SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of
Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: THE FIRST TRUST COMBINED
SERIES 209
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of Depositor's 1001 Warrenville Road
Principal Offices: Lisle, Illinois 60532
D. Name and Complete Address NIKE SECURITIES L.P.
of Agents for Service: Attention: James A.
Bowen
1001 Warrenville Road
Lisle, Illinois 60532
CHAPMAN AND CUTLER
Attention: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
E. Title and Amount of Securities An indefinite number of
Being Registered: Units pursuant to
Rule 24f-2 promulgated
under the Investment
Company Act of 1940, as
amended.
F. Proposed Maximum Offering
Price to the Public of the
Securities Being Registered: Indefinite
G. Amount of Filing Fee
(as required by Rule 24f-2): $500.00
H. Approximate Date of Proposed ____ Check if it is
Sale to the Public: proposed that this filing
will become effective on
____________ at ___ p.m.
pursuant to Rule 487.
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
THE FIRST TRUST COMBINED
SERIES 209
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C Under the Securities Act
of 1933
(Form N-8B-2 Items Required by Instruction 1 as to Prospectus on
Form S-6)
Form N-8B-2 Item Number Form S-6 Heading in
Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of Trust
(b) Title of securities issued Prospectus Front Cover
Page
2. Name and address of Depositor Summary of Essential
Information; Infor-
mation as to Sponsor,
Trustee and Evaluator
3. Name and address of Trustee Summary of Essential
Information; Infor-
mation as to Sponsor,
Trustee and Evaluator
4. Name and address of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
5. Organization of Trust The First Trust
Combined Series
6. Execution and termination of The First Trust
Trust Agreement Combined Series Other
Information
7. Changes of name *
8. Fiscal year *
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. General information regarding The First Trust
Trust's securities Combined Series Public
Offering; Rights of
Unit Holders;
Information as to
Sponsor, Trustee and
Evaluator; Other
Information
11. Type of securities comprising Prospectus Front Cover
units Page; The First Trust
Combined Series
Portfolio
12. Certain information regarding *
periodic payment certificates
13. (a) Load, fees, expenses, etc. Prospectus Front Cover
Page; Summary of
Essential
Information; The
First Trust Combined
Series; Rights of
Unit Holders
(b) Certain information regard- *
ing periodic payment
certificates
(c) Certain percentages Prospectus Front Cover
Page; Summary of
Essential Infor-
mation; The First
Trust Combined
Series; Public
Offering
(d) Certain other fees, etc. Rights of Unit Holders
payable by holders
(e) Certain profits receivable Public Offering
by depositor, principal Portfolio
underwriter, trustee or
affiliated persons
(f) Ratio of annual charges to *
income
14. Issuance of Trust's securities Rights of Unit Holders
15. Receipt and handling of payments *
from purchasers
16. Acquisition and disposition of The First Trust
underlying securities Combined Series;
Information as to
Sponsor, Trustee and
Evaluator
17. Withdrawal or redemption Public Offering;
Rights of Unit
Holders
18. (a) Receipt and disposition Prospectus Front Cover
of income Page; Rights of Unit
Holders
(b) Reinvestment of Rights of Unit Holders
distributions
(c) Reserves or special funds The First Trust
Combined Series;
Rights of Unit
Holders
(d) Schedule of distributions *
19. Records, accounts and reports Rights of Unit Holders
20. Certain miscellaneous provisions Information as to
of Trust Agreement Sponsor, Trustee and
Evaluator; Other
Information
21. Loans to security holders *
22. Limitations on liability The First Trust
Combined Series;
Information as to
Sponsor, Trustee and
Evaluator
23. Bonding arrangements Contents of
Registration
Statement
24. Other material provisions of *
Trust Agreement.
