State, Florida
Trust, Series 7 - Intermediate at August 31, 2000, and the results of its
operations and changes in its net assets for each of the three years in the
period then ended in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $1,213,876)
(Note 1) $1,215,600
Accrued interest 21,150
Prepaid expense 48
__________
1,236,798
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Purchased interest 5,311
Cash overdraft 16,603
Accrued liabilities 57
__________
21,971
__________
Net assets, applicable to 1,275 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $1,213,876
Net unrealized appreciation (Note 2) 1,724
Distributable funds (deficit) (773)
__________
$1,214,827
==========
Net asset value per unit $952.81
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(d) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
County of Charlotte, Florida, School District
General Obligation, Refunding (FGIC
Insured) (c) 4.40% 3/01/2004 2003 @ 102 AAA $65,000 64,154
Florida Municipal Power Agency, Stanton II
Project, Refunding Revenue, Series 1993 4.60 10/01/2004 2003 @ 102 AAA 350,000 352,440
(AMBAC Insured) (c) 4.45 10/01/2003 AAA 25,000 24,391
Halifax Hospital Medical Center (Daytona Beach,
Florida), Hospital Revenue Refunding, 1993 4.50 10/01/2002 AAA 5,000 4,911
Series A (MBIA Insured) (c) 4.625 10/01/2003 AAA 155,000 155,676
Certificates of Participation (Lee County,
Florida Master Lease Project, Series 1993)
(AMBAC Insured) (c) 4.625 10/01/2003 AAA 410,000 412,374
Miami, Florida, Refunding Revenue, General
Obligation (FGIC Insured) (c) 4.70 7/01/2004 2003 @ 102 AAA 200,000 201,654
______________________
$1,210,000 1,215,600
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value), 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. In addition, certain bonds are sometimes redeemable
in whole or in part other than by operation of the stated redemption
provisions under specified unusual or extraordinary circumstances. All
of the Bonds in the Trust are subject to call, or will mature, within
four years.
(b) The ratings shown are those effective at August 31, 2000.
(c) Insurance has been obtained by the Bond issuer.
(d) The Trust consists of five obligations of issuers located in Florida.
Two of the Bonds in the Trust, aggregating approximately 22% of the
aggregate principal amount of the Bonds in the Trust, are general
obligations of a governmental entity. The remaining issues are revenue
bonds payable from the income of a specific project or authority and are
divided by purpose of issue as follows: Health Care, 1; Electric, 1;
and Miscellaneous, 1. Approximately 31% of the aggregate principal
amount of the Bonds in the Trust consist of electric revenue bonds.
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
95%. The largest such issue represents approximately 34%.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $57,770 67,981 82,427
Expenses:
Trustee's fees and related expenses (2,136) (2,807) (3,218)
Evaluator's fees (879) (879) (879)
Supervisory fees (353) (421) (518)
________________________________
Investment income - net 54,402 63,874 77,812
Net gain (loss) on investments:
Net realized gain (loss) (3,855) 4,221 1,447
Change in net unrealized
appreciation or depreciation 396 (36,266) 47,080
________________________________
(3,459) (32,045) 48,527
________________________________
Net increase (decrease) in net
assets resulting from operations $50,943 31,829 126,339
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $54,402 63,874 77,812
Net realized gain (loss) on investments (3,855) 4,221 1,447
Change in net unrealized appreciation
or depreciation on investments 396 (36,266) 47,080
__________________________________
50,943 31,829 126,339
Distributions to unit holders:
Investment income - net (54,313) (64,220) (78,150)
Principal from investment transactions - - -
__________________________________
(54,313) (64,220) (78,150)
Unit redemptions (137, 350 and 309 in
2000, 1999 and 1998, respectively):
Principal portion (128,720) (340,773) (297,909)
Net interest accrued (690) (1,800) (1,507)
__________________________________
(129,410) (342,573) (299,416)
__________________________________
Total increase (decrease) in net assets (132,780) (374,964) (251,227)
Net assets:
At the beginning of the year 1,347,607 1,722,571 1,973,798
__________________________________
At the end of the year (including
distributable funds (deficit)
applicable to Trust units of
$(773), $(2,906) and $1,185 at
August 31, 2000, 1999 and
1998, respectively) $1,214,827 1,347,607 1,722,571
==================================
Trust units outstanding at the end of
the year 1,275 1,412 1,762
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
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, September 29, 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 The Chase Manhattan Bank which is
based on $1.11 per Unit. Additionally, a fee of $879 annually is payable to
the Evaluator and the Trust pays all related expenses of the Trustee,
recurring financial reporting costs and an annual supervisory fee payable to
an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized appreciation $2,664
Unrealized depreciation (940)
______
$1,724
======
</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
Purchased Interest as described below plus a sales charge of 3.9% of the
public offering price which is equivalent to approximately 4.058% of the net
amount invested.
Purchased interest -
Purchased interest represents the accrued interest on the underlying bonds as
of the Date of Deposit and the net interest accrued to October 6, 1993, the
first settlement date; such amounts totaled $10,206 and $2,552, respectively,
resulting in purchased interest of $12,758 on the original 3,063 units of the
trust. Purchased interest was included in the original public offering price
paid by unit holders and will not be distributed to unitholders until the
termination of the Trust or until units are redeemed. Purchased interest on
1,275 units at August 31, 2000, totaling $5,311, represents a liability of the
Trust.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $43.99 44.03 43.68
Expenses (2.56) (2.66) (2.45)
___________________________
Investment income - net 41.43 41.37 41.23
Distributions to unit holders:
Investment income - net (41.18) (41.25) (41.15)
Principal from investment
transactions - - -
Net gain (loss) on investments (1.84) (23.34) 24.47
___________________________
Total increase (decrease) in
net assets (1.59) (23.22) 24.55
Net assets:
Beginning of the year 954.40 977.62 953.07
___________________________
End of the year $952.81 954.40 977.62
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
FLORIDA TRUST, SERIES 7 - INTERMEDIATE
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
2,142 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
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 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 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 and local
income taxes under existing law. At November 16, 2000, each Unit represented
a 1/2,142 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, plus Purchased Interest, divided by the
number of Units outstanding, plus a sales charge of 4.7% of the Public
Offering Price (4.932% of the amount invested). At November 16, 2000, the
Public Offering Price per Unit was $971.98 plus net interest accrued to date
of settlement (three business days after such date) of $.13 (see "Market for
Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 5.01% per annum on November 16,
2000. Estimated Long-Term Return to Unit holders was 3.95% per annum on
November 16, 2000. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price.
Estimated Long-Term Return is calculated using a formula which (1) takes into
consideration and determines and factors in the relative weightings of the
market values, yields (which take into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the Bonds
in the Trust and (2) takes into account a compounding factor and the expenses
and sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the Trust
will change, there is no assurance that the present Estimated Current Return
and Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,125,000
Number of Units 2,142
Fractional Undivided Interest in the Trust per Unit 1/2,142
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $1,965,735
Aggregate Value of Bonds per Unit $917.71
Purchased Interest $18,393
Purchased Interest per Unit $8.59
Sales Charge 4.932% (4.7% of Public Offering Price) $45.68
Public Offering Price per Unit $971.98*
Redemption Price and Sponsor's Repurchase Price per Unit
($45.68 less than the Public Offering Price per Unit) $926.30*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $568,000
</TABLE>
Date Trust Established September 29, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $852 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
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $50.88
Less: Estimated Annual Expense $2.22
Estimated Net Annual Interest Income $48.66
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $48.66
Divided by 12 $4.05
Estimated Daily Rate of Net Interest Accrual $.1352
Estimated Current Return Based on Public
Offering Price 5.01%
Estimated Long-Term Return Based on Public
Offering Price 3.95%
</TABLE>
Trustee's Annual Fee: $.96 per Unit.
Computation Dates: Fifteenth day of the month.
Distribution Dates: Last day of the month.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 199, The First Trust of Insured Municipal
Bonds - Multi-State, Missouri Trust, Series 20
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 199, The First
Trust of Insured Municipal Bonds - Multi-State, Missouri Trust, Series 20 as
of August 31, 2000, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These
financial statements are the responsibility of the Trust's Sponsor. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 199, The First Trust of Insured Municipal Bonds - Multi-State, Missouri
Trust, Series 20 at August 31, 2000, and the results of its operations and
changes in its net assets for each of the three years in the period then ended
in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $2,034,204)
(Note 1) $1,995,800
Accrued interest 11,566
Cash 2,912
__________
2,010,278
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Purchased interest 18,522
Accrued liabilities 104
__________
18,626
__________
Net assets, applicable to 2,157 outstanding
units of fractional undivided interest:
Cost of Trust assets (Note 1) $2,034,204
Net unrealized deprecition (Note 2) (38,404)
Distributable funds (deficit) (4,148)
__________
$1,991,652
==========
Net asset value per unit $923.34
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(f) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Mehlville R-9 School District, St. Louis County,
Missouri, General Obligation School Building 2003 @ 102
and Refunding (MBIA Insured) (c)(e) 6.00 % 2/15/2013 2010 @ 100 S.F. AAA $415,000 436,459
Missouri State, Health and Educational Facilities
Authority, Health Facilities Revenue, Health 2002 @ 102
Midwest, Series B (MBIA Insured) (c) 6.25 2/15/2022 2013 @ 100 S.F. AAA 455,000 473,340
SSM Health Care Obligated Group, Health Facilities
Refunding Revenue, Series 1992AA, Health and
Educational Facilities Authority of the State
of Missouri, Health Facilities Refunding
Revenue (SSM Health Care), Series 1992AA 2002 @ 102
(MBIA Insured) (c) 6.25 6/01/2016 2011 @ 100 S.F. AAA 500,000 513,940
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) 9/01/2022 AAA 290,000 87,229
City of Sikeston, Missouri, Electric System
Revenue Refunding, 1992 Series (MBIA
Insured) (c) (e) 6.25 6/01/2022 2002 @ 102 AAA 65,000 67,542
School District of Washington (Missouri),
Public Building Corporation, Insured
Leasehold Refunding Revenue, Series 1993
(School District of Washington, Missouri
Capital Improvements Project) (FGIC 2001 @ 102
Insured) (c) 5.125 2/15/2012 2009 @ 100 S.F. AAA 415,000 417,290
______________________
$2,140,000 1,995,800
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. Approximately 86% of
the aggregate principal amount of the Bonds in the Trust is subject to
call within three years.
(b) The ratings shown are those effective at August 31, 2000.
(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, 1993 at a price of 13.883% of their original
principal amount.
(e) The issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(f) The Trust consists of six obligations of issuers located in Missouri.
One of the Bonds in the Trust, representing approximately 19% of the
aggregate principal amount of Bonds in the Trust, is a general
obligation of a governmental entity. The remaining issues are revenue
bonds payable from the income of a specific project or authority and are
divided by purpose of issue as follows: Health Care, 3; Electric, 1;
and University and School, 1. Approximately 58% of the aggregate
principal amount of the Bonds consist of health care revenue bonds.
Each of five Bond issues represent 10% or more of the aggregate
principal amount of the Bonds in the Trust of a total of approximately
97%. The largest such issue represents approximately 23%.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $113,095 122,045 136,024
Expenses:
Trustee's fees and related expenses (3,606) (3,845) (4,278)
Evaluator's fees (852) (852) (852)
Supervisory fees (569) (625) (690)
________________________________
Investment income - net 108,068 116,723 130,204
Net gain (loss) on investments:
Net realized gain (loss) (6,582) (2,494) (2,106)
Change in net unrealized appreciation
or depreciation 7,815 (63,755) 41,244
________________________________
1,233 (66,249) 39,138
________________________________
Net increase (decrease) in net assets
resulting from operations $109,301 50,474 169,342
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI TRUST, SERIES 20
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $108,068 116,723 130,204
Net realized gain (loss) on investments (6,582) (2,494) (2,106)
Change in net unrealized appreciation
or depreciation on investments 7,815 (63,755) 41,244
__________________________________
109,301 50,474 169,342
Distributions to unit holders:
Investment income - net (108,151) (116,697) (130,491)
Principal from investment transactions - - -
__________________________________
(108,151) (116,697) (130,491)
Unit redemptions (147, 205 and 252 in
2000, 1999 and 1998, respectively):
Principal portion (132,014) (192,203) (235,540)
Net interest accrued (1,502) (2,167) (2,443)
__________________________________
(133,516) (194,370) (237,983)
__________________________________
Total increase (decrease) in net assets (132,366) (260,593) (199,132)
Net assets:
At the beginning of the year 2,124,018 2,384,611 2,583,743
__________________________________
At the end of the year (including
distributable funds (deficit)
applicable to Trust units of
$(4,148), $5,563 and $5,748
at August 31, 2000, 1999 and
1998, respectively) $1,991,652 2,124,018 2,384,611
==================================
Trust units outstanding at the end
of the year 2,157 2,304 2,509
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI 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, September 29, 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 The Chase Manhattan Bank which is
based on $.96 per unit. Additionally, a fee of $852 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 August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(65,790)
Unrealized appreciation 27,386
________
$(38,404)
========
</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
Purchased Interest as described below, plus a sales charge of 4.9% of the
public offering price which is equivalent to approximately 5.152% of the net
amount invested.
Purchased interest -
Purchased interest represents a portion of the accrued interest on the
underlying bonds as of the Date of Deposit and a portion of the net interest
accrued to October 6, 1993, the first settlement date; such amounts totaled
$28,997 and $2,894, respectively. On October 6, 1993, the trustee distributed
$6,474 to the Sponsor, resulting in Purchased Interest of $25,417 on the
original 2,960 units of the Trust. Purchased interest was included in the
original public offering price paid by unit holders and will not be
distributed to unitholders until the termination of the Trust or until units
are redeemed. Purchased interest on 2,157 units at August 31, 2000, totaling
$18,522, represents a liability of the Trust.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $50.99 51.16 51.45
Expenses (2.27) (2.23) (2.20)
___________________________
Investment income - net 48.72 48.93 49.25
Distributions to unit holders:
Investment income - net (48.70) (48.88) (49.24)
Principal from investment transactions - - -
Net gain (loss) on investments 1.44 (28.59) 14.61
___________________________
Total increase (decrease) in net assets 1.46 (28.54) 14.62
Net assets:
Beginning of the year 921.88 950.42 935.80
___________________________
End of the year $923.34 921.88 950.42
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
MISSOURI 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: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
1,651 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
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 Jersey 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 Jersey Trust,
Series 9 - Long Intermediate (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 Jersey, 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
Jersey State and local income taxes under existing law. At November 16, 2000,
each Unit represented a 1/1,651 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, plus Purchased Interest, divided by the
number of Units outstanding, plus a sales charge of 3.0% of the Public
Offering Price (3.093% of the amount invested). At November 16, 2000, the
Public Offering Price per Unit was $978.88 plus net interest accrued to date
of settlement (three business days after such date) of $.11 (see "Market for
Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 4.18% per annum on November 16,
2000. Estimated Long-Term Return to Unit holders was 3.56% per annum on
November 16, 2000. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price.
Estimated Long-Term Return is calculated using a formula which (1) takes into
consideration and determines and factors in the relative weightings of the
market values, yields (which take into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the Bonds
in the Trust and (2) takes into account a compounding factor and the expenses
and sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the Trust
will change, there is no assurance that the present Estimated Current Return
and Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $1,565,000
Number of Units 1,651
Fractional Undivided Interest in the Trust per Unit 1/1,651
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $1,563,091
Aggregate Value of Bonds per Unit $946.75
Purchased Interest $4,555
Purchased Interest per Unit $2.76
Sales Charge 3.093% (3.0% of Public Offering Price) $29.37
Public Offering Price per Unit $978.88*
Redemption Price and Sponsor's Repurchase Price per Unit
($29.37 less than the Public Offering Price per Unit) $949.51*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $558,000
</TABLE>
Date Trust Established September 29, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $837 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
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $43.36
Less: Estimated Annual Expense $2.47
Estimated Net Annual Interest Income $40.89
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $40.89
Divided by 12 $3.41
Estimated Daily Rate of Net Interest Accrual $.1136
Estimated Current Return Based on Public
Offering Price 4.18%
Estimated Long-Term Return Based on Public
Offering Price 3.56%
</TABLE>
Trustee's Annual Fee: $1.18 per Unit.
Computation Dates: Fifteenth day of the month.
Distribution Dates: Last day of the month.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 199, The First Trust of Insured Municipal
Bonds - Multi-State, New Jersey Trust, Series 9 -
Long Intermediate
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 199, The First
Trust of Insured Municipal Bonds - Multi-State, New Jersey Trust, Series 9 -
Long Intermediate as of August 31, 2000, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the Trust's
Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 199, The First Trust of Insured Municipal Bonds - Multi-State, New
Jersey Trust, Series 9 - Long Intermediate at August 31, 2000, and the results
of its operations and changes in its net assets for each of the three years in
the period then ended in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $1,575,019)
(Notes 1 and 3) $1,585,898
Accrued interest 32,449
__________
1,618,347
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Purchased interest 4,604
Cash overdraft 26,171
Accrued liabilities 75
__________
30,850
__________
Net assets, applicable to 1,669 outstanding units
of fractional undivided interest:
Cost of Trust assets (Note 1) $1,575,019
Net unrealized appreciation (Note 2) 10,879
Distributable funds 1,599
__________
$1,587,497
==========
Net asset value per unit $951.17
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption and Poor's Principal Market
Name of issuer and title of bond(d) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
The Board of Education of the City of Camden
(in the County of Camden, New Jersey),
Refunding Series 1993 (General Obligation)
(FSA Insured) (c) 4.70 % 10/01/2003 AAA $25,000 24,601
County of Cumberland, New Jersey, General
Improvement (Unlimited Tax) (General
Obligation) (FSA Insured) (c) 4.60 9/15/2004 2001 @ 102 AAA 380,000 381,482
Township of Dover, in the County of Ocean,
New Jersey, General Improvement (Golf Utility),
Series 1993-B (Unlimited Tax) (General
Obligation) (AMBAC Insured) (c) 4.375 9/15/2005 AAA 250,000 248,495
Township of Manchester, in the County of Ocean,
New Jersey, General Obligation Refunding,
Series 1993 (MBIA Insured) (c) 4.65 10/01/2003 2002 @ 102 AAA 5,000 4,879
Township of Montclair in the County of Essex,
New Jersey, General Obligation Refunding 4.30 1/01/2003 AA 5,000 4,933
Old Bridge Municipal Utilities Authority
(Middlesex County, New Jersey), Revenue
Refunding (1993 Series B) (AMBAC Insured) (c) 4.80 11/01/2005 2003 @ 101 AAA 210,000 213,241
Borough of South Plainfield in the County of
Middlesex (General Obligation), New Jersey
(AMBAC Insured) (c) 4.45 9/01/2004 2003 @ 101 AAA 305,000 304,887
County of Warren, New Jersey, General Improvement
of 1993 (Unlimited Tax) (General Obligation)
(AMBAC Insured) (c) 4.65 9/15/2005 2003 @ 101 AAA 400,000 403,380
______________________
$1,580,000 1,585,898
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). In addition, certain bonds
are sometimes redeemable in whole or in part other than by operation of
the stated redemption provisions under specified unusual or
extraordinary circumstances. Approximately 84% of the aggregate
principal amount of the Bonds in the Trust is subject to call, or will
mature, within four years.
(b) The ratings shown are those effective at August 31, 2000.
(c) Insurance has been obtained by the Bond issuer.
(d) The Trust consists of eight obligations of issuers located in New
Jersey. Seven of the Bond issues in the Trust, aggregating
approximately 87% of the aggregate principal amount of the Bonds in the
Trust, are general obligations of a governmental entity. The remaining
issue is a utility revenue bond payable from the income of a specific
project or authority. 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 98%. The largest such issue represents approximately
25%.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $75,068 82,270 88,318
Expenses:
Trustee's fees and related expenses (3,094) (3,475) (3,708)
Insurance expense (5) (5) (120)
Evaluator's fees (837) (837) (837)
Supervisory fees (444) (478) (572)
________________________________
Investment income - net 70,688 77,475 83,081
Net gain (loss) on investments:
Net realized gain (loss) (5,027) (511) (1,152)
Change in net unrealized
appreciation or depreciation 6,703 (50,485) 59,295
________________________________
1,676 (50,996) 58,143
________________________________
Net increase (decrease) in net assets
resulting from operations $72,364 26,479 141,224
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $70,688 77,475 83,081
Net realized gain (loss) on investments (5,027) (511) (1,152)
Change in net unrealized appreciation
or depreciation on investments 6,703 (50,485) 59,295
__________________________________
72,364 26,479 141,224
Distributions to unit holders:
Investment income - net (70,725) (77,603) (83,567)
Principal from investment transactions - - -
__________________________________
(70,725) (77,603) (83,567)
Unit redemptions (189, 55 and 375 in
2000, 1999 and 1998, respectively):
Principal portion (176,848) (52,943) (360,768)
Net interest accrued (793) (128) (1,863)
__________________________________
(177,641) (53,071) (362,631)
__________________________________
Total increase (decrease) in net assets (176,002) (104,195) (304,974)
Net assets:
At the beginning of the year 1,763,499 1,867,694 2,172,668
__________________________________
At the end of the year (including
distributable funds applicable to
Trust units of $1,599, $2,812 and
$5,805 at August 31, 2000, 1999
and 1998, respectively) $1,587,497 1,763,499 1,867,694
==================================
Trust units outstanding at the end of
the year 1,669 1,858 1,913
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
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, September 29, 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 obtained by the Trust (see Note 3), the
Trust pays a fee for Trustee services to The Chase Manhattan Bank which is
based on $1.18 per Unit. Additionally, a fee of $837 annually is payable to
the Evaluator and the Trust pays all related expenses of the Trustee,
recurring financial reporting costs and an annual supervisory fee payable to
an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized appreciation $11,891
Unrealized depreciation (1,012)
_______
$10,879
=======
</TABLE>
<PAGE>
3. Insurance
The issuers of seven 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); 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 from the portfolio which is covered by the insurance
acquired by the Trust, the Trustee has the right to obtain permanent insurance
for such bond upon the payment of a single predetermined insurance premium
from the proceeds of the sale of such bond. Annual insurance premiums payable
by the Trust in future years, assuming no change in the portfolio, would be
$5.
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
Purchased Interest as described below, plus a sales charge of 4.4% of the
public offering price which is equivalent to approximately 4.603% of the net
amount invested.