III. ORGANIZATION, PERSONNEL AND AFFILICATED PERSONS OF DEPOSITOR
25. Organization of Depositor Information as to
Sponsor, Trustee and
Evaluator
26. Fees received by Depositor *
27. Business of Depositor Information as to
Sponsor, Trustee and
Evaluator
28. Certain information as to offi- *
cials and affiliated persons
of Depositor
29. Voting securities of Depositor *
30. Person controlling Depositor *
31. Payments by Depositor for *
certain services rendered to
Trust
32. Payments by Depositor for *
certain services rendered
to Trust
33. Remuneration of employees of *
Depositor for certain services
rendered to Trust
34. Remuneration of other persons *
for certain services rendered
to Trust
IV DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of Trust's securi- Public Offering
ties by states
36. Suspension of sales of Trust's *
securities
37. Revocation of authority to *
distribute
38. (a) Method of distribution Public Offering
(b) Underwriting agreements Public Offering
(c) Selling agreements Public Offering
39. (a) Organization of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) NASD membership of princi- Information as to
pal underwriter Sponsor, Trustee and
Evaluator
40. Certain fees received by *
principal underwriter
41. (a) Business of principal Information as to
underwriter Sponsor, Trustee and
Evaluator
(b) Branch offices of principal *
underwriter
(c) Salesmen of principal *
underwriter
42. Ownership of Trust's securities *
by certain persons
43 Certain brokerage commissions *
received by principal under-
writer
44. (a) Method of valuation Prospectus Front Cover
Summary of Essential Page; The First Trust
Information Combined Series;
Public Offering
(b) Schedule as to offering *
price
(c) Variation in offering Public Offering
price to certain
persons
45. Suspension of redemption rights *
46. (a) Redemption valuation Rights of Unit Holders
(b) Schedule as to redemption *
price
47. Maintenance of position in Public Offering
underlying securities Rights of Unit Holders
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Information as to
Trustee Sponsor, Trustee and
Evaluator
49. Fees and expenses of Trustee The First Trust
Combined Series
50. Trustee's lien The First Trust
Combined Series
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of Trust's *
securities
VII. Policy of Registrant
52. (a) Provisions of Trust agree- Rights of Unit Holders
ment with respect to selec-
tion or elimination of
underlying securities
(b) Transactions involving *
elimination of underlying
securities
(c) Policy regarding substitu- Rights of Unit Holders
tion or elimination of
underlying securities
(d) Fundamental policy not *
otherwise covered
53. Tax status of Trust The First Trust
Combined Series
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during *
last ten years
55.
56. Certain information regarding *
57. Periodic payment certificates
58.
59. Auditors; Statement of
Net Assets of the
Fund
* Inapplicable, omitted, answer negative or not required.
Preliminary Prospectus Dated January 5, 1994
THE FIRST TRUST COMBINED SERIES 209
10,000 Units (A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund
is hereby used as a preliminary Prospectus for the above stated
Series. The narrative information and structure of the attached
final Prospectus will be substantially the same as that of the
final Prospectus for this Series. Information with respect to
pricing, the number of Units, dates and summary information
regarding the characteristics of securities to be deposited in
this Series is not now available and will be different since each
Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be
considered as being included for informational purposes only.
Ratings of the securities in this Series are expected to be
comparable to those of the securities deposited in the previous
Series. However, the Estimated Current Return for this Series
will depend on the interest rates and offering prices of the
securities in this Series and may vary materially from that of
the previous Series.
A registration statement relating to the units of this
Series will be filed with the Securities and Exchange Commission
but has not yet become effective. Information contained herein
is subject to completion or amendment. Such Units may not be
sold nor may offer to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall
not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of the Units in any state in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such state.
The First Trust of Insured Municipal Bonds-Multi-State:
Georgia Trust, Series 3
The First Trust Advantage: Indiana Trust, Series 12
IN THE OPINION OF COUNSEL, INTEREST INCOME TO THE TRUSTS AND TO
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 TRUST ARE
LOCATED. CAPITAL GAINS, IF ANY, ARE SUBJECT TO TAX.
THE FIRST TRUST COMBINED SERIES 207 consists of the underlying
separate unit investment trusts set forth above. 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 (including delivery statements relating to contracts
for the purchase of certain such obligations and an irrevocable
letter of credit), 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. 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 Sponsor has a limited right
to substitute other bonds in each Trust portfolio in the event
of a failed contract. 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.