Purchased Interest -
Purchased interest represents the accrued interest on the underlying bonds as
of the Date of Deposit and the net interest accrued to October 6, 1993, the
first settlement date; such amounts totaled $5,692 and $2,366, respectively,
resulting in Purchased interest of $8,058 on the original 2,921 units of the
Trust. Purchased interest was included in the original public offering price
paid by unit holders and will not be distributed to unitholders until the
termination of the Trust or until units are redeemed. Purchased interest on
1,669 units at August 31, 2000, totaling $4,604, represents a liability of the
Trust.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $43.51 43.55 43.35
Expenses (2.54) (2.54) (2.57)
__________________________
Investment income - net 40.97 41.01 40.78
Distributions to unit holders:
Investment income - net (40.89) (41.00) (40.97)
Principal from investment transactions - - -
Net gain (loss) on investments 1.95 (27.19) 26.92
__________________________
Total increase (decrease) in net assets 2.03 (27.18) 26.73
Net assets:
Beginning of the year 949.14 976.32 949.59
__________________________
End of the year $951.17 949.14 976.32
==========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
NEW JERSEY TRUST, SERIES 9 - LONG INTERMEDIATE
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
2,299 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two and Part Three.
In the opinion of Counsel, interest income to the Trust and to Unit holders,
with certain exceptions, is exempt under existing law from all Federal income
taxes. In addition, the interest income is, in the opinion of Special
Counsel, exempt to the extent indicated from Pennsylvania State and local
income taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust,
Series 50 (the "Trust") is an insured and fixed portfolio of interest-bearing
obligations issued by or on behalf of municipalities and other governmental
authorities within the State of Pennsylvania, counties, municipalities,
authorities and political subdivisions thereof, the interest on which is, in
the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income taxes and from Pennsylvania State
and local income taxes under existing law. At November 16, 2000, each Unit
represented a 1/2,299 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, plus Purchased Interest, divided by the
number of Units outstanding, plus a sales charge of 5.8% of the Public
Offering Price (6.157% of the amount invested). At November 16, 2000, the
Public Offering Price per Unit was $971.49 plus net interest accrued to date
of settlement (three business days after such date) of $.13 (see "Market for
Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 4.99% per annum on November 16,
2000. Estimated Long-Term Return to Unit holders was 5.05% per annum on
November 16, 2000. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price.
Estimated Long-Term Return is calculated using a formula which (1) takes into
consideration and determines and factors in the relative weightings of the
market values, yields (which take into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the Bonds
in the Trust and (2) takes into account a compounding factor and the expenses
and sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the Trust
will change, there is no assurance that the present Estimated Current Return
and Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,275,000
Number of Units 2,299
Fractional Undivided Interest in the Trust per Unit 1/2,299
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,085,702
Aggregate Value of Bonds per Unit $907.22
Purchased Interest $18,200
Purchased Interest per Unit $7.92
Sales Charge 6.157% (5.8% of Public Offering Price) $56.35
Public Offering Price per Unit $971.49*
Redemption Price and Sponsor's Repurchase Price per Unit
($56.35 less than the Public Offering Price per Unit) $915.14*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $597,000
</TABLE>
Date Trust Established September 29, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $896 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
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $50.68
Less: Estimated Annual Expense $2.20
Estimated Net Annual Interest Income $48.48
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $48.48
Divided by 12 $4.04
Estimated Daily Rate of Net Interest Accrual $.1347
Estimated Current Return Based on Public
Offering Price 4.99%
Estimated Long-Term Return Based on Public
Offering Price 5.05%
</TABLE>
Trustee's Annual Fee: $.99 per Unit.
Computation Dates: Fifteenth day of the month.
Distribution Dates: Last day of the month.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 199, The First Trust of Insured Municipal
Bonds - Multi-State, Pennsylvania Trust, Series 50
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 199, The First
Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust, Series 50
as of August 31, 2000, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These
financial statements are the responsibility of the Trust's Sponsor. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 199, The First Trust of Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 50 at August 31, 2000, and the results of its
operations and changes in its net assets for each of the three years in the
period then ended in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $2,204,019)
(Note 1) $2,164,364
Accrued interest 41,813
__________
2,206,177
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Purchased interest 18,517
Cash overdraft 19,174
Accrued liabilities 115
__________
37,806
__________
Net assets, applicable to 2,339 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $2,204,019
Net unrealized depreciation (Note 2) (39,655)
Distributable funds 4,007
__________
$2,168,371
==========
Net asset value per unit $927.05
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(f) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Allegheny County Hospital Development Authority
(Pennsylvania), Health Center Revenue Refunding,
Series 1992B (Presbyterian University Health 2002 @ 102
System, Inc. Project) (MBIA Insured) (c) (e) 6.00 % 11/01/2023 2013 @ 100 S.F. AAA $250,000 254,930
Beaver County Industrial Development Authority,
Pollution Control Revenue Refunding, 1993
Series A (Ohio Edison Company Mansfield Project)
(AMBAC Insured) (c) 5.45 9/15/2033 2003 @ 102 AAA 500,000 484,375
Berks County Municipal Authority, Berks County,
Pennsylvania, College Revenue, Series of 1993 2003 @ 100
(Albright College) (Capital Guaranty Insured) (c) 5.30 10/01/2018 2014 @ 100 S.F. AAA 340,000 331,500
Derry Area School District (Westmoreland County,
Pennsylvania), General Obligation, Refunding 2003 @ 100
Series of 1993 (MBIA Insured) (c) 5.50 2/01/2021 2015 @ 100 S.F. AAA 500,000 495,730
Lawrence County Industrial Development Authority,
Pollution Control Revenue Refunding, 1993
Series A (Pennsylvania Power Company New Castle
Project) (FSA Insured) (c) 5.40 9/15/2017 2003 @ 102 AAA 90,000 90,313
Montgomery County Higher Education and Health
Authority (Pennsylvania), Hospital Revenue,
Series A of 1993 (Abington Memorial Hospital) 2003 @ 102
(AMBAC Insured) (c) 6.00 6/01/2022 2017 @ 100 S.F. AAA 45,000 46,016
Montour School District (Allegheny County,
Pennsylvania), General Obligation, Series B
of 1993 (MBIA Insured) (c) -(d) 1/01/2023 AAA 175,000 50,360
Westmoreland County Airport Authority,
Westmoreland County, Pennsylvania, Guaranteed 2003 @ 102
Revenue, Series of 1993 (AMBAC Insured) (c) 5.625 9/01/2023 2013 @ 100 S.F. AAA 410,000 411,140
______________________
$2,310,000 2,164,364
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. Approximately 92% of
the aggregate principal amount of the Bonds in the Trust is subject to
call within four years.
(b) The ratings shown are those effective at August 31, 2000.
(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 August 19, 1993 at a price of 17.873% of their original
principal amount.
(e) These Bonds were issued at an original issue discount on November 1,
1992 at a price of 94.636% of their original principal amount.
(f) The Trust consists of eight obligations of issuers located in
Pennsylvania. Two of the Bonds in the Trust, aggregating approximately
29% 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: University and School,
1; Electric, 2; Health Care, 2; and Transportation, 1. Approximately
26% of the aggregate principal amount of the Bonds consist of electric
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 87%. The two largest such issues represent approximately
22% each.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $123,983 134,433 143,116
Expenses:
Trustee's fees and related
expenses (3,916) (4,318) (4,515)
Evaluator's fees (896) (896) (896)
Supervisory fees (640) (679) (725)
________________________________
Investment income - net 118,531 128,540 136,980
Net gain (loss) on investments:
Net realized gain (loss) (9,105) 1,335 (1,317)
Change in net unrealized
appreciation or depreciation 41,590 (123,727) 77,806
________________________________
32,485 (122,392) 76,489
________________________________
Net increase (decrease) in net assets
resulting from operations $151,016 6,148 213,469
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $118,531 128,540 136,980
Net realized gain (loss) on investments (9,105) 1,335 (1,317)
Change in net unrealized appreciation
or depreciation on investments 41,590 (123,727) 77,806
__________________________________
151,016 6,148 213,469
Distributions to unit holders:
Investment income - net (118,556) (128,518) (136,887)
Principal from investment transactions - - -
__________________________________
(118,556) (128,518) (136,887)
Unit redemptions (224, 153 and 184 in
2000, 1999 and 1998, respectively):
Principal portion (196,571) (143,932) (172,913)
Net interest accrued (2,156) (1,295) (1,909)
__________________________________
(198,727) (145,227) (174,822)
__________________________________
Total increase (decrease) in net assets (166,267) (267,597) (98,240)
Net assets:
At the beginning of the year 2,334,638 2,602,235 2,700,475
__________________________________
At the end of the year (including
distributable funds applicable
to Trust units of $4,007, $7,544
and $6,282 at August 31, 2000,
1999 and 1998, respectively) $2,168,371 2,334,638 2,602,235
==================================
Trust units outstanding at the end
of the year 2,339 2,563 2,716
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
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, September 29, 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 The Chase Manhattan Bank which is
based on $.99 per Unit. Additionally, a fee of $896 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 August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized depreciation $(53,682)
Unrealized appreciation 14,027
________
$(39,655)
========
</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
Purchased Interest as described below, plus a sales charge of 4.9% of the
public offering price which is equivalent to approximately 5.152% of the net
amount invested.
Purchased Interest -
Purchased interest represents the accrued interest on the underlying bonds as
of the Date of Deposit and the net interest accrued to October 6, 1993, the
first settlement date; such amounts totaled $21,224 and $3,032, respectively,
resulting in purchased interest of $24,256 on the original 3,064 units of the
Trust. Purchased interest was included in the original public offering price
paid by unit holders and will not be distributed to unit holders until the
termination of the Trust or until units are redeemed. Purchased interest on
2,339 units at August 31, 2000, totaling $18,517, represents a liability of
the Trust.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $50.78 50.88 50.82
Expenses (2.23) (2.23) (2.18)
___________________________
Investment income - net 48.55 48.65 48.64
Distributions to unit holders:
Investment income - net (48.47) (48.52) (48.61)
Principal from investment transactions - - -
Net gain (loss) on investments 16.07 (47.34) 26.88
___________________________
Total increase (decrease) in net assets 16.15 (47.21) 26.91
Net assets:
Beginning of the year 910.90 958.11 931.20
___________________________
End of the year $927.05 910.90 958.11
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 50
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
574 UNITS
PROSPECTUS
Part One
Dated December 27, 2000
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 South Carolina State and local
income taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust Advantage, South Carolina Trust, Series 1 - Intermediate (the
"Trust") is a fixed portfolio of interest-bearing obligations issued by or on
behalf of municipalities and other governmental authorities within the State
of South Carolina, counties, municipalities, authorities and political
subdivisions thereof, the interest on which is, in the opinion of recognized
bond counsel to the issuing governmental authorities, exempt from all Federal
income taxes and from South Carolina State and local income taxes under
existing law. At November 16, 2000, each Unit represented a 1/574 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, plus Purchased Interest, divided by the
number of Units outstanding, plus a sales charge of 3.0% of the Public
Offering Price (3.093% of the amount invested). At November 16, 2000, the
Public Offering Price per Unit was $974.90 plus net interest accrued to date
of settlement (three business days after such date) of $.10 (see "Market for
Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders was 4.03% per annum on November 16,
2000. Estimated Long-Term Return to Unit holders was 3.24% per annum on
November 16, 2000. Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering Price.
Estimated Long-Term Return is calculated using a formula which (1) takes into
consideration and determines and factors in the relative weightings of the
market values, yields (which take into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the Bonds
in the Trust and (2) takes into account a compounding factor and the expenses
and sales charge associated with each Unit of the Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the Trust
will change, there is no assurance that the present Estimated Current Return
and Estimated Long-Term Return indicated above will be realized in the future.
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price. The above figures are based on estimated per Unit cash flows.
Estimated cash flows will vary with changes in fees and expenses, with changes
in current interest rates, and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. See "What are
Estimated Current Return and Estimated Long-Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities, L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $550,000
Number of Units 574
Fractional Undivided Interest in the Trust per Unit 1/574
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $540,600
Aggregate Value of Bonds per Unit $941.81
Purchased Interest $2,202
Purchased Interest per Unit $3.84
Sales Charge 3.093% (3.0% of Public Offering Price) $29.25
Public Offering Price per Unit $974.90*
Redemption Price and Sponsor's Repurchase Price per Unit
($29.25 less than the Public Offering Price per Unit) $945.65*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $561,000
</TABLE>
Date Trust Established September 29, 1993
Mandatory Termination Date December 31, 2042
Evaluator's Fee: $842 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an Maximum of $.25
affiliate of the Sponsor per Unit annually
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 16, 2000
Sponsor: Nike Securities, L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $42.78
Less: Estimated Annual Expense $3.46
Estimated Net Annual Interest Income $39.32
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $39.32
Divided by 12 $3.28
Estimated Daily Rate of Net Interest Accrual $.1092
Estimated Current Return Based on Public
Offering Price 4.03%
Estimated Long-Term Return Based on Public
Offering Price 3.24%
</TABLE>
Trustee's Annual Fee: $1.13 per Unit.
Computation Dates: Fifteenth day of the month.
Distribution Dates: Last day of the month.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 199, The First Trust Advantage,
South Carolina Trust, Series 1 - Intermediate
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 199, The First
Trust Advantage, South Carolina Trust, Series 1 - Intermediate as of August
31, 2000, and the related statements of operations and changes in net assets
for each of the three years in the period then ended. These financial
statements are the responsibility of the Trust's Sponsor. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 2000, by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 199, The First Trust Advantage, South Carolina Trust, Series 1 -
Intermediate at August 31, 2000, and the results of its operations and changes
in its net assets for each of the three years in the period then ended in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 11, 2000
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
STATEMENTS OF ASSETS AND LIABILITIES
August 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $548,431)
(Note 1) $549,649
Accrued interest 9,194
________
558,843
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Cash overdraft 14,371
Purchased interest 2,202
Accrued liabilities 26
________
16,599
________
Net assets, applicable to 574 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $548,431
Net unrealized appreciation (Note 2) 1,218
Distributable funds (deficit) (7,405)
________
$542,244
========
Net asset value per unit $944.68
========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
PORTFOLIO - See notes to portfolio.
August 31, 2000
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(c) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
City of Charleston, South Carolina, City of
Charleston Public Facilities Corporation,
Certificates of Participation (Public
Improvements Project), Series 1993 (AMBAC
Insured) 4.60% 9/01/2003 AAA $135,000 135,294
Horry County, South Carolina, General Obligation
Refunding, Series 1993B (Unlimited Tax) (MBIA
Insured) 4.55 12/01/2004 AAA 145,000 145,488
City of Newberry, South Carolina, Combined Public
Utility System Refunding Revenue, Series 1993A
(AMBAC Insured) 4.30 10/01/2004 2003 @ 101 AAA 220,000 219,100
Richland County, South Carolina, Hospital Revenue
(Richland Memorial Hospital), Series 1993B
(MBIA Insured) 4.75 6/01/2002 AAA 20,000 19,992
South Carolina Public Service Authority, Revenue,
1993 Refunding Series C (AMBAC Insured) 4.50 1/01/2003 AAA 20,000 19,881
York County, South Carolina, General Obligation
of 1993 (Unlimited Tax) 4.40 6/01/2002 2001 @ 102 A 10,000 9,894
____________________
$550,000 549,649
====================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
NOTES TO PORTFOLIO
August 31, 2000
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). In addition, certain bonds
are sometimes redeemable in whole or in part other than by operation of
the stated redemption provisions under specified unusual or
extraordinary circumstances. All of the Bonds in the Trust are subject
to call, or will mature, within five years.
(b) The ratings shown are those effective at August 31, 2000.
(c) The Trust consists of six obligations of issuers located in South
Carolina. Two of the Bonds in the Trust, aggregating approximately 28%
of the aggregate principal amount of the Bonds in the Trust, are general
obligations of a governmental entity. The remaining issues are revenue
bonds payable from the income of a specific project or authority and are
divided by purpose of issue as follows: Utility 1; Health Care, 1; and
Miscellaneous, 2. Approximately 40% of the aggregate principal amount
of the Bonds consist of utility revenue bonds. Each of three Bond
issues represents 10% or more of the aggregate principal amount of the
Bonds in the Trust or a total of approximately 91%. The largest such
issue represents approximately 40%.
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $25,334 27,339 32,785
Expenses:
Trustee's fees and related expenses (1,051) (1,291) (1,453)
Evaluator's fees (842) (842) (842)
Supervisory fees (150) (167) (205)
_______________________________
Investment income - net 23,291 25,039 30,285
Net gain (loss) on investments:
Net realized gain (loss) (779) 538 (471)
Change in net unrealized appreciation
or depreciation 1,344 (13,440) 17,384
_______________________________
565 (12,902) 16,913
_______________________________
Net increase (decrease) in net
assets resulting from operations $23,856 12,137 47,198
===============================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Net increase (decrease) in net assets
resulting from operations:
Investment income - net $23,291 25,039 30,285
Net realized gain (loss) on investments (779) 538 (471)
Change in net unrealized appreciation
or depreciation on investments 1,344 (13,440) 17,384
________________________________
23,856 12,137 47,198
Distributions to unit holders:
Investment income - net (23,463) (25,252) (30,488)
Principal from investment transactions - - -
________________________________
(23,463) (25,252) (30,488)
Unit redemptions (25, 67 and 152 in
2000, 1999 and 1998, respectively):
Principal portion (23,148) (64,475) (145,314)
Net interest accrued (67) (326) (711)
________________________________
(23,215) (64,801) (146,025)
________________________________
Total increase (decrease) in net assets (22,822) (77,916) (129,315)
Net assets:
At the beginning of the year 565,066 642,982 772,297
________________________________
At the end of the year (including
distributable funds (deficit)
applicable to Trust units of
$(7,405), $(8,238) and $(3,936) at
August 31, 2000, 1999 and 1998,
respectively) $542,244 565,066 642,982
================================
Trust units outstanding at the end of
the year 574 599 666
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
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, September 29, 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 The Chase Manhattan Bank which is
based on $1.13 per Unit. Additionally, a fee of $842 annually is payable to
the Evaluator and the Trust pays all related expenses of the Trustee,
recurring financial reporting costs and an annual supervisory fee payable to
an affiliate of the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at August 31, 2000 follows:
<TABLE>
<S> <C>
Unrealized appreciation $1,805
Unrealized depreciation (587)
______
$1,218
======
</TABLE>
<PAGE>
3. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus
Purchased Interest as described below, plus a sales charge of 3.9% of the
public offering price which is equivalent to approximately 4.058% of the net
amount invested.
Purchased Interest -
Purchased interest represents the accrued interest on the underlying bonds as
of the Date of Deposit and the net interest accrued to October 6, 1993, the
first settlement date; such amounts totaled $8,867 and $2,398, respectively,
resulting in purchased interest of $11,265 on the original 2,937 units of the
trust. Purchased interest was included in the original public offering price
paid by unit holders and will not be distributed to unit holders until the
termination of the Trust or until units are redeemed. Purchased interest on
574 units at August 31, 2000, totaling $2,202, represents a liability of the
Trust.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly.
Selected data for a unit of the Trust
outstanding throughout each year -
<TABLE>
<CAPTION>
Year ended August 31,
2000 1999 1998
<S> <C> <C> <C>
Interest income $43.02 42.86 42.87
Expenses (3.47) (3.61) (3.27)
___________________________
Investment income - net 39.55 39.25 39.60
Distributions to unit holders:
Investment income - net (39.73) (39.51) (39.66)
Principal from investment transactions - - -
Net gain (loss) on investments 1.51 (21.83) 21.37
___________________________
Total increase (decrease) in net assets 1.33 (22.09) 21.31
Net assets:
Beginning of the year 943.35 965.44 944.13
___________________________
End of the year $944.68 943.35 965.44
===========================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 199
THE FIRST TRUST ADVANTAGE
SOUTH CAROLINA TRUST, SERIES 1 - INTERMEDIATE
PART ONE
Must be Accompanied by Part Two and Part Three
___________________
P R O S P E C T U S
___________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The First Trust (registered trademark) Combined Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated May 31, 2000 AND PART THREE
IN THE OPINION OF COUNSEL, INTEREST INCOME TO THE TRUSTS AND TO THE UNIT
HOLDERS, WITH CERTAIN EXCEPTIONS, IS EXEMPT UNDER EXISTING LAW FROM ALL
FEDERAL INCOME TAXES. IN ADDITION, THE INTEREST INCOME TO THE TRUSTS IS,
IN THE OPINION OF SPECIAL COUNSEL, EXEMPT TO THE EXTENT INDICATED FROM
STATE AND LOCAL TAXES WHEN HELD BY RESIDENTS OF THE STATE IN WHICH THE
ISSUERS OF THE BONDS IN SUCH TRUSTS ARE LOCATED. CAPITAL GAINS, IF ANY,
ARE SUBJECT TO TAX.
THE FIRST TRUST COMBINED SERIES (the "Fund") consists of underlying
separate unit investment trusts (the "Trusts"). The various trusts are
collectively referred to herein as the "Trusts" while all Trusts that
are not designated as "The First Trust Advantage" are sometimes
collectively referred to herein as the "Insured Trusts" and a Trust with
the name designation of "The First Trust of Insured Municipal Bonds,
Discount Trust" or "The First Trust Advantage: Discount Trust" is
sometimes referred to herein as a "Discount Trust." Each Trust consists
of a portfolio of interest-bearing obligations, issued by or on behalf
of states and territories of the United States, and political
subdivisions and authorities thereof, the interest on which is, in the
opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income taxes under existing law
although interest on certain Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be a preference item for
purposes of the Alternative Minimum Tax. In addition, the interest
income of each Trust is, in the opinion of Special Counsel, exempt to
the extent indicated from state and local income taxes when held by
residents of the state in which the issuers of the Bonds in such Trust
are located. The securities in a Discount Trust are acquired at prices
which result in a Discount Trust portfolio, as a whole, being purchased
at a deep discount from the aggregate par value of such Securities
although a substantial portion of the Securities in a Discount Trust
portfolio may be acquired at a premium over the par value of such
Securities. All of the Bonds in an Intermediate Trust mature within 8 to
12 years of the Initial Date of Deposit. All of the Bonds in a Short
Intermediate Trust mature within 3 to 6 years of the Initial Date of
Deposit. All of the Bonds in a Long Intermediate Trust mature within 10
to 15 years of the Initial Date of Deposit. The portfolio for each
Trust, essential information based thereon and financial statements,
including a report of independent auditors relating to the series of the
Fund offered hereby, are contained in Part One to which reference should
be made for such information.