INSURANCE GUARANTEEING THE SCHEDULED PAYMENTS OF PRINCIPAL AND
INTEREST ON ALL BONDS IN THE PORTFOLIO OF EACH INSURED TRUST HAS
BEEN OBTAINED FROM FINANCIAL GUARANTY INSURANCE COMPANY AND/OR
AMBAC INDEMNITY CORPORATION BY THE INSURED TRUSTS OR WAS DIRECTLY
OBTAINED BY THE BOND ISSUER, THE UNDERWRITERS, THE SPONSOR OR
OTHERS PRIOR TO THE DATE OF DEPOSIT FROM FINANCIAL GUARANTY INSURANCE
COMPANY, AMBAC INDEMNITY CORPORATION, OR OTHER INSURERS (THE "PREINSURED
BONDS"). INSURANCE OBTAINED BY AN INSURED TRUST APPLIES ONLY WHILE
BONDS ARE RETAINED IN SUCH TRUST, WHILE INSURANCE ON PREINSURED
BONDS IS EFFECTIVE SO LONG AS SUCH BONDS ARE OUTSTANDING. PURSUANT
TO AN IRREVOCABLE COMMITMENT OF FINANCIAL GUARANTY INSURANCE COMPANY,
AND/OR AMBAC INDEMNITY CORPORATION IN THE EVENT OF A SALE OF A
BOND INSURED UNDER AN INSURANCE POLICY OBTAINED BY AN INSURED
TRUST, THE TRUSTEE HAS THE RIGHT TO OBTAIN PERMANENT INSURANCE
FOR SUCH BOND UPON THE PAYMENT OF A SINGLE PREDETERMINED INSURANCE
PREMIUM FROM THE PROCEEDS OF THE SALE OF SUCH BOND. THE INSURANCE,
IN EITHER CASE, RELATES ONLY TO THE BONDS IN THE INSURED TRUSTS
AND NOT TO THE UNITS OFFERED HEREBY. AS A RESULT OF SUCH INSURANCE,
THE UNITS OF EACH INSURED TRUST HAVE RECEIVED A RATING OF "AAA"
BY STANDARD & POOR'S CORPORATION. SEE "WHY AND HOW ARE THE INSURED
TRUSTS INSURED?" ON PAGE 13. NO REPRESENTATION IS MADE AS TO ANY
INSURER'S ABILITY TO MEET ITS COMMITMENTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 21, 1993
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. The
payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers,
obligors and/or insurers to meet their respective obligations.
Distributions to Unit holders may be reinvested as described herein.
See "How Can Distributions to Unit Holders be Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid
price of the Bonds in the portfolio of each Trust. In the absence
of such a market, a Unit holder will nonetheless be able to dispose
of the Units through redemption at prices based upon the bid prices
of the underlying Bonds. See "How May Units be Redeemed?" With
respect to each Insured Trust, neither the bid nor offering prices
of the underlying Bonds or of the Units, absent situations in
which Bonds are in default in payment of principal or interest
or in significant risk of such default, include value attributable
to the portfolio insurance obtained by such Trust. See "Why and
How are the Insured Trusts Insured?"
Page 2
Summary of Essential Information
At the Opening of Business on the Date of Deposit
of the Bonds-December 21, 1993
Sponsor: Nike Securities L.P.
Trustee: United States Trust Company of New York
Evaluator: Securities Evaluation Service, Inc.
<TABLE>
<CAPTION>
Georgia Indiana
Insured Advantage
Trust Trust
Series 3 Series 12
__________ ________
<S> <C> <C>
General Information
Principal Amount of Bonds in the Trusts $ 2,890,000 $ 2,125,000
Number of Units 2,996 2,200
Fractional Undivided Interest in the Trust per Unit 1/2,996 1/2,200
Principal Amount (Par Value) of Bonds per Unit (1) $ 964.62 $ 965.91
Public Offering Price
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 2,824,039 $ 2,060,541
Aggregate Offering Price Evaluation per Unit $ 942.60 $ 936.61
Purchased Interest (2) $ 25,166 $ 18,465
Purchased Interest per Unit (2) $ 8.40 $ 8.39
Sales Charge (3) $ 49.00 $ 55.00
Public Offering Price per Unit (2) $ 1,000.00 $ 1,000.00
Sponsor's Initial Repurchase Price per Unit, including
Purchased Interest (2) $ 951.00 $ 945.00
Redemption Price per Unit, including Purchased Interest (4) $ 946.33 $ 940.37
Excess of Public Offering Price per Unit Over Redemption
Price per Unit $ 53.67 $ 59.63
Excess of Sponsor's Initial Repurchase Price per Unit Over
Redemption Price per Unit $ 4.67 $ 4.63
Discretionary Liquidation Amount (5) $ 578,000 $ 425,000
</TABLE>
First Settlement Date December 29, 1993
Mandatory Termination Date December 31, 2042
Supervisory Fee Maximum of $.25 per Unit annually (6)
Evaluator's Annual Fee $0.30 per $1,000 principal amount of
Bonds at the Date of Deposit
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.