INSURANCE GUARANTEEING THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST
ON ALL BONDS IN THE PORTFOLIO OF EACH INSURED TRUST HAS BEEN OBTAINED
FROM FINANCIAL GUARANTY INSURANCE COMPANY AND/OR Ambac Assurance
CORPORATION (FORMERLY KNOWN AS AMBAC INDEMNITY CORPORATION) BY THE
INSURED TRUSTS OR WAS DIRECTLY OBTAINED BY THE BOND ISSUER, THE
UNDERWRITERS, THE SPONSOR OR OTHERS PRIOR TO THE INITIAL DATE OF DEPOSIT
FROM FINANCIAL GUARANTY INSURANCE COMPANY, Ambac Assurance 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 Assurance CORPORATION IN THE EVENT OF A
SALE OF A BOND INSURED UNDER AN INSURANCE POLICY OBTAINED BY AN INSURED
TRUST, THE TRUSTEE HAS THE RIGHT TO OBTAIN PERMANENT INSURANCE FOR SUCH
BOND UPON THE PAYMENT OF A SINGLE PREDETERMINED INSURANCE PREMIUM FROM
THE PROCEEDS OF THE SALE OF SUCH BOND. THE INSURANCE, IN EITHER CASE,
RELATES ONLY TO THE BONDS IN THE INSURED TRUSTS AND NOT TO THE UNITS
OFFERED HEREBY. AS A RESULT OF SUCH INSURANCE, THE UNITS OF EACH INSURED
TRUST HAVE RECEIVED A RATING OF "AAA" BY STANDARD & POOR'S RATINGS
GROUP, A DIVISION OF MCGRAW-HILL, INC. ("STANDARD & POOR'S"). SEE "WHY
AND HOW ARE THE INSURED TRUSTS INSURED?" ON PAGE 10. NO REPRESENTATION
IS MADE AS TO ANY INSURER'S ABILITY TO MEET ITS COMMITMENTS.
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
All Parts of the Prospectus Should be Retained for Future Reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
For convenience the Prospectus is divided into sections which give
general information about the Fund and specific information such as the
public offering price, distributions and tax status for each Trust.
The Objectives of the Fund are conservation of capital through
investment in portfolios of tax-exempt bonds and income exempt from
Federal and applicable state and local income taxes although interest on
certain Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the Federal
Alternative Minimum Tax. ACCORDINGLY, CERTAIN ARKANSAS, IDAHO, KANSAS,
MAINE, MISSISSIPPI AND NEBRASKA TRUSTS MAY BE APPROPRIATE ONLY FOR
INVESTORS WHO ARE NOT SUBJECT TO THE ALTERNATIVE MINIMUM TAX. CERTAIN
BONDS IN THE OKLAHOMA TRUSTS ARE SUBJECT TO OKLAHOMA STATE INCOME TAXES.
The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers, obligors
and/or insurers to meet their respective obligations.
Distributions to Unit holders may be reinvested as described herein. See
"Rights of Unit Holders-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 "Rights of Unit Holders-How May Units be Redeemed?" With respect to
each Insured Trust, neither the bid nor offering prices of the
underlying Bonds or of the Units, absent situations in which Bonds are
in default in payment of principal or interest or in significant risk of
such default, include value attributable to the portfolio insurance
obtained by such Trust. See "Why and How are the Insured Trusts Insured?"
Page 2
THE FIRST TRUST COMBINED SERIES
What is The First Trust Combined Series?
The First Trust Combined Series (the "Fund") is one of a series of
investment companies created by the Sponsor under the name of The First
Trust Combined Series, all of which are generally similar but each of
which is separate and is designated by a different series number. This
Series consists of underlying separate unit investment trusts (such
Trusts being collectively referred to herein as the "Fund"). Each Series
was created under the laws of the State of New York pursuant to a Trust
Agreement (the "Indenture"), dated the Initial Date of Deposit, with
Nike Securities L.P., as Sponsor, The Chase Manhattan Bank, as Trustee,
Securities Evaluation Service, Inc., as Evaluator and First Trust
Advisors L.P., as Portfolio Supervisor. Only Units of a National Trust
may be offered for sale to residents of the State of Illinois. Only
Units of an Indiana Trust and/or a National Trust may be offered for
sale to residents of the State of Indiana. Only Units of a Virginia
Trust and/or a National Trust may be offered for sale to residents of
the State of Virginia. Only Units of a Washington Trust and/or a
National Trust may be offered for sale to residents of Washington. On
the Initial Date of Deposit, the Sponsor deposited with the Trustee
interest-bearing obligations, including delivery statements relating to
contracts for the purchase of certain such obligations and irrevocable
letters of credit issued by a financial institution in the amounts
required for such purchases (the "Bonds"). The Trustee thereafter
credited the account of the Sponsor for Units of each Trust representing
the entire ownership of the Fund which Units are being offered hereby.
The objectives of the Fund are Federal tax-exempt income and state and
local tax-exempt income and conservation of capital through investment
in portfolios of interest-bearing obligations issued by or on behalf of
the state for which such Trust is named (collectively, the "State
Trusts"), and counties, municipalities, authorities and political
subdivisions thereof, the Commonwealth of Puerto Rico and other
territories or municipalities of the United States, or authorities or
political subdivisions thereof, the interest on which obligations is, in
the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income tax and, where applicable,
state and local taxes under existing law although interest on certain
Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the
Alternative Minimum Tax and certain Bonds in the Oklahoma Trusts are
subject to Oklahoma State Income Taxes. The current market value of
certain of the obligations in a Discount Trust were significantly below
face value when the obligations were acquired by such Trust. The prices
at which the obligations are acquired result in a Discount Trust's
portfolio, as a whole, being purchased at a deep discount from the
aggregate par value of such Securities although a substantial portion of
the Securities in a Discount Trust portfolio may be acquired at a
premium over the par value of such Securities. Insurance guaranteeing
the scheduled payment of all principal and interest on Bonds in the
Trusts with the name designation of "The First Trust of Insured
Municipal Bonds," "The First Trust of Insured Municipal Bonds-
Intermediate" or "The First Trust of Insured Municipal Bonds-Multi-
State" (the "Insured Trusts") has been obtained by such Trusts from
Financial Guaranty Insurance Company ("Financial Guaranty") and/or Ambac
Assurance Corporation ("Ambac Assurance") or was obtained directly by
the Bond issuer, the underwriters, the Sponsor or others prior to the
Initial Date of Deposit from Financial Guaranty, Ambac Assurance, or
other insurers (the "Preinsured Bonds"). NO PORTFOLIO INSURANCE POLICY
HAS BEEN OBTAINED BY THE TRUSTS WITH THE NAME DESIGNATION OF "THE FIRST
TRUST ADVANTAGE" (THE "ADVANTAGE TRUSTS"). The portfolio insurance
obtained by the Insured Trusts is effective only while the Bonds thus
insured are held in such Trusts, while insurance on Preinsured Bonds is
effective so long as such Bonds are outstanding. See "Why and How are
the Insured Trusts Insured?" THERE IS, OF COURSE, NO GUARANTEE THAT THE
FUND'S OBJECTIVES WILL BE ACHIEVED. AN INVESTMENT IN THE FUND SHOULD BE
MADE WITH AN UNDERSTANDING OF THE RISKS WHICH AN INVESTMENT IN FIXED
RATE LONG-TERM DEBT OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE
VALUE OF THE UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of an Insured Trust nor
any evaluation of such Units for purposes of repurchases or redemptions
reflects any element of value for the insurance obtained by such Trust
unless Bonds are in default in payment of principal or interest or in
significant risk of such default. See "Public Offering-How is the Public
Offering Price Determined?" On the other hand, the value of insurance
Page 3
obtained by the Bond issuer, the Sponsor or others is reflected and
included in the market value of such Bonds.
Insurance obtained by an Insured Trust or by the Bond issuer, the
Sponsor or others is not a substitute for the basic credit of an issuer,
but supplements the existing credit and provides additional security
therefor. If an issue is accepted for insurance, a noncancelable policy
for the scheduled payment of interest and principal on the Bonds is
issued by the insurer. A single premium is paid by the Bond issuer, the
underwriters, the Sponsor or others for Preinsured Bonds and a monthly
premium is paid by each Insured Trust for the insurance obtained by such
Trust except for Bonds in such Trust which are insured by the Bond
issuer, the underwriters, the Sponsor or others in which case no
premiums for insurance are paid by such Trust. Upon the sale of a Bond
insured under the insurance policy obtained by an Insured Trust, the
Trustee has the right to obtain permanent insurance from Financial
Guaranty and/or Ambac Assurance with respect to such Bond upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust of the
Fund is eligible to be sold on an insured basis. Standard & Poor's and
Moody's Investors Service, Inc. have rated the claims-paying ability of
Financial Guaranty and Ambac Assurance "AAA" and "Aaa," respectively.
See "Why and How are the Insured Trusts Insured?"
In selecting Bonds, the following facts, among others, were considered:
(i) the Standard & Poor's rating or Fitch Investors Service, Inc.'s
rating of the Bonds was in no case less than "BBB" in the case of an
Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and "A-"
in the case of other Advantage Trusts, or the Moody's Investors Service,
Inc. rating of the Bonds was in no case less than "Baa" in the case of
an Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and
"A" in the case of other Advantage Trusts, including provisional or
conditional ratings, respectively, or, if not rated, the Bonds had, in
the opinion of the Sponsor, credit characteristics sufficiently similar
to the credit characteristics of interest-bearing tax-exempt obligations
that were so rated as to be acceptable for acquisition by the Fund (see
"Description of Bond Ratings"); (ii) the prices of the Bonds relative to
other bonds of comparable quality and maturity; (iii) with respect to
the Insured Trusts, the availability and cost of insurance of the
principal and interest on the Bonds and (iv) the diversification of
Bonds as to purpose of issue and location of issuer. Subsequent to the
Initial Date of Deposit, a Bond may cease to be rated or its rating may
be reduced below the minimum required as of the Initial Date of Deposit.
Neither event requires elimination of such Bond from the portfolio, but
may be considered in the Sponsor's determination as to whether or not to
direct the Trustee to dispose of the Bond. See "Rights of Unit Holders-
How May Bonds be Removed from the Fund?" The Portfolio appearing in Part
One contains Bond ratings, when available, for the Bonds listed at the
date shown.
Certain of the Bonds in the Trusts may have been acquired at a market
discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in the
Trust were lower than the current market interest rates for newly issued
bonds of comparable rating and type. The market discount of previously
issued bonds will increase when interest rates for newly issued
comparable bonds increase and decrease when such interest rates fall,
other things being equal. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income and
capital gain and less in the form of tax-exempt interest income than a
comparable bond newly issued at current market rates. See "What is the
Federal Tax Status of Unit Holders?" appearing in Part Three for each
Trust.
Certain of the Bonds in the Trusts may be original issue discount bonds.
Under current law, the original issue discount, which is the difference
between the stated redemption price at maturity and the issue price of
the Bonds, is deemed to accrue on a daily basis and the accrued portion
is treated as tax-exempt interest income for Federal income tax
purposes. On sale or redemption, any gain realized that is in excess of
the earned portion of original issue discount will be taxable as capital
gain unless the gain is attributable to market discount in which case
the accretion of market discount is taxable as ordinary income. See
"What is the Federal Tax Status of Unit Holders?" appearing in Part
Three for each Trust. The current value of an original discount bond
reflects the present value of its stated redemption price at maturity.
The market value tends to increase in greater increments as the Bonds
approach maturity.
Certain of the original issue discount bonds may be Zero Coupon Bonds
(including bonds known as multiplier bonds, money multiplier bonds,
Page 4
capital appreciation bonds, capital accumulator bonds, compound interest
bonds and money discount maturity payment bonds). Zero Coupon Bonds do
not provide for the payment of any current interest and generally
provide for payment at maturity at face value unless sooner sold or
redeemed. Zero Coupon bond features include (1) not paying interest on a
semi-annual basis and (2) providing for the reinvestment of the bond's
semi-annual earnings at the bond's stated yield to maturity. While Zero
Coupon Bonds are frequently marketed on the basis that their fixed rate
of return minimizes reinvestment risk, this benefit can be negated in
large part by weak call protection.
Certain of the Bonds in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the
premium bonds at the time they were purchased and deposited in the
Trusts were higher than the current market interest rates for newly
issued bonds of comparable rating and type. The current returns of bonds
trading at a market premium are initially higher than the current
returns of comparable bonds of a similar type issued at currently
prevailing interest rates because premium bonds tend to decrease in
market value as they approach maturity when the face amount becomes
payable. Because part of the purchase price is thus returned not at
maturity but through current income payments, early redemption of a
premium bond at par or early prepayments of principal will result in a
reduction in yield. Redemptions are more likely to occur at times when
the Bonds have an offering side valuation which represents a premium
over par, or for original issue discount Bonds, a premium over the
accreted value. To the extent that the Bonds were deposited in the Fund
at a price higher than the price at which they are redeemed, this will
represent a loss of capital when compared to the original Public
Offering Price of the Units. Because premium bonds generally pay a
higher rate of interest than bonds priced at or below par, the effect of
the redemption of premium bonds would be to reduce Estimated Net Annual
Unit Income by a greater percentage than the par amount of such bonds
bears to the total par amount of Bonds in the Trust. Although the actual
impact of any such redemptions that may occur will depend upon the
specific Bonds that are redeemed, it can be anticipated that the
Estimated Net Annual Unit Income will be significantly reduced after the
dates on which such Bonds are eligible for redemption. The Trust may be
required to sell Zero Coupon Bonds prior to maturity (at their current
market price which is likely to be less than their par value) in order
to pay expenses of the Trust or in case the Trust is terminated. See
"Rights of Unit Holders-How May Bonds be Removed from the Fund?" and
"Other Information-How May the Indenture be Amended or Terminated?"
Certain of the Bonds in the Trusts may be general obligations of a
governmental entity that are backed by the taxing power of such entity.
All other Bonds in the Trusts are revenue bonds payable from the income
of a specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds, on the other hand, are payable
only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. There are, of course, variations in
the security of the different Bonds in the Fund, both within a
particular classification and between classifications, depending on
numerous factors.
Certain of the Bonds in the Trusts may be healthcare revenue bonds.
Healthcare revenue bonds are obligations of issuers whose revenues are
primarily derived from services provided by hospitals or other
healthcare facilities, including nursing homes. A healthcare issuer's
ability to make debt service payments on these obligations is dependent
on various factors, including occupancy levels of the facility, demand,
government regulations, wages of employees, overhead expenses,
competition from other similar providers, malpractice insurance costs
and the degree of governmental competition from other similar providers,
malpractice insurance costs and the degree of governmental financial
assistance, including Medicare and Medicaid and other similar third-
party payer programs.
Certain of the Bonds in the Trusts may be housing revenue bonds. Housing
revenue bonds are obligations of issuers whose revenues are primarily
derived from mortgage loans on single family residences or housing
projects for low to moderate income families. Housing revenue bonds are
generally payable at any time and therefore their average life will
ordinarily be less than their stated maturities. The ability of such
issuers to make debt service payments on these obligations is dependent
on various factors, including occupancy levels, rental income, mortgage
default rates, taxes, operating expenses, governmental regulations and
the appropriation of subsidies.
Page 5
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services.
Water and sewerage bonds are generally payable from user fees. Problems
faced by such issuers include the ability to obtain timely and adequate
rate increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering
new supplies of fresh water, the effect of conservation programs and the
impact of "no-growth" zoning ordinances.
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be
charged and the appropriate rate of return. The problems faced by such
issuers include the difficulty in obtaining approval for timely and
adequate rate increases from the governing public utility commission,
the difficulty in financing large construction programs, increased
federal, state and municipal government regulations, the limitations on
operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates of
future demand for electricity in certain areas of the country, the
difficulty of the capital market in absorbing utility debt, the
difficulty in obtaining fuel at reasonable prices and the effect of
energy conservation.
Certain of the Bonds in the Trusts may be lease obligations issued
primarily by governmental authorities that have no taxing power or other
means of directly raising revenues. Rather, the governmental authorities
are financing vehicles created solely for the construction of buildings
(i.e., schools, administrative offices, convention centers and prisons)
or the purchase of equipment (i.e., police cars and computer systems)
that will be used by a state or local government (the "lessee"). These
obligations are subject to the ability and willingness of the lessee
government to meet its lease rental payments which include debt service
on the obligations. Lease obligations are subject, in almost all cases,
to annual appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments beyond the
current fiscal year, or construction and abatement risk-rental
obligations cease in the event that delays in building, damage,
destruction or condemnation of the project prevents its use by the
lessee.
Certain of the Bonds in the Trusts may be industrial revenue bonds
("IRBs"), tax-exempt securities issued by states, municipalities, public
authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. Debt service
payments on IRBs are dependent on various factors, including the
creditworthiness of the corporate operator of the project and, if
applicable, corporate guarantor, revenues generated from the project
and, if applicable, corporate guarantor, revenues generated from the
project and regulatory and environmental restrictions.
Certain of the Bonds in the Trusts may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities,
convention centers and arenas. The ability of issuers to make debt
service payments on airport obligations is dependent on the capability
of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other
factors, many airlines may have difficulty meeting their obligations
under these use agreements. Similarly, payment on Bonds related to other
facilities is dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues
due to such factors as increased cost of maintenance, decreased use of a
facility, lower cost of alternative modes of transportation, scarcity of
fuel and reduction or loss of rents.
Certain of the Bonds in the Trusts may be obligations of issuers which
govern the operation of schools, colleges and universities and whose
revenues are derived mainly from ad valorem taxes. General problems
relating to college and university obligations would include the
prospect of a declining percentage of the population consisting of
"college" age individuals, possible inability to raise tuitions and fees
sufficiently to cover increased operating costs, the uncertainty of
continued receipt of Federal grants and state funding and new government
legislation or regulations which may adversely affect the revenues or
costs of such issuers.
Certain of the Bonds in the Trusts may be obligations which are payable
from and secured by revenues derived from the operation of resource
recovery facilities. Resource recovery facilities are designed to
Page 6
process solid waste, generate steam and convert steam to electricity.
Resource recovery bonds may be subject to extraordinary optional
redemption at par upon the occurrence of certain circumstances,
including but not limited to: destruction or condemnation of a project;
contracts relating to a project becoming void, unenforceable or
impossible to perform; changes in the economic availability of raw
materials, operating supplies or facilities necessary for the operation
of a project or technological or other unavoidable changes adversely
affecting the operation of a project; administrative or judicial actions
which render contracts relating to the projects void, unenforceable or
impossible to perform; or impose unreasonable burdens or excessive
liabilities.
Puerto Rico. Certain trusts may contain Bonds of issuers which will be
affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is closely integrated with that of mainland United States.
During fiscal 1999 approximately 89% of Puerto Rico's $34 billion in
exports were to the U.S. mainland, which was also the source of
approximately 65% of Puerto Rico's $23 billion in imports. The economy
of Puerto Rico is dominated by the manufacturing and service sectors.
The manufacturing sector has experienced fundamental changes over the
years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers,
microprocessors, professional and scientific instruments, and certain
high technology machinery and equipment. The service sector, including
finance, insurance and real estate, also plays a major role in the
economy. It ranks second only to manufacturing in contribution to the
gross domestic product and leads all sectors in providing employment. In
recent years, the service sector has experienced significant growth in
response to the expansion of the manufacturing sector.
Puerto Rico's more than decade-long economic expansion continued
throughout the six-year period from fiscal 1994 through fiscal 1999.
Almost every sector of the economy participated and record levels of
employment were achieved. Factors behind this expansion included
government-sponsored economic development and hurricane aid programs,
periodic declines in the exchange value of the U.S. dollar, increases in
the level of federal transfers and the relatively low cost of borrowing.
Further growth in the Puerto Rico economy in fiscal 1999 depends on
several factors, including the strength of the U.S. economy, the
relative stability in the price of oil imports, increases in the number
of visitors to the island, the level of exports, the exchange value of
the U.S. dollar, the level of federal transfers and the cost of borrowing.
Economic activity in Puerto Rico increased again during 1999. The growth
in Puerto Rico's gross domestic product (GDP) was 4.19%. The driving
forces behind this growth were continuous economic growth in the United
States, the funds received after Hurricane George, growth in the
construction industry and low interest rates.
Puerto Rico's unemployment, although at relatively low historical
levels, remains above the average for the United States. The average
unemployment rate decreased from 13.6% in 1998 to 12.5% in 1999. The
U.S. average in 1998 was 4.5%.
The Puerto Rican economy is affected by a number of Commonwealth and
federal investment incentive programs. 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 further reduction in transfer
payment programs such as food stamps, curtailment of military spending
and policies which could lead to a stronger dollar. One of the factors
assisting the development of the Puerto Rican economy has been the tax
incentives offered by the federal and Puerto Rico governments.
Puerto Rico's future will be determined by the leadership and
initiatives of both the private and public sector to compensate for the
loss of the federal tax credit under Section 936 of the U.S. tax code.
This important credit which enabled companies to repatriate profits at a
40-60% reduction in federal taxes was terminated as of July 1996.
Existing U.S. companies operating in Puerto Rico were given a ten year
grace period, but new U.S. manufacturing companies coming to Puerto Rico
will have to pay U.S. deferral taxes when repatriating their profits to
the mainland.
The foregoing information constitutes only a brief summary of some of
the financial difficulties which may impact certain issuers of Bonds and
does not purport to be a complete or exhaustive description of all
adverse conditions to which the issuers of the Bonds are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control
Page 7
of the issuers of Bonds, could affect or could have an adverse impact on
the financial condition of Puerto Rico and various agencies and
political subdivisions located in Puerto Rico. The Sponsor is unable to
predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the
Bonds or the ability of the respective issuers of the Bonds acquired by
the Trusts to pay interest on or principal of the Bonds.
Interest on certain of the Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be an item of tax preference
for purposes of the Alternative Minimum Tax ("AMT"). The investment by
non-AMT individual taxpayers in AMT municipal bonds generally results in
a higher yield to such bondholders than non-AMT municipal bonds. Since a
portion of the interest from certain Arkansas, Idaho, Kansas, Maine,
Mississippi and Nebraska Trusts is an AMT preference item, certain
Arkansas, Idaho, Kansas, Maine, Mississippi and Nebraska Trusts may be
more appropriate for investors who are not subject to AMT.