_______________________
[FN]
(1) Many unit investment trusts comprised of municipal securities
issue a number of Units such that each Unit represents approximately
$1,000 principal amount of underlying securities. The Sponsor,
on the other hand, in determining the number of Units for each
Trust, other than Discount Trusts, has elected not to follow this
format but rather to provide that number of Units which will establish
as close as possible as of the opening of business on the Date
of Deposit a Public Offering Price per Unit of $1,000.
(2) 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. Anyone ordering Units for settlement after the First
Settlement Date will pay accrued interest from such date to the
date of settlement (normally five business days after order) less
distributions from the Interest Account subsequent to the First
Settlement Date. For purchases settling on the First Settlement
Date, no accrued interest will be added to the Public Offering
Price other than the Purchased Interest already included therein.
After the initial offering period, the Sponsor's Repurchase Price
per Unit will be determined as described under the caption "Will
There Be a Secondary Market?"
(3) Sales charges for the Trusts, expressed as a percentage of
the Public Offering Price per Unit and in parenthesis as a percentage
of the Aggregate Offering Price Evaluation per Unit, are as follows:
4.9% (5.152%) for a National Trust and a Georgia Trust, 5.5% (5.820%)
for Other State Trusts and 3.9% (4.058%) for an Intermediate Trust.
(4) See "How May Units be Redeemed?"
(5) A Trust may be terminated if the value thereof is less than
20% of the original principal amount of Bonds deposited in a Trust.
(6) Payable to an affiliate of the Sponsor.
Page 3
THE FIRST TRUST COMBINED SERIES
What is the First Trust Combined Series?
The First Trust Combined Series 207 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
designated as: The First Trust of Insured Municipal Bonds-Multi-State:
Georgia Trust, Series 3 and The First Trust Advantage: Indiana
Trust, Series 12 (such Trusts being collectively referred to
herein as the "Fund"). This Series was created under the laws
of the State of New York pursuant to a Trust Agreement (the "Indenture"),
dated the Date of Deposit, with Nike Securities L.P., as Sponsor,
United States Trust Company of New York, as Trustee, Securities
Evaluation Service, Inc., as Evaluator and First Trust Advisors
L.P., as Portfolio Supervisor. Only Units of the Indiana Advantage
Trust are offered for sale to residents of the State of Indiana.
On the Date of Deposit, the Sponsor deposited with the Trustee
interest-bearing obligations, including delivery statements relating
to contracts for the purchase of certain such obligations and
an irrevocable letter of credit issued by a financial institution
in the amount 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. The current market value of certain of the obligations
in a Discount Trust are significantly below face value when the
obligations are 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. Insurance guaranteeing the scheduled
payment of all principal and interest on Bonds in the Trusts with
the name designation of "The First Trust of Insured Municipal
Bonds", "The First Trust of Insured Municipal Bonds-Intermediate"
or "The First Trust of Insured Municipal Bonds-Multi-State" (the
"Insured Trusts") has been obtained by such Trusts from Financial
Guaranty Insurance Company ("Financial Guaranty") and/or AMBAC
Indemnity Corporation ("AMBAC Indemnity") or was obtained directly
by the Bond issuer, the underwriters, the Sponsor or others prior
to the Date of Deposit from Financial Guaranty, AMBAC Indemnity,
or other insurers (the "Preinsured Bonds"). NO PORTFOLIO INSURANCE
POLICY HAS BEEN OBTAINED BY THE TRUSTS WITH THE NAME DESIGNATION
OF "THE FIRST TRUST ADVANTAGE" (THE "ADVANTAGE TRUSTS"). The
portfolio insurance obtained by the Insured Trusts is effective
only while the Bonds thus insured are held in such Trusts, while
insurance on Preinsured Bonds is effective so long as such Bonds
are outstanding. See "Why and How are the Insured Trusts Insured?"