Investors should be aware that many of the Bonds in the Trusts are
subject to continuing requirements such as the actual use of Bond
proceeds or manner of operation of the project financed from Bond
proceeds that may affect the exemption of interest on such Bonds from
Federal income taxation. Although at the time of issuance of each of the
Bonds in the Trusts an opinion of bond counsel was rendered as to the
exemption of interest on such obligations from Federal income taxation,
there can be no assurance that the respective issuers or other obligors
on such obligations will fulfill the various continuing requirements
established upon issuance of the Bonds. A failure to comply with such
requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from
the date of issuance of such Bonds, thereby reducing the value of the
Bonds and subjecting Unit holders to unanticipated tax liabilities.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions, sinking fund provisions,
special or extraordinary redemption provisions or otherwise. A bond
subject to optional call is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A bond subject
to sinking fund redemption is one which is subject to partial call from
time to time at par or, in the case of a zero coupon bond, at the
accreted value from a fund accumulated for the scheduled retirement of a
portion of an issue prior to maturity. Special or extraordinary
redemption provisions may provide for redemption at par (or for original
issue discount bonds at issue price plus the amount of original issue
discount accreted to redemption date plus, if applicable, some premium)
of all or a portion of an issue upon the occurrence of certain
circumstances. The exercise of redemption or call provisions will
(except to the extent the proceeds of the called Bonds are used to pay
for Unit redemptions) result in the distribution of principal and may
result in a reduction in the amount of subsequent interest
distributions; it may also affect the long-term return and the current
return on Units of each Trust. Redemption pursuant to call provisions is
more likely to occur, and redemption pursuant to sinking fund provisions
may occur, when the Bonds have an offering side valuation which
represents a premium over par or for original issue discount bonds a
premium over the accreted value. Unit holders may recognize capital gain
or loss upon any redemption or call.
To the best knowledge of the Sponsor, there is no litigation pending as
of the date hereof in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Trusts. At any time
after the date hereof, litigation may be initiated on a variety of
grounds with respect to Bonds in a Trust. Such litigation, as for
example suits challenging the issuance of pollution control revenue
bonds under recently-enacted environmental protection statutes, may
affect the validity of such Bonds or the tax-free nature of the interest
thereon. While the outcome of litigation of such nature can never be
entirely predicted, the Fund has received opinions of bond counsel to
the issuing authority of each Bond on the date of issuance to the effect
that such Bonds have been validly issued and that the interest thereon
is exempt from Federal income taxes and state and local taxes. In
addition, other factors may arise from time to time which potentially
Page 8
may impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return and the
Estimated Long-Term Return, under the monthly, quarterly (if applicable)
and semi-annual (if applicable) distribution plans, are as set forth in
Part One attached hereto for each Trust. Estimated Current Return is
computed by dividing the Estimated Net Annual Interest Income per Unit
by the Public Offering Price. Any change in either amount will result in
a change in the Estimated Current Return. For each Trust, the Public
Offering Price will vary in accordance with fluctuations in the prices
of the underlying Bonds and the Net Annual Interest Income per Unit will
change as Bonds are redeemed, paid, sold or exchanged in certain
refundings or as the expenses of each Trust change. Therefore, there is
no assurance that the Estimated Current Return indicated in Part One for
each Trust will be realized in the future. Estimated Long-Term Return is
calculated using a formula which (1) takes into consideration and
determines and factors in the relative weightings of the market values,
yields (which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the Bonds in
the Trust and (2) takes into account a compounding factor, the expenses
and sales charge associated with each Unit of a Trust. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the Estimated Long-Term
Return indicated in Part One for each Trust will be realized in the
future. Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of Estimated Long-Term Return
reflects the estimated date and amount of principal returned while
Estimated Current Return calculations include only Net Annual Interest
Income and Public Offering Price. Neither rate reflects the true return
to Unit holders, which is lower, because neither includes the effect of
certain delays in distributions to Unit holders.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust.
How are Purchased Interest and Accrued Interest Treated?
Purchased Interest. For The First Trust Combined Series 198-208, each
Trust contains an amount of Purchased Interest. Purchased Interest is a
portion of the unpaid interest that has accrued on the Bonds from the
later of the last payment date on the Bonds or the date of issuance
thereof through the First Settlement Date and is included in the
calculation of the Public Offering Price. Purchased Interest will be
distributed to Unit holders as Units are redeemed or Securities are
sold, mature or are called. See "Summary of Essential Information"
appearing in Part One for each Trust for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of
the determination of the price Unit holders will receive in connection
with the sale or redemption of Units prior to the termination of the
Trust.
Accrued Interest. Accrued interest is the accumulation of unpaid
interest on a bond from the last day on which interest thereon was paid.
Interest on Bonds generally is paid semi-annually, although each Trust
accrues such interest daily. Because of this, a Trust always has an
amount of interest earned but not yet collected by the Trustee. For this
reason, with respect to sales settling subsequent to the First
Settlement Date, the Public Offering Price of Units will have added to
it the proportionate share of accrued interest to the date of
settlement. Unit holders will receive on the next distribution date of
the Trust the amount, if any, of accrued interest paid on their Units.
For The First Trust Combined Series 1-197, except through an advancement
of its own funds, the Trustee has no cash for distribution to Unit
holders until it receives interest payments on the Bonds in a Trust. The
Trustee will recover its advancements without interest or other costs to
such Trust from interest received on the Bonds in the Trust. When these
advancements have been recovered, regular distributions of interest to
Unit holders will commence. See "Rights of Unit Holders-How are Interest
Page 9
and Principal Distributed?" Interest account balances are established
with generally positive cash balances so that it will not be necessary
on a regular basis for the Trustee to advance its own funds in
connection with interest distributions.
For The First Trust Combined Series 198-208, in an effort to reduce the
amount of Purchased Interest which would otherwise have to be paid by
Unit holders, the Trustee may advance a portion of the accrued interest
to the Sponsor as the Unit holder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the
Public Offering Price of Units will include only accrued interest from
the First Settlement Date to the date of settlement (other than the
Purchased Interest already included therein), less any distributions
from the Interest Account subsequent to the First Settlement Date. See
"Rights of Unit Holders-How are Interest and Principal Distributed?"
For The First Trust Combined Series 209 and subsequent Series, in an
effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of
Units to the public, the Trustee will advance the amount of accrued
interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unit Holders-How are Interest and
Principal Distributed?"
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
Assurance Corporation ("Ambac Assurance" or "Ambac"), a Wisconsin-
domiciled stock insurance company, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from Financial Guaranty, Ambac Assurance or other insurers (the
"Preinsured Bonds"). The insurance policy obtained by each Insured Trust
is noncancellable and will continue in force for such Trust so long as
such Trust is in existence and the Bonds described in the policy
continue to be held by such Trust (see "Portfolio" for each Insured
Trust). The terms governing outstanding and existing policies remain
effective regardless of whether the insurer changes its name or sells
its assets. Nonpayment of premiums on the policy obtained by each
Insured Trust will not result in the cancellation of insurance, but will
permit Financial Guaranty and/or Ambac Assurance to take action against
the Trustee to recover premium payments due it. Premium rates for each
issue of Bonds protected by the policy obtained by each Insured Trust
are fixed for the life of such Trust. The premium for any Preinsured
Bonds has been paid in advance by the Bond issuer, the underwriters, the
Sponsor or others and any such policy or policies are noncancellable and
will continue in force so long as the Bonds so insured are outstanding
and the insurer and/or insurers thereof remain in business. If the
provider of an original issuance insurance policy is unable to meet its
obligations under such policy, or if the rating assigned to the claims-
paying ability of such insurer deteriorates, Financial Guaranty and/or
Ambac Assurance has no obligation to insure any issue adversely affected
by either of the above described events. A monthly premium is paid by
each Insured Trust for the insurance obtained by such Trust, which is
payable from the interest income received by such Trust. In the case of
Preinsured Bonds, no premiums for insurance are paid by the Insured Trust.
Financial Guaranty Insurance Company. Under the provisions of the
aforementioned insurance, Financial Guaranty unconditionally and
irrevocably agrees to pay State Street Bank and Trust Company, N.A. or
its successor, as its agent (the "Fiscal Agent"), that portion of the
principal of and interest on the Bonds which shall become due for
Page 10
payment but shall be unpaid by reason of nonpayment by the issuer of the
Bonds. The term "due for payment" means, when referring to the principal
of a Bond, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest, except
that when the interest on a Bond shall have been determined as provided
in the underlying documentation relating to such Bond, to be subject to
Federal income taxation. "Due for payment" also means, when referring to
the principal of such Bond, the date on which such Bond has been called
for mandatory redemption as a result of such determination of
taxability, and when referring to interest on such Bond, the accrued
interest at the rate provided in such documentation to the date on which
such Bond has been called for such mandatory redemption, together with
any applicable redemption premium. The term "due for payment" will not
include, when referring to either the principal of a Bond or the
interest on a Bond, any acceleration of payment unless such acceleration
is at the sole option of Financial Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the
business day next following the day on which Financial Guaranty shall
have received notice of nonpayment, whichever is later. The Fiscal Agent
will disburse to the Trustee the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by
the issuer but only upon receipt by the Fiscal Agent of (i) evidence of
the Trustee's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or
interest due for payment shall thereupon vest in Financial Guaranty.
Upon such disbursement, Financial Guaranty shall become the owner of the
Bond, appurtenant coupon or right to payment of principal or interest on
such Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained by an
Insured Trust has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to maturity of the Bonds regardless of the
identity of the holder thereof) (the "Permanent Insurance") upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the Trustee
will exercise the right to obtain Permanent Insurance only if upon such
exercise the Insured Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent
Insurance) from such sale in excess of the sale proceeds if such Bonds
were sold on an uninsured basis. The insurance premium with respect to
each Bond eligible for Permanent Insurance is determined based upon the
insurability of each Bond as of the Initial Date of Deposit and will not
be increased or decreased for any change in the creditworthiness of such
Bond.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a
subsidiary of General Electric Capital Corporation ("GE Capital").
Neither the Corporation nor GE Capital is obligated to pay the debts of
or the claims against Financial Guaranty. Financial Guaranty is a
monoline financial guaranty insurer domiciled in the State of New York
and subject to regulation by the State of New York Insurance Department.
As of December 31, 1999, the total capital and surplus of Financial
Guaranty was $1,271,707,045. Financial Guaranty prepares financial
statements on the basis of both statutory accounting principles and
generally accepted accounting principles. Copies of such financial
statements may be obtained by writing to Financial Guaranty at 115
Broadway, New York, New York 10006, Attention: Communications Department
(telephone number: 212-312-3000) or to the New York State Insurance
Department at 25 Beaver Street, New York, New York 10004-2319,
Attention: Financial Condition Property/Casualty Bureau (telephone
number: 212-480-5187).
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained
herein with respect to such corporation is unaudited but appears in
reports or other materials filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof.
Page 11
Ambac Assurance Corporation ("Ambac Assurance"). Effective July 14,
1997, AMBAC Indemnity Corporation changed its name to Ambac Assurance
Corporation. The Insurance Policy of Ambac Assurance obtained by an
Insured Trust is noncancellable and will continue in force for so long
as the Bonds described in the Insurance Policy are held by an Insured
Trust. A monthly premium is paid by an Insured Trust for the Insurance
Policy obtained by it. The Trustee will pay, when due, successively, the
full amount of each installment of the insurance premium. Pursuant to a
binding agreement with Ambac Assurance, in the event of a sale of a Bond
covered by the Ambac Assurance Insurance Policy, the Trustee has the
right to obtain permanent insurance for such Bond upon payment of a
single predetermined premium from the proceeds of the sale of such Bond.
Under the terms of the Insurance Policy, Ambac Assurance agrees to pay
to the Trustee that portion of the principal of and interest on the
Bonds insured by Ambac Assurance which shall become due for payment but
shall be unpaid by reason of nonpayment by the issuer of the Bonds. The
term "due for payment" means, when referring to the principal of a Bond
so insured, its stated maturity date or the date on which it shall have
been called for mandatory sinking fund redemption and does not refer to
any earlier date on which payment is due by reason of call for
redemption (other than by mandatory sinking fund redemption),
acceleration or other advancement of maturity and means, when referring
to interest on a Bond, the stated date for payment of interest.
Ambac Assurance will make payment to the Trustee not later than thirty
days after notice from the Trustee is received by Ambac Assurance that a
nonpayment of principal or of interest on a Bond has occurred, but not
earlier than the date on which the Bonds are due for payment. Ambac
Assurance will disburse to the Trustee the face amount of principal and
interest which is then due for payment but is unpaid by reason of
nonpayment by the issuer in exchange for delivery of Bonds, not less in
face amount than the amount of the payment in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where
Bonds are issuable only in a form whereby principal is payable to
registered holders or their assigns, Ambac Assurance shall pay principal
only upon presentation and surrender of the unpaid Bonds uncancelled and
free of any adverse claim, together with an instrument of assignment in
satisfactory form, so as to permit ownership of such Bonds to be
registered in the name of Ambac Assurance or its nominee. In cases where
Bonds are issuable only in a form whereby interest is payable to
registered holders or their assigns, Ambac Assurance shall pay interest
only upon presentation of proof that the claimant is the person entitled
to the payment of interest on the Bonds and delivery of an instrument of
assignment, in satisfactory form, transferring to Ambac Assurance all
right under such Bonds to receive the interest in respect of which the
insurance payment was made.
Ambac Assurance Corporation ("Ambac Assurance") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner
of Insurance of the State of Wisconsin and licensed to do business in 50
states, the District of Columbia, the Territory of Guam and the
Commonwealth of Puerto Rico, with admitted assets of approximately
$4,013,000,000 (unaudited) and statutory capital of approximately
$2,402,000,000 (unaudited) as of December 31, 1999. Statutory capital
consists of Ambac Assurance's policyholders' surplus and statutory
contingency reserve. Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Moody's Investors Service and Fitch IBCA,
Inc. have each assigned a triple-A financial strength rating to Ambac
Assurance.
The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the
"Company"), is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may
be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the public reference section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, the aforementioned material may also be inspected at the
offices of the New York Stock Exchange, Inc. (the "NYSE") at 20 Broad
Street, New York, New York 10005. The Company's Common Stock is listed
on the NYSE.
Copies of Ambac Assurance's financial statements prepared in accordance
with statutory accounting standards are available from Ambac Assurance.
The address of Ambac Assurance's administrative offices and its
Page 12
telephone number are One State Street Plaza, 17th Floor, New York, New
York, 10004 and (212) 668-0340.
The information relating to Ambac Assurance contained above has been
furnished by Ambac Assurance. No representation is made herein as to the
accuracy or adequacy of such information, or as to the existence of any
adverse changes in such information, subsequent to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or Ambac
Assurance has applied its own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or Ambac Assurance and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor Ambac Assurance nor its parent, Ambac, Inc., or
any affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor has in
the past and may from time to time in the future, in the normal course
of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of
municipal bonds in which the investors or the affiliates of FGIC
Corporation and/or Ambac Inc. have or will be participants or for which
a policy of insurance guaranteeing the scheduled payment of interest and
principal has been obtained from Financial Guaranty and/or Ambac
Assurance. Neither the Fund nor the Units of a Trust nor the portfolio
of such Trust is insured directly or indirectly by FGIC Corporation
and/or Ambac Inc.
MBIA Insurance Corporation. MBIA Insurance Corporation ("MBIA
Corporation" or "MBIA") is the principal operating subsidiary of MBIA,
Inc., a New York Stock Exchange listed company. MBIA, Inc. is not
obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation is domiciled in the State of New York and licensed to do
business in and subject to regulation under the laws of all fifty
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the
United States and the Territory of Guam. MBIA has two European branches,
Page 13
one in the Republic of France and the other in the Kingdom of Spain. New
York has laws prescribing minimum capital requirements, limiting classes
and concentrations of investments and requiring the approval of policy
rates and forms. State laws also regulate the amount of both the
aggregate and individual risks that may be insured, the payment of
dividends by the insurer, changes in control and transactions among
affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for
certain periods of time.
As of December 31, 1999, MBIA had admitted assets of $7.0 billion
(audited), total liabilities of $4.6 billion (audited), and total
capital and surplus of $2.4 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of March 31, 2000, MBIA had admitted assets
of $7.1 billion (unaudited), total liabilities of $4.7 billion
(unaudited), and total capital and surplus of $2.4 billion (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 is 113 King
Street, Armonk, New York 10504. The telephone number of MBIA is (914)
273-4545.
Effective February 17, 1998 MBIA acquired all of the outstanding stock
of Capital Markets Assurance Corporation ("CMAC"), a New York domiciled
financial guarantee insurance company, through a merger with its parent,
CapMAC Holdings, Inc. Pursuant to a reinsurance agreement, CMAC has
ceded all of its net insured risks (including any amounts due but unpaid
from third party reinsurers), as well as its unearned premiums and
contingency reserves, to MBIA. MBIA is not obligated to pay the debts of
or claims against CMAC.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now known as MBIA Insurance Corp. of Illinois.
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa."
Standard & Poor's rates all new issues insured by MBIA "AAA." Fitch
IBCA, Inc. rates the financial strength of MBIA "AAA."
In the event MBIA were to become insolvent, any claims arising under a
policy of financial guaranty insurance are excluded from coverage by the
California Insurance Guaranty Association, established pursuant to
Article I4.4 (commencing with Section 1063) of Chapter 1 of Part 2 of
Division 1 of the California Insurance Code.
Capital Guaranty Insurance Company. On December 20, 1995, Capital
Guaranty Corporation ("CGC") merged with a subsidiary of Financial
Security Assurance Holdings Ltd. and Capital Guaranty Insurance Company,
CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly-
owned subsidiary of Financial Security Assurance Inc. On September 30,
1997, Financial Security Assurance Inc. assumed all of the liabilities
of FSA Maryland and sold the FSA Maryland "shell company" to American
Capital Access, a wholly-owned subsidiary of American Capital Access
Holdings, Incorporated.
Financial Security Assurance. Financial Security Assurance Inc.
("Financial Security") is a monoline insurance company incorporated in
1984 under the laws of the State of New York. Financial Security is
licensed to engage in the financial guaranty insurance business in all
50 states, the District of Columbia, Puerto Rico and the U.S. Virgin
Islands.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. Financial guaranty
insurance provides a guaranty of scheduled payments of an issuer's
securities, thereby enhancing the credit rating of those securities, in
consideration for payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are
generally supported by residential mortgage loans, consumer or trade
receivables, securities or other assets having an ascertainable cash
flow or market value. Collateralized securities include public utility
first mortgage bonds and sale/leaseback obligation bonds. Municipal
securities consist largely of general obligation bonds, special revenue
bonds and other special obligations of state and local governments.
Financial Security insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market
that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed
Page 14
company. Major shareholders of Holdings include XL Capital Ltd. and The
Tokio Marine and Fire Insurance Co. Ltd. On March 14, 2000, Holdings
announced that it had entered into a merger agreement pursuant to which
Holdings would become a wholly-owned subsidiary of Dexia S.A., a
publicly held Belgian corporation, subject to receipt of shareholder and
regulatory approvals and satisfaction of other closing conditions. Dexia
S.A., through its bank subsidiaries, is primarily engaged in the
business of public finance in France, Belgium and other European
countries. No shareholder of Holdings is obligated to pay any debt of
FSA or any claim under any insurance policy issued by FSA or to make any
additional contribution to the capital of FSA. No shareholder of
Holdings 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, 2000, 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 $1,340,272,000
(unaudited) and $663,574,000 (unaudited), and the total shareholders'
equity and the unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with
accounting principles generally accepted in the United States,
approximately $1,360,722,000 (unaudited), and $547,872,000 (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 or reinsured from third parties by Financial Security
or its domestic or Bermuda operating insurance company subsidiaries are
generally 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 other reinsurers under
various quota share treaties and on a transaction-by-transaction basis.
This reinsurance is used by Financial Security as a risk management
device and to comply with certain statutory and rating agency
requirements; it does not alter or limit the obligations of Financial
Security under any financial guaranty insurance policy.
Financial Security's insurance financial strength is rated "Aaa" by
Moody's Investors Service, Inc. Financial Security's insurer financial
strength is rated "AAA" by Standard & Poor's Ratings Services and
Standard & Poor's (Australia) Pty. Ltd. Financial Security's claims-
paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and
Investment Information, Inc. These 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
those rating agencies.
Connie Lee Insurance Company. On December 18, 1997, all of the
outstanding shares of Construction Loan Insurance Corporation (which
previously owned all of the outstanding shares of Connie Lee Insurance
Company) were merged into Connie Lee Holdings, Inc. ("Connie Lee").
Connie Lee is a wholly-owned subsidiary of Ambac Assurance Corporation,
a Wisconsin-domiciled insurance company.
As of December 31, 1999, the total policyholders' surplus of Connie Lee
was $142,950,453 (unaudited) and total admitted assets were $242,755,126
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin in Connie Lee's financial statements prepared in accordance
with statutory accounting principles applicable to insurance companies.
Copies of these financial statements are available from Connie Lee upon
request.
Standard & Poor's has rated the claims-paying ability of Connie Lee "AAA".
Connie Lee makes no representation regarding the Bonds or the
advisability of investing in the Bonds. The above rating is not a
recommendation to buy, sell or hold the Connie Lee insured Bonds and
such rating is subject to the revision or withdrawal at any time by the
rating agency. Any downward revision or withdrawal of the rating may
have an adverse effect on the market price of the Connie Lee insured
Bonds.
The address of Connie Lee's administrative offices and its telephone
number are 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004 and
(800) 221-1854.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
Page 15
by each Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the
market value of each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. Such
rating will be in effect for a period of thirteen months from the
Initial Date of Deposit of an Insured Trust and will, unless renewed,
terminate at the end of such period. There is no guarantee that the
"AAA" investment rating with respect to the Units of an Insured Trust
will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is to
obtain a higher yield on the Bonds in the portfolio of such Trust than
would be available if all the Bonds in such portfolio had the Standard &
Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course, no
certainty that this result will be achieved. Bonds in a Trust for which
insurance has been obtained by the Bond issuer, the underwriters, the
Sponsor or others (all of which were rated "AAA" by Standard & Poor's
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's or
"Aaa" by Moody's Investors Service, Inc. In selecting Bonds for the
portfolio of each Insured Trust, the Sponsor has applied the criteria
herein before described.
What is the Federal Tax Status of Unit Holders?
See Part Three for each Trust.
FOR INFORMATION WITH RESPECT TO EXEMPTION FROM STATE OR OTHER LOCAL
TAXES, SEE PART THREE FOR EACH TRUST.
What are the Expenses and Charges?
With the exception of bookkeeping and other administrative services
provided to the Trusts, for which the Sponsor will be reimbursed in
amounts as set forth under "Special Trust Information" in each Part One
of this Prospectus, the Sponsor will not receive any fee in connection
with its activities relating to the Trusts. Legal and regulatory filing
fees and expenses associated with annually updating the Trusts'
registration statements are also now chargeable to each Trust.