THERE IS, OF COURSE, NO GUARANTEE THAT THE FUND'S OBJECTIVES WILL
BE ACHIEVED. AN INVESTMENT IN THE FUND SHOULD BE MADE WITH AN
UNDERSTANDING OF THE RISKS WHICH AN INVESTMENT IN FIXED RATE LONG-TERM
DEBT OBLIGATIONS MAY ENTAIL, INCLUDING THE RISK THAT THE VALUE
OF THE UNITS WILL DECLINE WITH INCREASES IN INTEREST RATES.
Neither the Public Offering Price of the Units of an Insured Trust
nor any evaluation of such Units for purposes of repurchases or
redemptions reflects any element of value for the insurance obtained
by such Trust unless Bonds are in default in payment of principal
or interest or in significant risk of such default. See "Public
Offering-How is the Public Offering Price Determined?" On the
other hand, the value of insurance obtained by the Bond issuer,
the underwriters, the Sponsor or others is reflected and included
in the market value of such Bonds.
Insurance obtained by an Insured Trust or by the Bond issuer,
the underwriters, the Sponsor or others is not a substitute for
the basic credit of an issuer, but supplements the existing credit
and provides additional security
Page 4
therefor. If an issue is accepted for insurance, a noncancellable
policy for the scheduled payment of interest and principal on
the Bonds is issued by the insurer. A single premium is paid by
the Bond issuer, the underwriters, the Sponsor or others for Preinsured
Bonds and a monthly premium is paid by each Insured Trust for
the insurance obtained by such Trust except for Bonds in such
Trust which are insured by the Bond issuer, the underwriters,
the Sponsor or others in which case no premiums for insurance
are paid by such Trust. Upon the sale of a Bond insured under
the insurance policy obtained by an Insured Trust, the Trustee
has the right to obtain permanent insurance from Financial Guaranty
and/or AMBAC Indemnity with respect to such Bond upon the payment
of a single predetermined insurance premium from the proceeds
of the sale of such Bond. Accordingly, any Bond in an Insured
Trust of the Fund is eligible to be sold on an insured basis.
Standard & Poor's Corporation and Moody's Investors Service, Inc.
have rated the claims-paying ability of Financial Guaranty and
AMBAC Indemnity "AAA" and "Aaa," respectively. See "Why and How
are the Insured Trusts Insured?"
In selecting Bonds, the following facts, among others, were considered:
(i) the Standard & Poor's Corporation rating of the Bonds was
in no case less than "BBB" in the case of an Insured Trust and
"A-" in the case of an Advantage Trust, 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 and "A" in the case of an Advantage
Trust, including provisional or conditional ratings, respectively,
or, if not rated, the Bonds had, in the opinion of the Sponsor,
credit characteristics sufficiently similar to the credit characteristics
of interest-bearing tax-exempt obligations that were so rated
as to be acceptable for acquisition by the Fund (see "Description
of Bond Ratings"); (ii) the prices of the Bonds relative to other
bonds of comparable quality and maturity; (iii) with respect to
the Insured Trusts, the availability and cost of insurance of
the principal and interest on the Bonds and (iv) the diversification
of Bonds as to purpose of issue and location of issuer. Subsequent
to the Date of Deposit, a Bond may cease to be rated or its rating
may be reduced below the minimum required as of the Date of Deposit.
Neither event requires elimination of such Bond from the portfolio,
but may be considered in the Sponsor's determination as to whether
or not to direct the Trustee to dispose of the Bond. See "Rights
of Unit Holders-How May Bonds be Removed from the Fund?"