Historically, the Sponsor paid these fees and expenses. For Series 49
and all subsequent Series, First Trust Advisors L.P., an affiliate of
the Sponsor, will receive an annual supervisory fee, which is not to
exceed the amount set forth in Part One for each Trust, for providing
portfolio supervisory services for the Trust. Such fee is based on the
number of Units outstanding in each Trust on January 1 of each year
except for Trusts which were established subsequent to the last January
1, in which case the fee will be based on the number of Units
outstanding in such Trusts as of the respective Initial Dates of Deposit.
For each valuation of the Bonds in a Trust, the Evaluator will receive a
fee as indicated in Part One of this Prospectus. The Trustee pays
certain expenses of each Trust for which it is reimbursed by such Trust.
The Trustee will receive for its ordinary recurring services to a Trust
an annual fee computed as indicated in Part One of this Prospectus. For
a discussion of the services performed by the Trustee pursuant to its
obligations under the Indenture, reference is made to the material set
forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date from the Interest Account of each Trust to the extent
funds are available and then from the Principal Account of such Trust.
Since the Trustee has the use of the funds being held in the Principal
and Interest Accounts for future distributions, payment of expenses and
redemptions and since such Accounts are non-interest-bearing to Unit
holders, the Trustee benefits thereby. Part of the Trustee's
compensation for its services to the Fund is expected to result from the
use of these funds. However, the Trustee may bear from its own resources
certain expenses relating to a Trust.
Each of the above mentioned fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases under
the category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor. In addition,
with respect to the fees payable to the Sponsor or an affiliate of the
Sponsor for providing bookkeeping and other administrative services and
Page 16
supervisory services, such individual fees may exceed the actual costs
of providing such services for a Trust, but at no time will the total
amount received for such Services rendered to all unit investment trusts
of which Nike Securities L.P. is the Sponsor in any calendar year exceed
the actual cost to the Sponsor or its affiliate of supplying such
services in such year.
The annualized cost of the portfolio insurance obtained by the Fund for
each Insured Trust is indicated in Part One for each Trust in a Series
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 Assurance or, beginning with Series
25 and all subsequent Series, other insurers, are not insured by such
Trust. The premium payable for Permanent Insurance will be paid solely
from the proceeds of the sale of such Bond in the event the Trustee
exercises the right to obtain Permanent Insurance on a Bond. The
premiums for such Permanent Insurance with respect to each Bond will
decline over the life of the Bond. An Advantage Trust is not insured;
accordingly, there are no premiums for insurance payable by such Trust.
The following additional charges are or may be incurred by a Trust: all
expenses (including legal and annual auditing expenses) of the Trustee
incurred in connection with its responsibilities under the Indenture,
except in the event of negligence, bad faith or willful misconduct on
its part; the expenses and costs of any action undertaken by the Trustee
to protect the Trust and the rights and interests of the Unit holders;
fees of the Trustee for any extraordinary services performed under the
Indenture; indemnification of the Trustee for any loss, liability or
expense incurred by it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its
acceptance or administration of the Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor of
the Trust; all taxes and other government charges imposed upon the Bonds
or any part of the Trust (no such taxes or charges are being levied or
made or, to the knowledge of the Sponsor, are contemplated); and
expenditures incurred in contacting Unit holders upon termination of the
Trust. The above expenses and the Trustee's annual fee, when paid or
owing to the Trustee, are secured by a lien on the Trust. In addition,
the Trustee is empowered to sell Bonds of a Trust in order to make funds
available to pay all these amounts if funds are not otherwise available
in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required, the
Indenture requires the accounts of each Trust to be audited on an annual
basis at the expense of the Trust by independent auditors selected by
the Sponsor. So long as the Sponsor is making a secondary market for
Units, the Sponsor shall bear the cost of such annual audits to the
extent such cost exceeds $.50 per Unit. Unit holders of a Trust covered
by an audit may obtain a copy of the audited financial statements from
the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid
price of the Bonds in the portfolio of each Trust plus the amount of
Purchased Interest of a Trust (if any) and interest accrued to the date
of settlement. All expenses incurred in maintaining a market, other than
the fees of the Evaluator, the costs of the Trustee in transferring and
recording the ownership of Units, and costs incurred in annually
updating the Trusts' registration statements, will be borne by the
Sponsor. If the supply of Units exceeds demand, or for some other
business reason, the Sponsor may discontinue purchases of Units at such
prices. IF A UNIT HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD
INQUIRE OF THE SPONSOR AS TO CURRENT MARKET PRICES PRIOR TO MAKING A
TENDER FOR REDEMPTION TO THE TRUSTEE. Prospectuses relating to certain
other bond funds indicate an intention, subject to change, on the part
of the respective sponsors of such funds to repurchase units of those
funds on the basis of a price higher than the bid prices of the
securities in the funds. Consequently, depending upon the prices
actually paid, the repurchase price of other sponsors for units of their
Page 17
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 offering price
of Bonds in the Trust may be expected to be greater than the bid price
of such Bonds by approximately 1-2% of the aggregate principal amount of
such Bonds.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each of the various
Bonds in the Trusts based upon the maturities of such bonds, in
accordance with the following schedule:
Secondary Offering Period Sales Charge
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
____________________ ___________ __________
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
There will be no reduction of the sales charges for volume purchases. A
dealer will receive from the Sponsor a dealer concession of 70% of the
total sales charges for Units sold by such dealer and dealers will not
be eligible for additional concessions for Units sold pursuant to the
above schedule.
An investor may aggregate purchases of Units of two or more consecutive
series of a particular State, National, Discount, Intermediate, Long
Intermediate or Short Intermediate Trust for purposes of calculating the
discount for volume purchases listed above. Additionally, with respect
to the employees, officers and directors (including their immediate
family members, defined as spouses, children, grandchildren, parents,
grandparents, mothers-in-law, fathers-in-law, sons-in-law and daughters-
in-law, and trustees, custodians or fiduciaries for the benefit of such
person) of the Sponsor and broker/dealers and their subsidiaries and
vendors providing services to the Sponsor, may purchase Units of the
Trusts during the secondary market at the Public Offering Price less the
concession the Sponsor typically allows broker/dealers.
Any such reduced sales charge shall be the responsibility of the selling
broker/dealer. The reduced sales charge structure will apply on all
purchases of Units in a Trust by the same person on any one day from the
Sponsor or any one broker/dealer and, for purposes of calculating the
applicable sales charge, purchases of Units in the Fund will be
aggregated with concurrent purchases by the same person from the Sponsor
or such broker/dealer of Units in any series of tax-exempt unit
investment trusts sponsored by Nike Securities L.P. Additionally, Units
purchased in the name of the spouse of a purchaser or in the name of a
child of such purchaser will be deemed, for the purpose of calculating
the applicable sales charge, to be additional purchases by the
Page 18
purchaser. The reduced sales charges will also be applicable to a
trustee or other fiduciary purchasing securities for a single trust
estate or single fiduciary account.
From time to time the Sponsor may implement programs under which
broker/dealers and other selling agents of the Fund may receive nominal
awards from the Sponsor for each of their registered representatives who
have sold a minimum number of UIT Units during a specified time period.
In addition, at various times the Sponsor may implement other programs
under which the sales force of broker/dealers and other selling agents
may be eligible to win other nominal awards for certain sales efforts,
or under which the Sponsor will reallow to any such broker/dealer or
other selling agent that sponsors sales contests or recognition programs
conforming to criteria established by the Sponsor, or participates in
sales programs sponsored by the Sponsor, an amount not exceeding the
total applicable sales charges on the sales generated by such person at
the public offering price during such programs. Also, the Sponsor in its
discretion may from time to time pursuant to objective criteria
established by the Sponsor pay fees to qualifying broker/dealers and
other selling agents for certain services or activities which are
primarily intended to result in sales of Units of the Trusts. Such
payments are made by the Sponsor out of its own assets, and not out of
the assets of the Trusts. These programs will not change the price Unit
holders pay for their Units or the amount that the Trusts will receive
from the Units sold.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust. U.S. Government bonds, for example, are
backed by the full faith and credit of the U.S. Government and bank CDs
and money market accounts are insured by an agency of the federal
government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the
condition of the short-term debt market. The investment characteristics
of the Trust are described more fully elsewhere in this Prospectus.
The aggregate price of the Bonds in each Trust is determined by the
evaluator (the "Evaluator"), on the basis of bid prices (1) on the basis
of current market prices for the Bonds obtained from dealers or brokers
who customarily deal in bonds comparable to those held by the Trust; (2)
if such prices are not available for any of the Bonds, on the basis of
current market prices for comparable bonds; (3) by determining the value
of the Bonds by appraisal; or (4) by any combination of the above.
Unless Bonds are in default in payment of principal or interest or, in
the Sponsor's opinion, in significant risk of such default, the
Evaluator will not attribute any value to the insurance obtained by an
Insured Trust. On the other hand, the value of insurance obtained by the
issuer of Bonds in a Trust is reflected and included in the market value
of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds") and
which are covered by insurance obtained by an Insured Trust, the value
of the insurance guaranteeing interest and principal payments. The value
of the insurance will be equal to the difference between (i) the market
value of Defaulted Bonds assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance) and (ii) the market value of such
Defaulted Bonds not covered by Permanent Insurance. In addition, the
Evaluator will consider the ability of Financial Guaranty and/or Ambac
Assurance to meet its commitments under an Insured Trust's insurance
policy, including the commitments to issue Permanent Insurance. It is
the position of the Sponsor that this is a fair method of valuing the
Bonds and the insurance obtained by an Insured Trust and reflects a
proper valuation method in accordance with the provisions of the
Investment Company Act of 1940.
The Evaluator will be requested to make a determination of the aggregate
price of the Bonds in each Trust, on a bid price basis, as of the close
of trading on the New York Stock Exchange on each day on which it is
open, effective for all sales, purchases or redemptions made subsequent
to the last preceding determination.
Although payment is normally made three business days following the
order for purchase, payment may be made prior thereto. A person will
Page 19
become owner of the Units on the date of settlement provided payment has
been received. Cash, if any, made available to the Sponsor prior to the
date of settlement for the purchase of Units may be used in the
Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934.
Delivery of Certificates representing Units so ordered will be made
three business days following such order or shortly thereafter. See
"Rights of Unit Holders-How May Units Be Redeemed?" for information
regarding the ability to redeem Units ordered for purchase.
How are Units Distributed?
Units repurchased in the secondary market (see "Public Offering-Will
There be a Secondary Market?") may be offered by this Prospectus at the
secondary market public offering price determined in the manner
described above.
It is the intention of the Sponsor to qualify Units of the Fund for sale
in a number of states. Sales will be made to dealers and others at
prices which represent a concession or agency commission of 4.0% of the
Public Offering Price per Unit for each State, Discount or National
Trust, 3.0% of the Public Offering Price for an Intermediate or Long
Intermediate Trust, and 2.5% of the Public Offering Price per Unit for a
Short Intermediate Trust. Notwithstanding the foregoing, broker/dealers
or other selling agents who purchase, in the aggregate, $250,000 of the
Trusts on any day will receive a volume concession or agency commission
of $40.00 per Unit. However, resales of Units of a Trust by such
broker/dealers and other selling agents to the public will be made at
the Public Offering Price described in this Prospectus. The Sponsor
reserves the right to change the amount of the concession or agency
commission from time to time. Certain commercial banks are making Units
of the Fund available to their customers on an agency basis. A portion
of the sales charge paid by these customers is retained by or remitted
to the banks in the amounts indicated in the amounts indicated above.
What are the Sponsor's Profits?
The Sponsor and participating dealers will receive a maximum gross sales
commission equal to 5.8% of the Public Offering Price of the Units of
each State Trust (equivalent to 6.157% of the net amount invested), 5.8%
of the Public Offering Price of the Units of a National or Discount
Trust (equivalent to 6.157% of the net amount invested), 4.7% of the
Public Offering Price of the Units of an Intermediate or Long
Intermediate Trust (equivalent to 4.932% of the net amount invested),
and 3.7% of the Public Offering Price of the Units of a Short
Intermediate Trust (equivalent to 3.842% of the net amount invested)
less any reduced sales charge for quantity purchases as described under
"Public Offering-How is the Public Offering Price Determined?"
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in each Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in each Trust and includes a
maximum sales charge of 5.8% for a State Trust, 5.8% for a National or
Discount Trust, 4.7% for an Intermediate or Long Intermediate Trust and
3.7% for a Short Intermediate Trust) or redeemed. The secondary market
public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made three 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
Page 20
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates
for Units will bear an appropriate notation on their face indicating
which plan of distribution has been selected in respect thereof. When a
change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then currently
effective plan of distribution. There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Record Dates for the distribution of interest under the semi-annual
distribution plan are the fifteenth day of June and December with the
Distribution Dates being the last day of the month in which the related
Record Date occurs. It is anticipated that an amount equal to
approximately one-half of the amount of net annual interest income per
Unit will be distributed on or shortly after each Distribution Date to
Unit holders of record on the preceding Record Date. Record Dates for
monthly distributions of interest are the fifteenth day of each month.
The Distribution Dates for distributions of interest under the monthly
plan is the last day of each month in which the related Record Date
occurs. See "Special Trust Information" appearing in each Part I of this
Prospectus.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating may so indicate on the card and return
same, together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on
the dates specified in Part One. Proceeds from the disposition of any of
the Bonds of such Trust (less any premiums due with respect to Bonds for
which the Trustee has exercised the right to obtain Permanent Insurance)
received after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of such Trust and not
distributed until the next Distribution Date. The Trustee is not
required to make a distribution from the Principal Account of a Trust
unless the amount available for distribution shall equal at least $1.00
per Unit.
The Trustee will credit to the Interest Account of each Trust all
interest received by such Trust, including that part of the proceeds
(including insurance proceeds if any, paid to an Insured Trust) of any
disposition of Bonds which represents accrued interest. Other receipts
will be credited to the Principal Account of such Trust. The
distribution to the Unit holders of a Trust as of each Record Date will
be made on the following Distribution Date or shortly thereafter and
shall consist of an amount substantially equal to such portion of the
holder's pro rata share of the estimated annual income of such Trust
after deducting estimated expenses. Except through an advancement of its
own Funds, the Trustee has no cash for distribution to Unit holders
until it receives interest payments on the Bonds in a Trust. The Trustee
shall be reimbursed, without interest, for any such advances from funds
in the Interest Account of such Trust on the ensuing Record Date.
Page 21
Persons who purchase Units between a Record Date and a Distribution Date
will receive their first distribution on the second Distribution Date
after the purchase, under the applicable plan of distribution. The
Trustee is not required to pay interest on funds held in the Principal
or Interest Account of a Trust (but may itself earn interest thereon and
therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in a
Universal Distribution Option which permits a Unit holder to direct the
Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an existing account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income or
principal on the participant's Units to, among other investment
vehicles, a Unit holder's checking, bank savings, money market,
insurance, reinvestment or any other account. All such distributions, of
course, are subject to the minimum investment and sales charges, if any,
of the particular investment vehicle to which distributions are
directed. The Trustee will notify the participant of each distribution
pursuant to the Universal Distribution Option. The Trustee will
distribute directly to the Unit holder any distributions which are not
accepted by the specified investment vehicle. A participant may at any
time, by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive directly
future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into an
arrangement with Oppenheimer Management Corporation, which permits any
Unit holder of a Trust to elect to have each distribution of interest
income or principal on his Units automatically reinvested in shares of
either the Oppenheimer Intermediate Tax-Exempt Bond Fund (the
"Intermediate Series") or the Oppenheimer Insured Tax-Exempt Bond Fund
(the "Insured Series"). Oppenheimer Management Corporation is the
investment adviser of each Series which are open-end, diversified
management investment companies. The investment objective of the
Intermediate Series is to provide a high level of current interest
income exempt from Federal income tax through the purchase of investment
grade securities. The investment objective of the Insured Series is to
provide as high a level of current interest income exempt from Federal
income tax as is consistent with the assurance of the scheduled receipt
of interest and principal through insurance and the preservation of
capital (the income of either Series may constitute an item of
preference for determining the Federal alternative minimum tax). The
objectives and policies of each Series are presented in more detail in
the prospectus for each Series.
Each person who purchases Units of a Trust may contact the Trustee to
request a prospectus describing each Series and a form by which such
person may elect to become a participant in a Distribution Reinvestment
Option with respect to a Series. Each distribution of interest income or
principal on the participant's Units will automatically be applied by
the Trustee to purchase shares (or fractions thereof) of a Series
without a sales charge and with no minimum investment requirements.
The shareholder service agent for each Series will mail to each
participant in the Distribution Reinvestment Option confirmations of all
transactions undertaken for such participant in connection with the
receipt of distributions from The First Trust Combined Series and the
purchase of shares (or fractions thereof) of a Series.
A participant may at any time, by so notifying the Trustee in writing,
elect to terminate his participation in the Distribution Reinvestment
Option and receive future distributions on his Units in cash. There will
be no charge or other penalty for such termination. The Sponsor and
Oppenheimer Management Corporation each have the right to terminate the
Distribution Reinvestment Option, in whole or in part.
Page 22
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for income
tax purposes.
What Reports Will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after
the last business day of each calendar year, the Trustee will furnish to
each person who at any time during the calendar year was a Unit holder
of a Trust of record, a statement as to (1) the Interest Account:
interest received by such Trust (including amounts representing interest
received upon any disposition of Bonds of such Trust), the amount of
such interest representing insurance proceeds (if applicable),
deductions for payment of applicable taxes and for fees and expenses of
the Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount
and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (2) the
Principal Account: the dates of disposition of any Bonds of such Trust
and the net proceeds received therefrom (excluding any portion
representing interest and the premium attributable to the exercise of
the right, if applicable, to obtain Permanent Insurance), deduction for
payment of applicable taxes and for fees and expenses of the Trust,
redemptions of Units, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) the Bonds held and the
number of Units of such Trust outstanding on the last business day of
such calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5) the
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account of such Trust, separately stated,
expressed both as total dollar amounts and as dollar amounts per Unit
outstanding on the Record Date for such distributions.
In order to comply with Federal and state tax reporting requirements,
Unit holders will be furnished, upon request to the Trustee, evaluations
of the Bonds in their Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in
respect of each plan of distribution so that Unit holders may be
informed regarding the results of the other plan or plans of distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the third day following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the Trustee of
such tender of Units. The "date of tender" is deemed to be the date on
which Units are received by the Trustee (if such day is a day on which
the New York Stock Exchange is open for trading), except that as regards
Units received after the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time or as of any earlier closing time on a
day on which the New York Stock Exchange is scheduled in advance to
close at such earlier time), the date of tender is the next day on which
such Exchange is open for trading and such Units will be deemed to have
been tendered to the Trustee on such day for redemption at the
redemption price computed on that day. Units so redeemed shall be
cancelled.
Purchased Interest (if any) and other accrued interest to the settlement
date paid on redemption shall be withdrawn from the Interest Account of
a Trust or, if the balance therein is insufficient, from the Principal
Account of such Trust. All other amounts paid on redemption shall be
withdrawn from the Principal Account of the Trust.
The Redemption Price per Unit will be determined on the basis of the bid
price of the Bonds in a Trust and the amount of Purchased Interest of
the Trust (if any), as of the close of trading on the New York Stock
Page 23
Exchange on the date any such determination is made. The Redemption
Price per Unit is the pro rata share of each Unit determined by the
Trustee on the basis of (1) the cash on hand in the Trust or moneys in
the process of being collected, (2) the value of the Bonds in such Trust
based on the bid prices of the Bonds, except for those cases in which
the value of the insurance, if applicable, has been added, and (3)
Purchased Interest (if any) and any other interest accrued thereon, less
(a) amounts representing taxes or other governmental charges payable out
of such Trust, (b) the accrued expenses of such Trust, and (c) cash held
for distribution to Unit holders of record as of a date prior to the
evaluation then being made. The Evaluator may determine the value of the
Bonds in a Trust (1) on the basis of current bid prices of the Bonds
obtained from dealers or brokers who customarily deal in bonds
comparable to those held by such Trust, (2) on the basis of bid prices
for bonds comparable to any Bonds for which bid prices are not
available, (3) by determining the value of the Bonds by appraisal, or
(4) by any combination of the above. In determining the Redemption Price
per Unit for an Insured Trust, no value will be attributed to the
portfolio insurance covering the Bonds in such Trust unless such Bonds
are in default in payment of principal or interest or in significant
risk of such default. On the other hand, Bonds insured under a policy
obtained by the Bond issuer, the underwriters, the Sponsor or others are
entitled to the benefits of such insurance at all times and such
benefits are reflected and included in the market value of such Bonds.
See "Why and How are the Insured Trusts Insured?" For a description of
the situations in which the evaluator may value the insurance obtained
by an Insured Trust, see "Public Offering-How is the Public Offering
Price Determined?"
The difference between the bid and offering prices of such Bonds may be
expected to average 1-2% of the principal amount. In the case of
actively traded bonds, the difference may be as little as 1/2 of 1% and,
in the case of inactively traded bonds, such difference usually will not
exceed 3%. Therefore, the price at which Units may be redeemed could be
less than the price paid by the Unit holder and may be less than the par
value of the Securities represented by the Units so redeemed.
The Trustee is empowered to sell underlying Bonds in a Trust in order to
make funds available for redemption. To the extent that Bonds are sold,
the size and diversity of such Trust will be reduced. Such sales may be
required at a time when Bonds would not otherwise be sold and might
result in lower prices than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, which for certain
Trusts includes Purchased Interest, it may purchase such Units by
notifying the Trustee before 1:00 p.m. Eastern time on the next
succeeding business day and by making payment therefor to the Unit
holder not later than the day on which the Units would otherwise have
been redeemed by the Trustee. Units held by the Sponsor may be tendered
to the Trustee for redemption as any other Units. Any profit or loss
resulting from the resale or redemption of such Units will belong to the
Sponsor.
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell such of the Bonds in each Trust on a
list furnished by the Sponsor as the Trustee in its sole discretion may
deem necessary to meet redemption requests or pay expenses to the extent
funds are unavailable. As described in the following paragraph and in
certain other unusual circumstances for which it is determined by the
Depositor to be in the best interests of the Unit holders or if there is
no alternative, the Trustee is empowered to sell Bonds in a Trust which
are in default in payment of principal or interest or in significant
risk of such default and for which value has been attributed to the
Page 24
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 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 FT Series (formerly known as The First Trust Special
Situations Trust), The First Trust Insured Corporate Trust, The First
Trust of Insured Municipal Bonds, The First Trust GNMA, Templeton Growth
and Treasury Trust, Templeton Foreign Fund & U.S. Treasury Securities
Trust and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974 and to
date more than $27 billion in First Trust unit investment trusts have
been deposited. The Sponsor's employees include a team of professionals
with many years of experience in the unit investment trust industry. The
Sponsor is a member of the National Association of Securities Dealers,
Inc. and Securities Investor Protection Corporation and has its
principal offices at 1001 Warrenville Road, Lisle, Illinois 60532;
telephone number (630) 241-4141. As of December 31, 1999, the total
partners' capital of Nike Securities L.P. was $19,881,035 (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.
Code of Ethics. The Sponsor and each Trust have adopted a code of ethics
requiring the Sponsor's employees who have access to information on
Trust transactions to report personal securities transactions. The
purpose of the code is to avoid potential conflicts of interest and to
prevent fraud, deception or misconduct with respect to a Trust.
Who is the Trustee?
The Trustee is The Chase Manhattan Bank, with its principal executive
office located at 270 Park Avenue, New York, New York 10017 and its unit
investment trust office at 4 New York Plaza, 6th floor, New York, New
York 10004-2413. Unit holders who have questions regarding the Trusts
may call the Customer Service Help Line at 1-800-682-7520. The Trustee
is subject to supervision by the Superintendent of Banks of the State of
Page 25
New York, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Fund which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trusts as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor and the Trustee, in which event the
Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, Sponsor or Unit holders for errors in
judgment. This provision shall not protect the Evaluator in any case of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of
the Indenture which may be defective or inconsistent with any other
provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders (as
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.
Page 26
In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of the Unit
holders of such Trust or by the Trustee when the value of such Trust, as
shown by any evaluation, is less than 20% of the aggregate principal
amount of the Bonds initially deposited in the Trust or by the Trustee
in the event that Units of a Trust not yet sold aggregating more than
60% of the Units of such Trust are tendered for redemption by the
Underwriters, including the Sponsor. If a Trust is liquidated because of
the redemption of unsold Units of the Trust by the Underwriters, the
Sponsor will refund to each purchaser of Units of such Trust the entire
sales charge paid by such purchaser. The Indenture will terminate upon
the redemption, sale or other disposition of the last Bond held
thereunder, but in no event shall it continue beyond the Mandatory
Termination Date as indicated in Part One for each Trust. In the event
of termination, written notice thereof will be sent by the Trustee to
all Unit holders of such Trust. Within a reasonable period after
termination, the Trustee will sell any Bonds remaining in the Trust,
and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder of such Trust (including the Sponsor if
it then holds any Units), upon surrender for cancellation of his
Certificate for Units, his pro rata share of the balances remaining in
the Interest and Principal Accounts of such Trust, all as provided in
the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Booth & Baron, 122 East 42nd Street, Suite 1507, New York, New York
10168, acts as special counsel for the Fund for New York tax matters for
Series 1, 2 and 3 of the Fund. Winston & Strawn (previously named Cole &
Deitz), 175 Water Street, New York, New York 10038 acts as counsel for
the Trustee and as special counsel for the Fund for New York Tax matters
for Series 4-125 of the Fund. Carter, Ledyard & Milburn, 2 Wall Street,
New York, New York 10005, acts as counsel for the Trustee and as special
counsel for the Fund for New York tax matters for Series 126 and
subsequent Series of the Fund. For information with respect to state and
local tax matters, including the State Trust special counsel for such
matters, see Part Three for each Trust.
Experts
The statements of net assets, including the portfolios, of each Trust
contained in Part One of the Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere therein and in the
Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing.
Page 27
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
______________
*As published by the rating companies.
**Bonds insured by Financial Guaranty Insurance Company, Ambac Assurance
Corporation, Municipal Bond Investors Assurance Corporation, Connie Lee
Insurance Company, Financial Security Assurance and Capital Guaranty
Insurance Company are automatically rated "AAA" by Standard & Poor's.
Page 28
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat large than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Fitch Investors Service, Inc. A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follow:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
Page 29
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
Page 30
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Page 31
CONTENTS:
The First Trust Combined Series:
What is The First Trust Combined Series? 3
What are Estimated Long-Term Return and
Estimated Current Return? 8
How are Purchased Interest and Accrued
Interest Treated? 9
Why and How are the Insured Trusts Insured? 10
What is the Federal Tax Status of Unit Holders? 16
What are the Expenses and Charges? 16
Public Offering:
How is the Public Offering Price Determined? 17
How are Units Distributed? 19
What are the Sponsor's Profits? 20
Rights of Unit Holders:
How are Certificates Issued and Transferred? 20
How are Interest and Principal Distributed? 21
How can Distributions to Unit Holders be
Reinvested? 22
What Reports will Unit Holders Receive? 22
How May Units be Redeemed? 23
How May Units be Purchased by the Sponsor? 24
How May Bonds be Removed from the Fund? 24
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 25
Who is the Trustee? 25
Limitations on Liabilities of Sponsor and Trustee 25
Who is the Evaluator? 26
Other Information:
How May the Indenture be Amended or
Terminated? 26
Legal Opinions 27
Experts 27
Description of Bond Ratings 28
__________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE FUND
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST(REGISTERED TRADEMARK)
THE FIRST TRUST
COMBINED SERIES
Prospectus
Part Two
May 31, 2000
First Trust(registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-630-241-4141
Trustee:
The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
AND PART THREE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 32
FLORIDA 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 May 31, 2000 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
Neither the Sponsor, Chapman and Cutler, nor any of the Special Counsel
to the Fund for State tax matters have made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the
bases for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could
be required to pay income tax on interest received prior to the date on
which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unit holder is includable in gross income for Federal
income tax purposes and may be includable in gross income for state tax
purposes. (Such gain does not include any amounts received in respect of
accrued interest or accrued original issue discount, if any.) If a Bond
is acquired with accrued interest, that portion of the price paid for
the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium,
the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax
basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year.
For purposes of the following opinions, it is assumed that each asset of
the Trust is debt the interest on which is excluded from gross income
for Federal income tax purposes. At the time of the closing for each
Trust, Chapman and Cutler, Counsel for the Sponsor, rendered an opinion
under then existing law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status for
Federal income tax purposes, when received by the Trusts and distributed
to a Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax and the additional tax on branches
of foreign corporations and the environmental tax if extended by
Congress (the "Superfund Tax"), as noted below. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his or her Units. If the Unit holder disposes of a Unit, he or she is
deemed thereby to have disposed of his or her entire pro rata interest
in all assets of the Trust involved including his or her pro rata
portion of all the Bonds represented by the Unit. The Taxpayer Relief
Act of 1997 (the "1997 Act") includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g. short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
and for purposes of determining the holding period. Unit holders should
consult their own tax advisors with regard to any such constructive sale
rules. Unit holders must reduce the tax basis of their Units for their
share of accrued interest received by the respective Trust, if any, on
Bonds before the date the Trust acquired ownership of the Bonds (and the
amount of this reduction may exceed the amount of accrued interest paid
to the seller) and, consequently, such Unit holders may have an increase
in taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with the
adjusted basis of the Units. If the Trustee disposes of Bonds (whether
by sale, payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds from
such disposition with the Unit holder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unit holder who
purchases Units, such basis (before adjustment for accrued original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders should consult their own tax
advisors with regard to the calculation of basis. The tax basis
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his or her Units are sold or redeemed for
an amount equal to or less than his or her original cost; and
(3) any insurance proceeds paid under individual policies obtained by
issuers of Bonds which represent maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so excludable if
paid in the normal course by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will
pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price (its "adjusted issue price") to prior owners.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. The application of these rules
will also vary depending on the value of the Bond on the date a Unit
holder acquires his or her Unit, and the price the Unit holder pays for
his or her Unit. Unit holders should consult their tax advisors
regarding these rules and their application. See "Portfolio" appearing
in Part One for each Trust for information relating to Bonds, if any,
issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "1993 Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
Page 2
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the 1993 Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been
treated as capital gain. Market discount that accretes while a Trust
holds a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or at
redemption (including early redemption) or upon the sale or redemption
of his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unit holders should consult their tax advisors regarding
these rules and their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. Legislative proposals have
been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his or her tax advisor.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF
COUNSEL AND ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his or her Social Security benefits in gross income whether or not he or
she receives any tax-exempt interest. A taxpayer whose modified adjusted
gross income (after inclusion of tax-exempt interest) does not exceed
Page 3
the base amount need not include any Social Security benefits in gross
income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest on
certain private activity bonds (which includes most industrial and
housing revenue bonds) issued on or after August 8, 1986 is included as
an item of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR
CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY
BONDS ISSUED ON OR AFTER THAT DATE.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax
bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the
holding period of the unit. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisors regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
AMTI (before such adjustment item and the alternative tax net operating
loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisors with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisors as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
laws of the State and City of New York, substantially to the effect that
each Trust will not constitute an association taxable as a corporation
under New York law, and accordingly will not be subject to the New York
Page 4
State franchise tax or the New York City general corporation tax. Under
the income tax laws of the State and City of New York, the income of
each Trust will be considered the income of the holders of the Units.
All statements in the Prospectus concerning exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
Florida Tax Status of Unit Holders
The Internal Revenue Service Restructuring and Reform Act of 1998
provides that for taxpayers other than corporations, net capital gain
(which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10%
in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is
one year or less. The date on which a Unit is acquired (i.e., the "trade
date") is excluded for purposes for determining the holding period of
the Unit. Capital gains realized from assets held for one year or less
are taxed at the same rates as ordinary income.
The Bonds were accompanied by opinions of Bond Counsel to the respective
issuers thereof to the effect that the Bonds were exempt from the
Florida intangibles tax. Neither the Sponsor nor its counsel have
independently reviewed such opinions or examined the Bonds to be
deposited in and held by a Florida Trust and have assumed the
correctness as of the date of deposit of the opinions of Bond Counsel.
"Non-Corporate Unit holder" means a Unit holder of the Florida Trust who
is an individual not subject to the Florida state income tax on
corporations under Chapter 220, Florida Statutes and "Corporate Unit
holder" means a Unit holder of the Florida Trust that is a corporation,
bank or savings association or other entity subject to Florida state
income tax on corporations or franchise tax imposed on banks or savings
associations under Chapter 220, Florida Statutes.
At the time of the closing for each Florida Trust, Chapman and Cutler,
Special Counsel to the Fund for Florida tax matters, rendered an opinion
under then existing Florida income tax law applicable to taxpayers whose
income is subject to Florida income taxation substantially to the effect
that:
For Florida state income tax purposes, the Florida Trust will not be
subject to the Florida income tax imposed by Chapter 220, Florida
Statutes.
Because Florida does not impose an income tax on individuals, Non-
Corporate Unit holders residing in Florida will not be subject to any
Florida income taxation on income realized by the Florida Trust. Any
amounts paid to the Florida Trust or to Non-Corporate Unit holders under
an insurance policy issued to the Florida Trust or the Sponsor which
represent maturing interest on defaulted obligations held by the Trustee
will not be subject to the Florida income tax imposed by Chapter 220,
Florida Statutes.
Corporate Unit holders with commercial domiciles in Florida will be
subject to Florida income or franchise taxation on income realized by
the Florida Trust and on payments of interest pursuant to any insurance
policy to the extent such income constitutes "non-business income" as
defined by Chapter 220 or is otherwise allocable to Florida under
Chapter 220. Other Corporate Unit holders will be subject to Florida
income or franchise taxation on income realized by the Florida Trust (or
on payments of interest pursuant to any insurance policy) only to the
extent that the income realized does not constitute "non-business
income" as defined by Chapter 220 and if such income is otherwise
allocable to Florida under Chapter 220.
Units will be subject to Florida estate tax only if held by Florida
residents. However, the Florida estate tax is limited to the amount of
the credit for state death taxes provided for in Section 2011 of the
Internal Revenue Code.
Neither the Bonds nor the Units will be subject to the Florida ad
valorem property tax, the Florida intangible personal property tax or
the Florida sales or use tax.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Florida law. Ownership of the Units may
result in collateral Florida tax consequences to certain taxpayers.
Prospective investors should consult their tax advisors as to the
applicability of any such collateral consequences.
FOR INFORMATION WITH RESPECT TO THE FEDERAL INCOME TAX STATUS AND OTHER
TAX MATTERS, SEE "WHAT IS THE FEDERAL TAX STATUS OF UNIT HOLDERS?"
Page 5
Certain Considerations
Economic Outlook. In 1980, Florida was the seventh most populous state
in the United States. As of April 1, 1998, it was the fourth most
populous state with an estimated population of 15 million. Florida
continues to be the one of the fastest growing of the largest states,
with an average increase since 1990 of about 1.9% annually (compared to
the U.S. average annual population increase of about 1.0%).
Florida's strong population growth contributes to the performance of
Florida's economy. In addition to attracting senior citizens to Florida
as a place for retirement, Florida is also recognized as attracting a
significant number of individuals of working age (18-64). In recent
years, Florida's prime working age population (18-44) has grown at an
average annual rate of more than 2.0%. More than 60% of Florida's total
population is at the working age (18-64). This share is not expected to
change appreciably into the twenty-first century.
The state's personal income has been growing strongly the last several
years. It has tracked the U.S. average and has performed better than the
southeast in particular. However, since 1989 Florida's per capita income
has been consistently slightly below that of the United States.
Because Florida has a proportionately greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (Social Security and pension benefits, among other sources of
income) are relatively more important sources of income. Transfer
payments are typically less sensitive to the business cycle than
employment income and act as stabilizing forces in weak economic periods.
Personal income is frequently used to make comparisons among the states.
However, using personal income to compare Florida to other states can be
misleading because Florida's personal income is systematically
underestimated. Current contributions by employers to pension plans are
included in personal income, while payments from pension plans are
excluded to avoid double accounting. Because Florida retirees are more
likely to be collecting on benefits earned in another state, Florida
personal income is underestimated as a result.
The state's per capita personal income in 1998 of $25,852 was slightly
below the national average of $26,412 and was significantly ahead of
that for the southeast United States, which was $23,725. Real personal
income in the state is forecast to increase 4.5% in 1999-00 and 3.6% in
2000-01. Real personal income per capita in the state is projected to
grow at 2.5% in 1999-00 and 1.6% in 2000-01. The Florida economy appears
to be growing in line with, but stronger than, the U.S. economy;
however, it is expected to grow more slowly in the fiscal year ending
June 30, 2000, than in the fiscal year ended June 30, 1999.
Since 1991, the state's population has increased an estimated 11.7%,
while the number of employed persons increased 15.0%. In that same
period, Florida's total non-farm employment has grown approximately
24.6%. Since 1991, the non-farm job creation rate in the state is more
than twice that of the nation as a whole. Florida is gradually becoming
less dependent on employment related to construction, agriculture or
manufacturing, and more dependent on employment related to trade and
services. This has also contributed to Florida's strong economic
performance.
The service sector is now Florida's largest employment category.
Presently, services constitute 36% and trade 25.5% of Florida's total
non-farm jobs. The United States, however, has a greater percentage of
manufacturing jobs than Florida. Manufacturing jobs tend to pay higher
wages, but service jobs can also pay well and tend to be less sensitive
to swings in the business cycle. Florida has a concentration of
manufacturing jobs in high-tech and high value-added sectors, such as
electrical and electronic equipment, as well as printing and publishing.
These type of manufacturing jobs tend to be less cyclical.
Florida's unemployment rate throughout the 1980s was consistently lower
than that for the United States, though it rose higher than that of the
United States in the early 1990s. In current years, Florida's
unemployment rate has again generally fallen below that of the United
States. It is estimated that Florida's unemployment rate will be 4.2% in
the fiscal year ended June 30, 2000, and 3.8% in the fiscal year ending
June 30, 2001.
The state's economy is expected to grow at a moderate rate along with
the nation, but is expected to outperform the nation as a whole. Total
non-farm employment in Florida is expected to increase 4.0% for the
fiscal year ended June 30, 2000, and 3.5% for the fiscal year ending
June 30, 2001. Trade and services, the two largest employment sectors,
account for more than half of the total non-farm employment in Florida.
Employment in the service sectors should experience an increase of 6.3%
for the fiscal year ended June 30, 2000, while growing 5.4% for the
fiscal year ending June 30, 2001. Trade is expected to expand 2.5% for
Page 6
the fiscal year ended June 30, 2000, and 2.9% for the fiscal year ending
June 30, 2001.
Revenues and Expenditures. Estimated 1999-00 General Revenue plus
Working Capital and Budget Stabilization funds available to Florida
total $20,455.9 million, a 4.4% increase over 1998-99. Of the total
General Revenue plus Working Capital and Budget Stabilization funds
available to Florida, $18,592.1 million of that is Estimated Revenues
and represents an increase of 4.0% over the previous year's Estimated
Revenues. With effective General Revenues plus Working Capital Fund and
Budget Stabilization appropriations at $18,808.9 million, including a
$60.1 million transferred to the Budget Stabilization Fund, 1999-00
unencumbered reserves are estimated at $1,707.1 million. Estimated 2000-
01 General Revenue plus Working Capital and Budget Stabilization funds
available to Florida total $21,253.4 million, a 3.9% increase over 1999-
00. The $19,454.7 million in Estimated Revenues represents an increase
of 4.6% over the previous year's Estimated Revenues.
In fiscal year 1998-99, approximately 67% of the state's total direct
revenue to its three operating funds was derived from state taxes and
fees, with Federal grants and other special revenue accounting for the
balance. State sales and use tax, corporate income tax, intangible
personal property tax (imposed on stocks, bonds, including bonds secured
by liens on Florida real property, notes, government leaseholds and
certain other intangibles not secured by a lien on Florida real
property), beverage tax and estate tax amounted to 70%, 8%, 4%, 3% and
4%, respectively, of total General Revenue Funds available during fiscal
1998-99. In that same year, expenditures for education, health and
welfare, and public safety amounted to approximately 55%, 24% and 16%,
respectively, of total expenditures from the General Revenue Fund.
Tobacco Litigation Award to Florida. Florida's 1997 tobacco litigation
settlement, as amended in 1998, is expected to total $13 billion over a
25-year period. The settlement anticipates that Florida will use the
proceeds for children's healthcare coverage and other health-related
services, to reimburse Florida for medical expenses it has incurred, and
for mandated improvements in enforcement efforts against the sale of
tobacco products to minors.
Debt Management. At the end of the fiscal year ended June 30, 1998,
Florida had outstanding about $9,260 million in principal amount of debt
secured by its full faith and credit. Since then, the state has issued
about $200 million in principal amount of full faith and credit bonds.
Florida's Constitution and statutes require that Florida not run a
deficit in its budget as a whole, or in any separate fund within its
budget. Rather, its budget and funds must be kept in balance from
currently available revenues each fiscal year. If the Governor or
Comptroller believes a deficit will occur in any fund, by statute, he or
she must certify his or her opinion to the Administrative Commission,
which then is authorized to reduce all Florida agency budgets and
releases by a sufficient amount to prevent a deficit in any fund.
Additionally, the Florida Constitution prohibits Florida from borrowing
by issuing bonds to fund its operations.
Litigation. Currently under litigation are several issues relating to
state actions or state taxes that put at risk a portion of General
Revenue Fund monies. There is no assurance that any such matters,
individually or in the aggregate, will not have a material adverse
effect on the state's financial position.
Bond Ratings. Florida maintains a bond rating of Aa2, AA+ and AA from
Moody's, Standard & Poor's and Fitch, respectively, on the majority of
its general obligation bonds, although the rating of a particular series
of revenue bonds relates primarily to the project, facility or other
revenue source from which such series derives funds for repayment. While
these ratings and some of the information presented above indicate that
Florida is in satisfactory economic health, there can be no assurance
that there will not be a decline in economic conditions or that
particular Florida Municipal Obligations purchased by the Fund will not
be adversely affected by any such changes.
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 Florida 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 Florida Trusts to pay interest on or principal
of the Bonds.
Page 7
Florida Trust Series
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 8
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 May 31, 2000 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
Neither the Sponsor, Chapman and Cutler, nor any of the Special Counsel
to the Fund for State tax matters have made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the
bases for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could
be required to pay income tax on interest received prior to the date on
which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unit holder is includable in gross income for Federal
income tax purposes and may be includable in gross income for state tax
purposes. (Such gain does not include any amounts received in respect of
accrued interest or accrued original issue discount, if any.) If a Bond
is acquired with accrued interest, that portion of the price paid for
the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium,
the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax
basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year.
For purposes of the following opinions, it is assumed that each asset of
the Trust is debt the interest on which is excluded from gross income
for Federal income tax purposes. At the time of the closing for each
Trust, Chapman and Cutler, Counsel for the Sponsor, rendered an opinion
under then existing law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status for
Federal income tax purposes, when received by the Trusts and distributed
to a Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax and the additional tax on branches
of foreign corporations and the environmental tax if extended by
Congress (the "Superfund Tax"), as noted below. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his or her Units. If the Unit holder disposes of a Unit, he or she is
deemed thereby to have disposed of his or her entire pro rata interest
in all assets of the Trust involved including his or her pro rata
portion of all the Bonds represented by the Unit. The Taxpayer Relief
Act of 1997 (the "1997 Act") includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g. short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
and for purposes of determining the holding period. Unit holders should
consult their own tax advisors with regard to any such constructive sale
rules. Unit holders must reduce the tax basis of their Units for their
share of accrued interest received by the respective Trust, if any, on
Bonds before the date the Trust acquired ownership of the Bonds (and the
amount of this reduction may exceed the amount of accrued interest paid
to the seller) and, consequently, such Unit holders may have an increase
in taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with the
adjusted basis of the Units. If the Trustee disposes of Bonds (whether
by sale, payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds from
such disposition with the Unit holder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unit holder who
purchases Units, such basis (before adjustment for accrued original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders should consult their own tax
advisors with regard to the calculation of basis. The tax basis
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his or her Units are sold or redeemed for
an amount equal to or less than his or her original cost; and
(3) any insurance proceeds paid under individual policies obtained by
issuers of Bonds which represent maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so excludable if
paid in the normal course by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will
pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price (its "adjusted issue price") to prior owners.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. The application of these rules
will also vary depending on the value of the Bond on the date a Unit
holder acquires his or her Unit, and the price the Unit holder pays for
his or her Unit. Unit holders should consult their tax advisors
regarding these rules and their application. See "Portfolio" appearing
in Part One for each Trust for information relating to Bonds, if any,
issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "1993 Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
Page 2
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the 1993 Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been
treated as capital gain. Market discount that accretes while a Trust
holds a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or at
redemption (including early redemption) or upon the sale or redemption
of his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unit holders should consult their tax advisors regarding
these rules and their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. Legislative proposals have
been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his or her tax advisor.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF
COUNSEL AND ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his or her Social Security benefits in gross income whether or not he or
Page 3
she receives any tax-exempt interest. A taxpayer whose modified adjusted
gross income (after inclusion of tax-exempt interest) does not exceed
the base amount need not include any Social Security benefits in gross
income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest on
certain private activity bonds (which includes most industrial and
housing revenue bonds) issued on or after August 8, 1986 is included as
an item of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR
CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY
BONDS ISSUED ON OR AFTER THAT DATE.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax
bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the
holding period of the unit. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisors regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
AMTI (before such adjustment item and the alternative tax net operating
loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisors with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisors as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
Page 4
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 exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
Missouri Tax Status of Unit Holders
The Internal Revenue Service Restructuring and Reform Act of 1998
provides that for taxpayers other than corporations, net capital gain
(which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10%
in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is
one year or less. The date on which a Unit is acquired (i.e., the "trade
date") is excluded for purposes of determining the holding period of the
Unit. Capital gains realized from assets held for one year or less are
taxed at the same rates as ordinary income.