Certain of the Bonds in the Trust may have been acquired at a
market discount from par value at maturity. The coupon interest
rates on the discount bonds at the time they were purchased and
deposited in the Trust were lower than the current market interest
rates for newly issued bonds of comparable rating and type. If
such interest rates for newly issued comparable bonds increase,
the market discount of previously issued bonds will become greater,
and if such interest rates for newly issued comparable bonds decline,
the market discount of previously issued bonds will be reduced,
other things being equal. Investors should also note that the
value of bonds purchased at a market discount will increase in
value faster than bonds purchased at a market premium if interest
rates decrease. Conversely, if interest rates increase, the value
of bonds purchased at a market discount will decrease faster than
bonds purchased at a market premium. In addition, if interest
rates rise, the prepayment risk of higher yielding, premium bonds
and the prepayment benefit for lower yielding, discount bonds
will be reduced. A discount bond held to maturity will have a
larger portion of its total return in the form of taxable income
and capital gain and less in the form of tax-exempt interest income
than a comparable bond newly issued at current market rates. See
"What is the Federal Tax Status of Unit Holders?" Market discount
attributable to interest changes does not indicate a lack of market
confidence in the issue. Neither the Sponsor nor the Trustee shall
be liable in any way for any default, failure or defect in any
of the Bonds.
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?" The current value of
an original issue discount bond reflects the present value
Page 5
of its stated redemption price at maturity. The market value tends
to increase in greater increments as the Bonds approach maturity.
Certain of the original issue discount bonds may be Zero Coupon
Bonds (including bonds known as multiplier bonds, money multiplier
bonds, capital appreciation bonds, capital accumulator bonds,
compound interest bonds and money discount maturity payment bonds).
Zero Coupon Bonds do not provide for the payment of any current
interest and generally provide for payment at maturity at face
value unless sooner sold or redeemed. Zero Coupon Bonds may be
subject to more price volatility than conventional bonds. While
some types of Zero Coupon Bonds, such as multipliers and capital
appreciation bonds, define par as the initial offering price rather
than the maturity value, they share the basic Zero Coupon Bond
features of (1) not paying interest on a semi-annual basis and
(2) providing for the reinvestment of the bond's semi-annual earnings
at the bond's stated yield to maturity. While Zero Coupon Bonds
are frequently marketed on the basis that their fixed rate of
return minimizes reinvestment risk, this benefit can be negated
in large part by weak call protection, i.e., a bond's provision
for redemption at only a modest premium over the accreted value
of the bond.
Certain of the Bonds in the Trusts may have been acquired at a
market premium from par value at maturity. The coupon interest
rates on the premium bonds at the time they were purchased and
deposited in the Trusts were higher than the current market interest
rates for newly issued bonds of comparable rating and type. If
such interest rates for newly issued and otherwise comparable
bonds decrease, the market premium of previously issued bonds
will be increased, and if such interest rates for newly issued
comparable bonds increase, the market premium of previously issued
bonds will be reduced, other things being equal. The current returns
of bonds trading at a market premium are initially higher than
the current returns of comparable bonds of a similar type issued
at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price
is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments
of principal will result in a reduction in yield. Redemption pursuant
to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium
over par or for original issue discount Bonds a premium over the
accreted value. To the extent that the Bonds were deposited in
the Fund at a price higher than the price at which they are redeemed,
this will represent a loss of capital when compared to the original
Public Offering Price of the Units. Because premium bonds generally
pay a higher rate of interest than bonds priced at or below par,
the effect of the redemption of premium bonds would be to reduce
Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of
Bonds in the Trust. Although the actual impact of any such redemptions
that may occur will depend upon the specific Bonds that are redeemed,
it can be anticipated that the Estimated Net Annual Unit Income
will be significantly reduced after the dates on which such Bonds
are eligible for redemption. The Trust may be required to sell
Zero Coupon Bonds prior to maturity (at their current market price
which is likely to be less than their par value) in the event
that all the Bonds in the portfolio other than the Zero Coupon
Bonds are called or redeemed in order to pay expenses of the Trust
or in case the Trust is terminated. See "Rights of Unit Holders:
How May Bonds be Removed from the Fund?" and "Other Information:
How May the Indenture be Amended or Terminated?" See "Portfolio"
for each Trust for the earliest scheduled call date and the initial
redemption price for each Bond.
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.