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 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"). It is assumed that, at the
respective times of issuance of the Bonds, opinions that the Bonds were
validly issued and that interest on the Bonds is excluded from gross
Federal income tax purposes were rendered by bond counsel to the
respective issuing authorities. In addition, with respect to the
Missouri Bonds, bond counsel to the issuing authorities rendered
opinions that the interest on the Missouri Bonds is exempt from the
Missouri state income tax and, with respect to the Possession Bonds,
bond counsel to the issuing authorities rendered opinions that the
Possession Bonds and the interest thereon is exempt from all state and
local income taxation.
Neither the Sponsor nor its counsel has made any review for the Trusts
of the proceedings relating to the issuance of the Bonds or of the bases
for the opinions rendered in connection therewith. The opinion set forth
below does not address the taxation of persons other than full-time
residents of Missouri.
In the opinion of Chapman and Cutler, Special Counsel to the Fund for
Missouri tax matters, under existing law:
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.
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
Page 5
some circumstances, may realize taxable gain when his or her Units are
sold or redeemed for an amount less than or 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 the 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
that no opinion is expressed in the case of certain Unit holders,
including corporations, otherwise subject to the St. Louis City Earnings
Tax).
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Missouri law. Ownership of the Units may
result in collateral Missouri tax consequence to certain taxpayers.
Prospective investors should consult their tax advisors as to the
applicability of any such collateral consequences.
For information with respect to the Federal income tax status and other
tax matters see "What is the Federal Tax Status of Unit Holders?"
Certain Considerations
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.
Economic Outlook. As a major manufacturing, financial and agricultural
state, Missouri's residents have enjoyed a vibrant and growing economy
over the last five years demonstrated by low unemployment, large job
gains and significant income growth. Missouri's economy continued its
steady expansion throughout 1999. Unemployment reached record low
levels, and inflation continued to be minimal. Personal income and total
state output saw moderate growth. Missouri exports rebounded from the
sluggish trade of 1998. Most indicators point to continued growth in 2000.
Missouri's labor market remained strong during 1999. The state's
seasonally adjusted unemployment rate for November was 2.6%. This
compares very favorably to the nation's rate of 4.1%. Missouri's
unemployment rate should remain low in 2000, remaining in the 3-4%
range. The sectors seeing the biggest growth in employment during 1999
were construction, trade and government. The manufacturing sector,
however, took the biggest loss during 1999, realizing a decrease of
about 7,627 jobs. This is due mostly to layoffs in the air
transportation and apparel manufacturing subsectors.
Missouri's personal income grew by 3.4% during 1999 to an estimated
$137.5 billion, up from $133.0 billion in 1998. The nation's personal
income grew by an estimated 5.4%. Wages also increased at a healthy pace
during 1999. Preliminary establishment data indicates a growth of about
5% over these 12 months. Some disparity remains, however, between wages
in the service-producing sectors and the goods-producing sectors, with
wages in goods-producing jobs being significantly higher. Personal
income is expected to continue growing at about 4% during 2000.
Revenues and Expenditures. The State of Missouri completed Fiscal Year
1999 in sound financial condition. Solid revenue collections, coupled
with efficient management of state programs, allowed Missouri to
maintain its status as one of the nation's best-run states. Missouri's
robust economy over the recent past has enabled investment in targeted
high priority programs and the opportunity to provide citizens with
significant, meaningful tax relief. The Fiscal Year 2001 budget is tight
due to the combination of substantial increase in mandatory costs and
the impact of tax cuts enacted in past sessions. Calculations made
pursuant to Article X of the Missouri Constitution show that total state
revenues for Fiscal Year 1999 exceeded the total state revenue limit by
Page 6
$98.9 million. The entire amount of excess revenues will be refunded to
Missouri income taxpayers in calendar year 2000. Missouri's
constitutional revenue and spending limit provides that over time the
growth in state revenues and spending cannot exceed the growth in
Missouri Personal Income.
Desegregation Costs. The Fiscal Year 2000 budget marks a historic close
in the desegregation chapter of Missouri history. With the end of the
Kansas City case, and the potential end of the St. Louis case, there
will be dramatic improvements in education funding for schools across
Missouri. This was made possible by a positive and pro-active approach
to resolving this litigation from the Governor, the Attorney General and
the Missouri General Assembly. Settlement negotiations in Kansas City
have resulted in substantial saving to boost state aid to all Missouri
schools. State law requires that desegregation savings go toward the
school foundation formula and transportation funding. As of December 31,
1998, the state had spent $3.3 billion on the desegregation cases in St.
Louis and Kansas City. At the end of Fiscal Year 1999, that total will
reach an estimated $3.4 billion. Actual spending may vary from this
estimate due to actions or inactions of the school district, the number
of students, future court orders and the expenditure patterns of the
school district. The Fiscal Year 2001 cost for the desegregation
settlement is $50 million. A total of $45 million has also been set
aside for supplemental appropriations and increases in estimated
appropriations and $7.6 million for fund transfers and other adjustments.
Tobacco Settlement. In November 1998 the National Association of
Attorney Generals announced a national settlement agreement with five
major tobacco companies. Attorney General Jay Nixon accepted the
proposed agreement on behalf of the State of Missouri. The agreement is
the largest settlement ever achieved by the State of Missouri. Over the
next 25 years, the state will receive over $4 billion before the
settlement's adjustments for inflation and discounts.
Before Missouri can receive any funds from the settlement, the state
must reach finality in its lawsuit. Several parties have filed a motion
to intervene in the case. The Circuit Court of the City of St. Louis
denied their motion. However, they have appealed this decision to the
Missouri Eastern District Court of Appeals. The timing of the final
decision on this suit is uncertain and is dependent upon possible
further appeal to the Missouri Supreme Court. In order to participate in
the settlement, Missouri must settle its case prior to December 31,
2001. Until the state's lawsuit is finalized it is imprudent to include
the funds in the state's budget.
Debt Management. Missouri voters have approved constitutional amendments
providing for the issuance of general obligation bonds used for a number
of purposes. The amount of general obligation debt that can be issued by
the state is limited to the amount approved by popular vote plus $1
million.
Ratings. State of Missouri general obligation bond issues are currently
rated as follows: Standard & Poor's Rating Services, AAA; Moody's
Investors Service, Inc., Aaa; and Fitch IBCA, Inc., AAA. Missouri is one
of only eight states that have this highest rating from all three
organizations. Although these ratings indicate that the State of
Missouri is in relatively good economic health, there can be 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.
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: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 8
NEW JERSEY 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 May 31, 2000 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
Neither the Sponsor, Chapman and Cutler, nor any of the Special Counsel
to the Fund for State tax matters have made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the
bases for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could
be required to pay income tax on interest received prior to the date on
which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unit holder is includable in gross income for Federal
income tax purposes and may be includable in gross income for state tax
purposes. (Such gain does not include any amounts received in respect of
accrued interest or accrued original issue discount, if any.) If a Bond
is acquired with accrued interest, that portion of the price paid for
the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium,
the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax
basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year.
For purposes of the following opinions, it is assumed that each asset of
the Trust is debt the interest on which is excluded from gross income
for Federal income tax purposes. At the time of the closing for each
Trust, Chapman and Cutler, Counsel for the Sponsor, rendered an opinion
under then existing law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status for
Federal income tax purposes, when received by the Trusts and distributed
to a Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax and the additional tax on branches
of foreign corporations and the environmental tax (the "Superfund Tax"),
as noted below. See "Certain Tax Matters Applicable to Corporate Unit
Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his Units. If the Unit holder disposes of a Unit, he is deemed thereby
to have disposed of his entire pro rata interest in all assets of the
Trust involved including his pro rata portion of all the Bonds
represented by the Unit. The Taxpayer Relief Act of 1997 (the "1997
Act") includes provisions that treat certain transactions designed to
reduce or eliminate risk of loss and opportunities for gain (e.g. short
sales, offsetting notional principal contracts, futures or forward
contracts or similar transactions) as constructive sales for purposes of
recognition of gain (but not loss) and for purposes of determining the
holding period. Unit holders should consult their own tax advisors with
regard to any such constructive sale rules. Unit holders must reduce the
tax basis of their Units for their share of accrued interest received by
the respective Trust, if any, on Bonds before the date the Trust
acquired ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller) and,
consequently, such Unit holders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unit holder (subject to various non-recognition provisions of the Code).
The amount of any such gain or loss is measured by comparing the Unit
holder's pro rata share of the total proceeds from such disposition with
the Unit holder's basis for his or her fractional interest in the asset
disposed of. In the case of a Unit holder who purchases Units, such
basis (before adjustment for accrued original issue discount and
amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trust assets ratably according to value
as of the valuation date nearest the date of acquisition of the Units.
Unit holders should consult their own tax advisers with regard to the
calculation of basis. The tax basis reduction requirements of the Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units are
sold or redeemed for an amount equal to or less than his original cost;
and
(3) any insurance proceeds paid under individual policies obtained by
issuers of Bonds which represent maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so excludable if
paid in the normal course by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will
pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price (its "adjusted issue price") to prior owners.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. The application of these rules
will also vary depending on the value of the Bond on the date a Unit
holder acquires his Unit, and the price the Unit holder pays for his
Unit. Unit holders should consult their tax advisers regarding these
rules and their application. See "Portfolio" appearing in Part One for
each Trust for information relating to Bonds, if any, issued at an
original issue discount.
The Revenue Reconciliation Act of 1993 (the "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,
Page 2
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of his or
her Units, unless a Unit holder elects to include market discount in
taxable income as it accrues. The market discount rules are complex and
Unit holders should consult their tax advisers regarding these rules and
their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. Legislative proposals have
been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF
COUNSEL AND ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
Page 3
For purposes of computing the alternative minimum tax for individuals
and corporations, interest on certain private activity bonds (which
includes most industrial and housing revenue bonds) issued on or after
August 8, 1986 is included as an item of tax preference. EXCEPT AS
OTHERWISE NOTED IN PART ONE FOR CERTAIN TRUSTS, THE TRUSTS DO NOT
INCLUDE ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains (which is
defined as net long-term capital gain over net short-term capital loss
for the taxable year) are subject to a maximum marginal stated tax rate
of either 28% or 20%, depending upon the holding period of the capital
assets. Capital gain or loss is long-term if the holding period for the
asset is more than one year, and is short-term if the holding period for
the asset is one year or less. Generally, capital gain realized from
assets held for more than one year but not more than 18 months are taxed
at a maximum marginal stated tax rate of 28% and capital gains realized
from assets (with certain exclusions) held for more than 18 months are
taxed at a maximum marginal stated tax rate of 20% (10% in the case of
certain taxpayers in the lowest tax bracket). Further, capital gains
realized from assets held for one year or less are taxed at the same
rate as ordinary income. Legislation is currently pending that provides
the appropriate methodology that should be applied in netting the
realized capital gains and losses. Such legislation is proposed to be
effective retroactively for tax years ending after May 6, 1997. The date
on which a Unit is acquired (i.e., the "trade date") is excluded for
purposes of determining the holding period of the Unit. 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.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, or REMIC) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
AMTI (before such adjustment item and the alternative tax net operating
loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisers with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisers as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
Page 4
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 exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
New Jersey Tax Status of Unit Holders
The assets of each New Jersey Trust will consist of interest-bearing
obligations issued by or on behalf of the State of New Jersey and
counties, municipalities, authorities and other political subdivisions
thereof, and certain territories of the United States, including Puerto
Rico, Guam, the Virgin Islands and the Northern Mariana Islands (the
"New Jersey Bonds").
At the time of closing for each New Jersey Trust, Special Counsel to the
Fund for New Jersey tax matters rendered an opinion under then existing
New Jersey income tax law applicable to taxpayers whose income is
subject to New Jersey income taxation substantially to the effect that:
Each New Jersey Trust will be recognized as a trust and not an
association taxable as a corporation. A New Jersey Trust will not be
subject to the New Jersey Corporation Business Tax or the New Jersey
Corporation Income Tax.
With respect to the non-corporate Unit holders who are residents of New
Jersey, the income of a New Jersey Trust will be treated as the income
of such Unit holders under the New Jersey Gross Income Tax. Interest on
the underlying New Jersey Bonds which is exempt from tax under the New
Jersey Gross Income Tax Law when received by a New Jersey Trust will
retain its status as tax-exempt interest when distributed to the Unit
holders.
A non-corporate Unit holder will not be subject to the New Jersey Gross
Income Tax on any gain realized either when a New Jersey Trust disposes
of a New Jersey Bond (whether by sale, exchange, redemption or payment
at maturity) or when the Unit holder redeems or sells his Units. Any
loss realized on such disposition may not be utilized to offset gains
realized by such Unit holder on the disposition of assets the gain on
which is subject to the New Jersey Gross Income Tax.
Units of a New Jersey Trust may be taxable on the death of a Unit holder
under the New Jersey Transfer Inheritance Tax Law or the New Jersey
Estate Tax Law.
If a Unit holder is a corporation subject to the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax, interest from the
Bonds in a New Jersey Trust which is allocable to such corporation will
be includable in its entire net income for purposes of the New Jersey
Corporation Business Tax or New Jersey Corporation Income Tax, less any
interest expense incurred to carry such investment to the extent such
interest expense has not been deducted in computing Federal taxable
income. Net gains derived by such corporation on the disposition of the
New Jersey Bonds by a New Jersey Trust or on the disposition of its
Units will be included in its entire net income for purposes of the New
Jersey Corporation Business Tax or New Jersey Corporation Income 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
Economic Outlook. The New Jersey economy enjoyed another outstanding
year in 1999. Strong employment growth drove employment to a new high,
personal income grew at a substantial rate and the estimated Gross State
Product (GSP) increased by 4.0%, the highest growth in a decade.
Located at the heart of the Boston-Washington megalopolis and with easy
access to New York and Philadelphia, New Jersey is strategically located
Page 5
in an enormous concentration of consumers, laborers and capital. The
state's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by
rural areas with selective commercial agriculture. New Jersey is known
as the "invention state." New Jersey's companies and research
institutions have produced at least 30 Nobel Prize winners, and the
State currently houses over 140,000 researchers and scientists. About
one out of every ten private sector workers in New Jersey is employed by
a high-tech firm. New Jersey is also known as the "Medicine Chest of the
Nation." The state has the nation's largest concentration of businesses
that produce prescription pharmaceuticals, over-the-counter medications,
generic prescription drugs, vitamins, diagnostic drugs and medical
devices. Finally, New Jersey is also a national leader in chemicals,
instrumentation and related products, petroleum, plastics, and
electrical equipment, as well as a number of new industries such as
biotechnology, fiber optics, genetic engineering and laser technology.
It is expected that the New Jersey economy in calendar year 2000 will
continue to grow at a moderate pace with little or no inflation. High
levels of employment, steady income growth and low interest rates will
continue to support consumer and business spending. New Jersey's
economy, by virtue of its educated, high-technology labor resources, has
benefited from newly emerging information-based fields. Employment is
projected to grow by 1.4% in 2000. Personal income growth is expected to
remain around 5.5%. Real New Jersey Gross State Product is projected to
slow to under 3% in 2000.
Revenues and Expenditures. The State of New Jersey operates on a fiscal
year beginning July 1 and ending June 30. The state's Surplus Revenue
("Rainy Day") Fund was created by legislation enacted in 1990 as an
inclusion in the annual budget for excess revenues. At the end of Fiscal
Year 1999, total General Fund revenues reached $11.84 billion, with
General Fund Revenues estimated $12.3 billion for Fiscal Year 2000. The
Fiscal Year 2000 revenue projections are based on estimates of
moderating economic growth.
Litigation. The state is a party in numerous legal proceedings
pertaining to matters incidental to the performance of routine
governmental operations. Adverse judgments in these and other matters
could have the potential for either a significant loss of revenue or a
significant unanticipated expenditure by the state. At any given time,
there are various numbers of claims and cases pending against the state,
state agencies and employees, seeking recovery of monetary damages that
are primarily paid out of the fund created pursuant to the New Jersey
Tort Claims Act.
Projected Fiscal Year 2000 revenue anticipates the receipt of $92.8
million from the Tobacco Settlement. This represents the initial payment
from the Master Settlement Agreement (MSA) reached in November 1998
between 46 states and the major tobacco companies. New Jersey is
expected to receive payments totaling $7.459 billion over the next 25
years. These payments are subject to inflation and changes in national
smoking trends as well as other offsets and credits outlined in the MSA.
The Fiscal Year 2000 budget plans to use all of the $92.8 million for
health-related programs.
Debt Management. The primary method for state financing of capital
projects is through the sale of the general obligation bonds of the
state. These bonds are backed by the full faith and credit of the state
tax revenues and certain other fees are pledged to meet the principal
and interest payments and if provided, redemption premium payments, if
any, required to repay the bonds. General Obligation Debt must be
approved by voter referendum and is used primarily to finance various
environmental projects, transportation infrastructure, and correctional
and institutional construction. The appropriations for principal and
interest payments on general obligations bonds for Fiscal 2000 are
recommended at $518.7 million, including $479.7 million for principal
and interest on bonds outstanding and additional funding of $39 million
for proposed bond sales.
Ratings. For many years prior to 1991, State of New Jersey general
obligation bonds were rated as triple-A by Standard & Poor's Ratings
Services and Moody's Investors Services. Currently, however, these bonds
are rated as follows: Standard & Poor's Ratings Services, AA+; Moody's
Investors Service, Inc., Aa1; and Fitch IBCA, Inc., AA+.
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 Jersey Trusts
are subject. Additionally, many factors including national economic,
social and environmental policies and conditions, which are not within
Page 6
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 Jersey Trusts to pay interest on or
principal of the Bonds.
Page 6
New Jersey Trust Series
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Multi-State
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 8
PENNSYLVANIA TRUST SERIES
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania Series
The First Trust of Insured Municipal Bonds-Multi-State
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 31, 2000 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
Neither the Sponsor, Chapman and Cutler, nor any of the Special Counsel
to the Fund for State tax matters have made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the
bases for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could
be required to pay income tax on interest received prior to the date on
which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unit holder is includable in gross income for Federal
income tax purposes and may be includable in gross income for state tax
purposes. (Such gain does not include any amounts received in respect of
accrued interest or accrued original issue discount, if any.) If a Bond
is acquired with accrued interest, that portion of the price paid for
the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium,
the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax
basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year.
For purposes of the following opinions, it is assumed that each asset of
the Trust is debt the interest on which is excluded from gross income
for Federal income tax purposes. At the time of the closing for each
Trust, Chapman and Cutler, Counsel for the Sponsor, rendered an opinion
under then existing law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status for
Federal income tax purposes, when received by the Trusts and distributed
to a Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax and the additional tax on branches
of foreign corporations and the environmental tax if extended by
Congress (the "Superfund Tax"), as noted below. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his or her Units. If the Unit holder disposes of a Unit, he or she is
deemed thereby to have disposed of his or her entire pro rata interest
in all assets of the Trust involved including his or her pro rata
portion of all the Bonds represented by the Unit. The Taxpayer Relief
Act of 1997 (the "1997 Act") includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g. short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
and for purposes of determining the holding period. Unit holders should
consult their own tax advisors with regard to any such constructive sale
rules. Unit holders must reduce the tax basis of their Units for their
share of accrued interest received by the respective Trust, if any, on
Bonds before the date the Trust acquired ownership of the Bonds (and the
amount of this reduction may exceed the amount of accrued interest paid
to the seller) and, consequently, such Unit holders may have an increase
in taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with the
adjusted basis of the Units. If the Trustee disposes of Bonds (whether
by sale, payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds from
such disposition with the Unit holder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unit holder who
purchases Units, such basis (before adjustment for accrued original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders should consult their own tax
advisors with regard to the calculation of basis. The tax basis
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his or her Units are sold or redeemed for
an amount equal to or less than his or her original cost; and
(3) any insurance proceeds paid under individual policies obtained by
issuers of Bonds which represent maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so excludable if
paid in the normal course by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will
pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price (its "adjusted issue price") to prior owners.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. The application of these rules
will also vary depending on the value of the Bond on the date a Unit
holder acquires his or her Unit, and the price the Unit holder pays for
his or her Unit. Unit holders should consult their tax advisors
regarding these rules and their application. See "Portfolio" appearing
in Part One for each Trust for information relating to Bonds, if any,
issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "1993 Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
Page 2
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the 1993 Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been
treated as capital gain. Market discount that accretes while a Trust
holds a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or at
redemption (including early redemption) or upon the sale or redemption
of his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unit holders should consult their tax advisors regarding
these rules and their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. Legislative proposals have
been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his or her tax advisor.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF
COUNSEL AND ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his or her Social Security benefits in gross income whether or not he or
she 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
Page 3
certain private activity bonds (which includes most industrial and
housing revenue bonds) issued on or after August 8, 1986 is included as
an item of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR
CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY
BONDS ISSUED ON OR AFTER THAT DATE.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax
bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the
holding period of the unit. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisors regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
AMTI (before such adjustment item and the alternative tax net operating
loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisors with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisors as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
laws of the State and City of New York, substantially to the effect that
each Trust will not constitute an association taxable as a corporation
under New York law, and accordingly will not be subject to the New York
State franchise tax or the New York City general corporation tax. Under
the income tax laws of the State and City of New York, the income of
each Trust will be considered the income of the holders of the Units.
Page 4
All statements in the Prospectus concerning exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
Pennsylvania Tax Status of Unit Holders
In rendering its opinion, Special Counsel has not, for timing reasons,
made an independent review of proceedings related to the issuance of the
Bonds. It has relied on the Sponsor for assurance that the Bonds have
been issued by the Commonwealth of Pennsylvania or by or on behalf of
municipalities or other governmental agencies within the Commonwealth.
At the time of the closing for each Pennsylvania Trust, Special Counsel
to the Fund for Pennsylvania tax matters rendered an opinion under then
existing Pennsylvania income tax law applicable to taxpayers whose
income is subject to Pennsylvania income taxation substantially to the
effect that:
Units evidencing fractional undivided interests in a Pennsylvania Trust,
which are represented by obligations issued by the Commonwealth of
Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision
of the Commonwealth of Pennsylvania or any public authority created by
any such political subdivision, are not taxable under any of the
personal property taxes presently in effect in Pennsylvania;
Distributions of interest income to Unit holders that would not be
taxable if received directly by a Pennsylvania resident are not subject
to personal income tax under the Pennsylvania Tax Reform Code of 1971;
nor will such interest be taxable under the Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals;
A Unit holder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the
redemption or sale of his Units. Units will be taxable under the
Pennsylvania inheritance and estate taxes;
A Unit holder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its
Units. Interest income distributed to Unit holders which are
corporations is not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title insurance
companies and trust companies may be required to take the value of the
Units into account in determining the taxable value of their shares
subject to the Shares tax;
Under Act No. 68 of December 3, 1993, gains derived by a Pennsylvania
Trust from the sale, exchange or other disposition of Bonds may be
subject to Pennsylvania personal or corporate income taxes. Those gains
which are distributed by a Pennsylvania Trust to Unit holders who are
individuals may be subject to Pennsylvania Personal Income Tax. For Unit
holders which are corporations, the distributed gains may be subject to
Corporate Net Income Tax or Mutual Thrift Institutions Tax. Gains which
are not distributed by a Pennsylvania Trust may nevertheless be taxable
to Unit holders if derived by a Pennsylvania Trust from the sale,
exchange or other disposition of Bonds issued on or after February 1,
1994. Gains which are not distributed by a Pennsylvania Trust will
remain nontaxable to Unit holders if derived by a Pennsylvania Trust
from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994.
Any proceeds paid under insurance policies issued to the Trustee or
obtained by issuers of the Bonds with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Pennsylvania gross income if, and to the same
extent as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations;
A Pennsylvania Trust is not taxable as a corporation under Pennsylvania
tax laws applicable to corporations.
On December 3, 1993, changes to Pennsylvania laws affecting taxation of
income and gains from the sale of Pennsylvania and local obligations
were enacted. Among these changes was the repeal of the exemption from
tax of gains realized upon the sale or other disposition of such
obligations. The Pennsylvania Department of Revenue has issued proposed
regulations concerning these changes. The opinions expressed above are
based on Special Counsel's analysis of the law and proposed regulations,
but are subject to modification upon review of final regulations or
other guidance that may be issued by the Department of Revenue or future
court decisions.
For information with respect to the Federal income tax status and other
tax matters, see "What is the Federal Tax Status of Unit Holders?"
Certain Considerations
Generally. The Commonwealth of Pennsylvania historically has been
identified as a heavy industry state, although that reputation has been
Page 5
changing as the industrial composition of the Commonwealth's economy
continues to diversity unto the service sector, including trade, medical
and health services, education and financial institutions.
Pennsylvania's agricultural industries are also an important component
of the Commonwealth's economic structure, particularly in crop and
livestock products as well as agribusiness and food related industries.
The Commonwealth continues to enjoy its longest period of economic
growth and most of its sectors have created new jobs with unemployment
rates comparable to the national average.
Pennsylvania's economy is projected to continue its expansion during
2000. Consumer spending, supported by continued gains in income, will
help sustain economic growth but at lower levels than in recent years
due to continued losses in durable and nondurable manufacturing.
State Government. The Constitution of the Commonwealth of Pennsylvania
permits the incurrence of debt, without approval of the electorate, for
capital projects specifically authorized in a capital budget. In
addition to constitutionally authorized capital project debt, the
Commonwealth may incur debt for electorate approved programs, such as
economic revitalization, land and water development, and water
facilities restoration; and for special purposes approved by the General
Assembly, such as disaster relief. Further, the Commonwealth further
issues tax anticipation notes ("TANS") to meet operating cash needs
during certain months of the fiscal year.
The Governor has proposed a General Fund Budget for 2000-01 that
strengthens public education, emphasizes and encourages job creation and
business development, protects the environment, returns money to
taxpayers and promotes personal self-sufficiency. The proposed 2000-01
General Fund Budget is $19.7 billion, an increase of $339 million, or
2.1%. Furthermore, $643.5 million tax reductions and tax rebates are
proposed in 2000-01 to help families and to stimulate job creation and
retention. This is the largest proposed tax cut in Pennsylvania history.
With the transfer at the end of 2000-01, the reserve balance in the
Commonwealth's Rainy Day Fund will exceed $1.1 billion, nearly seventeen
times the balance in 1994-95.
Philadelphia. The City of Philadelphia ("Philadelphia") is the largest
city in the Commonwealth, with an estimated 1998 population of 1.43
million according to the U.S. Bureau of the Census, ranking 6th in
metropolitan areas of the United States. Philadelphia functions both as
a first class city and county for the purpose of administering various
governmental programs. Legislation providing for the establishment of
the Pennsylvania Intergovernmental Cooperation Authority ("PICA") to
assist first class cities in remedying fiscal emergencies was enacted by
the General Assembly and approved by the Governor in June 1991. At this
time, Philadelphia is operating under a five-year fiscal plan approved
by PICA on April 30, 1996.
Ratings. All outstanding general obligation bonds of the Commonwealth of
Pennsylvania are rated AA by Standard & Poor's Ratings Services; Aa3 by
Moody's Investor's Service, Inc.; and AA by Fitch IBCA, Inc. Standard &
Poor's rating on City of Philadelphia general obligation bonds is BBB,
and Moody's rating is Baa2. Any explanation concerning the significance
of such ratings must be obtained from the rating agencies. There is no
assurance that any ratings will continue for any period of time or that
they will not be revised or withdrawn.
Risk Factors. It should be noted that the creditworthiness of
obligations issued by local Pennsylvania issuers may be unrelated to the
creditworthiness of obligations issued by the Commonwealth of
Pennsylvania, and there is no obligation on the part of the Commonwealth
to make payment on such local obligations in the event of default.
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Pennsylvania Trusts
are subject. Additionally, many factors including national economic,
social and environmental policies and conditions, which are not within
the control of the issuers of the Bonds, could affect or could have an
adverse impact on the financial condition of the issuers. The Sponsor is
unable to predict whether or to what extent such factors or other
factors may affect the issuers of the Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of
the Bonds acquired by the Pennsylvania Trusts to pay interest on or
principal of the Bonds.
Page 6
PENNSYLVANIA TRUST SERIES
The First Trust(registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 7
SOUTH CAROLINA TRUST SERIES
The First Trust(R) Combined Series
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated December 29, 2000 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as
to the exemption of interest on such Bonds when held by residents of the
State in which the issuers of such Bonds are located, from State income
taxes and certain state or local intangibles and local income taxes.
Neither the Sponsor, Chapman and Cutler, nor any of the Special Counsel
to the Fund for State tax matters have made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the
bases for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could
be required to pay income tax on interest received prior to the date on
which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unit holder is includable in gross income for Federal
income tax purposes and may be includable in gross income for state tax
purposes. (Such gain does not include any amounts received in respect of
accrued interest or accrued original issue discount, if any.) If a Bond
is acquired with accrued interest, that portion of the price paid for
the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and
reduces the tax basis of the Bond. If a Bond is purchased for a premium,
the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax
basis of the Bond is reduced each tax year by the amount of the premium
amortized in that tax year.
For purposes of the following opinions, it is assumed that each asset of
the Trust is debt the interest on which is excluded from gross income
for Federal income tax purposes. At the time of the closing for each
Trust, Chapman and Cutler, Counsel for the Sponsor, rendered an opinion
under then existing law substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status for
Federal income tax purposes, when received by the Trusts and distributed
to a Unit holder; however, such interest may be taken into account in
computing the alternative minimum tax and the additional tax on branches
of foreign corporations and the environmental tax if extended by
Congress (the "Superfund Tax"), as noted below. See "Certain Tax Matters
Applicable to Corporate Unit Holders";
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page 1
(2) each Unit holder is considered to be the owner of a pro rata
portion of each asset of the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and will have a taxable event when
the Trust disposes of a Bond, or when the Unit holder redeems or sells
his or her Units. If the Unit holder disposes of a Unit, he or she is
deemed thereby to have disposed of his or her entire pro rata interest
in all assets of the Trust involved including his or her pro rata
portion of all the Bonds represented by the Unit. The Taxpayer Relief
Act of 1997 (the "1997 Act") includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g. short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
and for purposes of determining the holding period. Unit holders should
consult their own tax advisors with regard to any such constructive sale
rules. Unit holders must reduce the tax basis of their Units for their
share of accrued interest received by the respective Trust, if any, on
Bonds before the date the Trust acquired ownership of the Bonds (and the
amount of this reduction may exceed the amount of accrued interest paid
to the seller) and, consequently, such Unit holders may have an increase
in taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is
measured by comparing the proceeds of such sale or redemption with the
adjusted basis of the Units. If the Trustee disposes of Bonds (whether
by sale, payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unit holder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is measured
by comparing the Unit holder's pro rata share of the total proceeds from
such disposition with the Unit holder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unit holder who
purchases Units, such basis (before adjustment for accrued original
issue discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. Unit holders should consult their own tax
advisors with regard to the calculation of basis. The tax basis
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unit holder
realizing a taxable gain when his or her Units are sold or redeemed for
an amount equal to or less than his or her original cost; and
(3) any insurance proceeds paid under individual policies obtained by
issuers of Bonds which represent maturing interest on defaulted Bonds
held by the Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so excludable if
paid in the normal course by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will
pay debt service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based upon its issue price (its "adjusted issue price") to prior owners.
If a Bond is acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of the Bond.
When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased
for a premium, the amount of the premium is added to the tax basis of
the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of
the premium amortized in that tax year. The application of these rules
will also vary depending on the value of the Bond on the date a Unit
holder acquires his or her Unit, and the price the Unit holder pays for
his or her Unit. Unit holders should consult their tax advisors
regarding these rules and their application. See "Portfolio" appearing
in Part One for each Trust for information relating to Bonds, if any,
issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "1993 Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
Page 2
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the 1993 Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been
treated as capital gain. Market discount that accretes while a Trust
holds a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or at
redemption (including early redemption) or upon the sale or redemption
of his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unit holders should consult their tax advisors regarding
these rules and their application.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or
carry Units of a Trust is not deductible for Federal income tax
purposes. The Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying
of Units (however, these rules generally do not apply to interest paid
on indebtedness incurred to purchase or improve a personal residence).
Also, under Section 265 of the Code, certain financial institutions that
acquire Units generally would not be able to deduct any of the interest
expense attributable to ownership of Units. Legislative proposals have
been made that would extend the financial institution rules to certain
other corporations including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should
consult with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his or her tax advisor.
ALL STATEMENTS OF LAW IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS
INCOME FOR FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINIONS OF
COUNSEL AND ARE TO BE SO CONSTRUED.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor nor Chapman and Cutler has made
any special review for the Fund of the proceedings relating to the
issuance of the Bonds or of the basis for such opinions.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his or her Social Security benefits in gross income whether or not he or
she receives any tax-exempt interest. A taxpayer whose modified adjusted
Page 3
gross income (after inclusion of tax-exempt interest) does not exceed
the base amount need not include any Social Security benefits in gross
income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest on
certain private activity bonds (which includes most industrial and
housing revenue bonds) issued on or after August 8, 1986 is included as
an item of tax preference. EXCEPT AS OTHERWISE NOTED IN PART ONE FOR
CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH PRIVATE ACTIVITY
BONDS ISSUED ON OR AFTER THAT DATE.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net
short-term capital loss for the taxable year) realized from property
(with certain exclusions) is subject to a maximum marginal stated tax
rate of 20% (10% in the case of certain taxpayers in the lowest tax
bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period
for the asset is one year or less. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the
holding period of the unit. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Unit holders and prospective investors should
consult with their tax advisors regarding the potential effect of this
provision on their investment in Units.
Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
for taxable years beginning after December 31, 1986 depend upon the
corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the
adjustment items used in computing AMTI of a corporation (other than an
S Corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
AMTI (before such adjustment item and the alternative tax net operating
loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all of the Bonds in the Trusts. Under
current Code provisions, the Superfund Tax does not apply to tax years
beginning on or after January 1, 1996. Legislative proposals have been
introduced that would reinstate the Superfund Tax for taxable years
beginning after December 31, 1997 and before January 1, 2009. Under the
provisions of Section 884 of the Code, a branch profits tax is levied on
the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trust. Unit holders should consult their tax advisors with
respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch
profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations, subject to the branch profits tax, financial institutions,
certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness
to purchase or carry tax-exempt obligations. Prospective investors
should consult their tax advisors as to the applicability of any such
collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
Page 4
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 exclusion from gross income
for Federal, state or other are the opinions of Counsel and are to be so
construed.
South Carolina Tax Status of Unit Holders
At the time of closing for each South Carolina Trust, Special Counsel to
the Fund for South Carolina tax matters rendered an opinion under then
existing South Carolina income tax law applicable to taxpayers whose
income is subject to South Carolina income taxation substantially to the
effect that:
(1) By the provision of paragraph (j) of Section 3 of Article 10 of the
South Carolina Constitution (revised 1977) intangible personal property
is specifically exempted from any and all ad valorem taxation.
(2) Pursuant to the provisions of Section 12-1-60 the interest of all
bonds, notes or certificates of indebtedness issued by or on behalf of
the State of South Carolina and any authority, agency, department or
institution of the State and all counties, school districts,
municipalities, divisions and subdivisions of the State and all agencies
thereof are exempt from income taxes and that the exemption so granted
extends to all recipients of interest paid thereon through a Trust.
(This opinion does not extend to so-called 63-20 obligations.)
(3) The income of a Trust would be treated as income to each Unit
holder of such Trust in the proportion that the number of Units of such
Trust held by the Unit holder bears to the total number of Units of the
Trust outstanding. For this reason, interest derived by a Trust that
would not be includable in income for South Carolina income tax purposes
when paid directly to a South Carolina Unit holder will be exempt from
South Carolina income taxation when received by a Trust and attributed
to such South Carolina Unit holder.
(4) Each Unit holder will recognize gain or loss for South Carolina
state income tax purposes if the Trustee disposes of a Bond (whether by
sale, payment on maturity, retirement or otherwise) or if the Unit
holder redeems or sells his Unit.
(5) A Trust would be regarded, under South Carolina law, as a common
trust fund and therefore not subject to taxation under any income tax
law of South Carolina.
The above described opinion of Special Counsel has been concurred in by
an informal ruling of the South Carolina Tax Commission pursuant to
Section 12-3-170 of the South Carolina Code.
For information with respect to Federal income tax status and other tax
matters see "What Is the Federal Tax Status of Unit Holders?"
Certain Considerations
Economic Outlook. The South Carolina economy has mirrored many of the
recent national trends. The state is seeing more reports of slowing
retail sales and residential construction. However, unlike the United
States, South Carolina has turned in remarkably strong and stable
employment growth since the middle of 1999. Total nonagricultural
employment grew at an annual rate of 2.7% during the second quarter.
Employment has consistently been growing at annual rates of 2.5% to 2.7%
since the third quarter of 1999. The 49,200 net new jobs created between
the second quarter of 1999 and the second quarter of 2000 were, as
usual, concentrated in the service (16,300 jobs), retail trade (9,400
jobs), and construction (6,500 jobs) sectors. A more unusual performance
was the 12,500 new jobs created in the government sector, representing
about two to three times more new jobs than are typically created in
government. The majority of these new government jobs were at the
Federal level, and may reflect to some extent the temporary hiring of
Census 2000 workers. Manufacturing job losses during the second quarter
were minimal when compared with previous years. The industrial sectors
shed 0.9% of their total employment, with durable goods industries
posting a 1.1% job gain and nondurable manufacturers losing jobs at a
2.5% rate. During each quarter of 1999, manufacturing job erosion was
near an annual rate of 5.0%. South Carolina's ability to stem the tide
of nondurable goods job losses has come in part from the recent success
Page 5
of attracting capital investment from new and existing businesses.
Nonagricultural employment growth is anticipated to remain at roughly
2.5% into 2001, then drop to near 2.0% by the end of 2001. The fastest
growing sectors will continue to be construction, wholesale and retail
trade, services, and finance, insurance, and real estate. The recent
reprieve from job erosion in manufacturing should continue into early
2001. While job losses in nondurable goods production will occur, the
durable goods industries will pick up steam.
Employment in South Carolina over the last two decades has grown one-
third faster than the United States as a whole. Between October 1995 and
October 1996, South Carolina experienced the largest unemployment rate
increase (0.9%) in the nation. However, South Carolina's unemployment
rate decreased dramatically in the past few years, from averages of 6%
in 1996, down to 3.8% in 1998, while the national unemployment rate
decreased from averages of 5.4% in 1996, down to 4.5% in 1998 and 4.6%
in 1999. During the first ten months of 2000, the South Carolina's
unemployment rate has dropped to 2.5%, its lowest average since 1978,
and the largest rate decline in the nation from a year ago, down 2.1%.
According to the U.S. Department of Commerce Bureau of Economic
Analysis, per capita personal income in South Carolina increased 4.4%
from $22,544 in 1998 to $23,545 in 1999, compared to a national per
capita income increase from $27,322 to $28,542, and a Southeast region
increase from $24,780 to $25,703 in these years. In 1999, South
Carolina's per capita personal income reached 82% of the national
average, rising just slightly from 39th to 38th among the fifty states.
South Carolina's total personal income increased 5.7% in 1999, just
slightly ahead of the nation's growth at 5.4% and above the region's
growth at 4.9%.
Revenue and Expenditures. The State Constitution requires the General
Assembly to provide a balanced budget and requires that any deficit be
corrected in the succeeding fiscal year. The State Constitution also
provides that the State Budget and Control Board may, if a deficit
appears likely, put into place reductions in appropriations in order to
prevent a deficit. A constitutional amendment was approved in the
November 6, 1984 general election providing that annual increases in
State appropriations may not exceed the average growth rate of the
State's economy and that the annual increase in the number of State
employees may not exceed the average growth of the State's population.
The State Constitution also establishes a General Reserve Fund and a
Capital Reserve Fund for the purposes of covering budgetary deficits.
The General Reserve Fund balance must equal 3% (reduced from 5% to 4% in
1984 and from 4% to 3% in 1988) of the General Fund revenue as of the
latest completed fiscal year. Funds may be withdrawn from the reserve
only for the purpose of covering operating deficits. The amount
withdrawn must be restored to the account within three years out of
future revenues until the 3% requirement is again reached; a minimum of
1%, if necessary, must be restored to the account each year following
a deficit until the 3% requirement is restored. The General Reserve
Fund balance at the end of fiscal years 1998 and 1999 was approximately
$130 million and $138 million, respectively. The 2000 fiscal year
balance of the General Reserve Fund is approximated at $145 million.
The Capital Reserve Fund is a recurring appropriation that must equal 2%
of the General Fund revenue as of the latest completed fiscal year. If
the current year's revenue forecast projects a year-end deficit by March
1, then the Capital Reserve Fund appropriation must be reduced to the
extent necessary before mandating any operating appropriation
reductions. If no year-end deficit is projected by March 1, the Capital
Reserve Fund may be appropriated in separate legislation by a two-thirds
majority of each house. Allowed expenditures are: (1) to finance in cash
previously authorized capital improvement bond projects; (2) to retire
interest or principal on bonds previously issued; or (3) for capital
improvements or other nonrecurring projects. The fiscal year 2000-2001
Capital Reserve Fund appropriation is $98,610,931.
The State's Budgetary General Fund ended the 1999-2000 fiscal year with
a $206 million budgetary surplus. While down substantially from the
previous year's record-setting $410 million budgetary surplus, the
surplus continues to reflect the positive economic forces that have been
in evidence in South Carolina during the last several years. Budgetary
General Fund revenue collections for 1999-2000 were up approximately
1.4% over the previous year.
The State General Assembly's budget for fiscal year 2000-01 projects a
total State budget of $13.9 billion, comprised of $5.3 billion from
Page 6
General Funds, and the remaining $8.6 billion from federal and other
funds.
Responding to recurrent operating deficits of the early 1990s, Standard
& Poor's placed the State's AAA-rated general obligation debt on its
CreditWatch and reduced its rating to AA+ on January 29, 1993. Because
South Carolina's economy has improved dramatically since 1993, the State
regained its AAA rating on general obligation debt from Standard &
Poor's on July 9, 1996. Both Moody's Investor Services and Fitch IBCA,
Inc. have also published AAA ratings on general obligation debt for
South Carolina.
Prospective investors should study with care the portfolio of Bonds in a
South Carolina Trust and should consult with their investment advisers
as to the merits of particular issues in a portfolio.
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 South Carolina
Trusts are subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which are
not within the control of the issuers of the Bonds, could affect or
could have an adverse impact on the financial condition of the issuers.
The Sponsor is unable to predict whether or to what extent such factors
or other factors may affect the issuers of the Bonds, the market value
or marketability of the Bonds or the ability of the respective issuers
of the Bonds acquired by the South Carolina Trusts to pay interest on or
principal of the Bonds.
Page 7
South Carolina Trust Series
The First Trust(R) Combined Series
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
4 New York Plaza, 6th floor
New York, New York 10004-2413
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE.
Page 8
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 199, certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment of its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the
Village of Lisle and State of Illinois on December 29, 2000.
THE FIRST TRUST COMBINED SERIES 199
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title* Date
David J. Allen Sole Director of )
Nike Securities )
Corporation, ) December 29, 2000
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
* The title of the person named herein represents his capacity
in and relationship to Nike Securities L.P., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Combined Series 258 (File No. 33-63483) and the same is
hereby incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated December 11, 2000 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated
December 27, 2000.
ERNST & YOUNG LLP
Chicago, Illinois
December 26, 2000