Page 6
Certain of the Bonds in the Trusts may be health care revenue
bonds. Ratings of bonds issued for health care facilities are
sometimes based on feasibility studies that contain projections
of occupancy levels, revenues and expenses. A facility's gross
receipts and net income available for debt service may be affected
by future events and conditions including among other things,
demand for services, the ability of the facility to provide the
services required, physicians' confidence in the facility, management
capabilities, competition with other hospitals, efforts by insurers
and governmental agencies to limit rates, legislation establishing
state rate-setting agencies, expenses, government regulation,
the cost and possible unavailability of malpractice insurance
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar
third party payor programs. Pursuant to recent Federal legislation,
Medicare reimbursements are currently calculated on a prospective
basis utilizing a single nationwide schedule of rates. Prior to
such legislation Medicare reimbursements were based on the actual
costs incurred by the health facility. The current legislation
may adversely affect reimbursements to hospitals and other facilities
for services provided under the Medicare program.
Certain of the Bonds in the Trusts may be single family mortgage
revenue bonds, which are issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages
on residences located within the issuer's boundaries and owned
by persons of low or moderate income. Mortgage loans are generally
partially or completely prepaid prior to their final maturities
as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are
subject to extraordinary mandatory redemption in whole or in part
from such prepayments of mortgage loans, a substantial portion
of such Bonds will probably be redeemed prior to their scheduled
maturities or even prior to their ordinary call dates. The redemption
price of such issues may be more or less than the offering price
of such Bonds. Extraordinary mandatory redemption without premium
could also result from the failure of the originating financial
institutions to make mortgage loans in sufficient amounts within
a specified time period or, in some cases, from the sale by the
Bond issuer of the mortgage loans. Failure of the originating
financial institutions to make mortgage loans would be due principally
to the interest rates on mortgage loans funded from other sources
becoming competitive with the interest rates on the mortgage loans
funded with the proceeds of the single family mortgage revenue
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of
principal of or interest on such mortgage revenue bonds. Single
family mortgage revenue bonds issued after December 31, 1980 were
issued under Section 103A of the Internal Revenue Code, which
Section contains certain ongoing requirements relating to the
use of the proceeds of such Bonds in order for the interest on
such Bonds to retain its tax-exempt status. In each case, the
issuer of the Bonds has covenanted to comply with applicable ongoing
requirements and bond counsel to such issuer has issued an opinion
that the interest on the Bonds is exempt from Federal income tax
under existing laws and regulations. There can be no assurances
that the ongoing requirements will be met. The failure to meet
these requirements could cause the interest on the Bonds to become
taxable, possibly retroactively from the date of issuance.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are primarily derived from mortgage loans to housing
projects for low to moderate income families. The ability of such
issuers to make debt service payments will be affected by events
and conditions affecting financed projects, including, among other
things, the achievement and maintenance of sufficient occupancy
levels and adequate rental income, increases in taxes, employment
and income conditions prevailing in local labor markets, utility
costs and other operating expenses, the managerial ability of
project managers, changes in laws and governmental regulations,
the appropriation of subsidies and social and economic trends
affecting the localities in which the projects are located. The
occupancy of housing projects may be adversely affected by high
rent levels and income limitations imposed under Federal and state
programs. Like single family mortgage revenue bonds, multi-family
mortgage revenue bonds are subject to redemption and call features,
including extraordinary mandatory redemption features, upon prepayment,
sale or non-origination of mortgage loans as well as upon the
occurrence of other events. Certain issuers of single or multi-family
housing bonds have considered various ways to redeem bonds they
have issued prior to the stated first redemption
Page 7
dates for such bonds. In one situation the New York City Housing
Development Corporation, in reliance on its interpretation of
certain language in the indenture under which one of its bond
issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur
prior to 1992. In connection with the housing Bonds held by a
Trust, the Sponsor has not had any direct communications with
any of the issuers thereof, but at the Date of Deposit it is not
aware that any of the respective issuers of such Bonds are actively
considering the redemption of such Bonds prior to their respective
stated initial call dates. However, there can be no assurance
that an issuer of a Bond in a Trust will not attempt to so redeem
a Bond in a Trust.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are derived from the sale of water and/or sewerage
services. Water and sewerage bonds are generally payable from
user fees. Problems faced by such issuers include the ability
to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing
large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations,
the increasing difficulty of obtaining or discovering new supplies
of fresh water, the effect of conservation programs and the impact
of "no-growth" zoning ordinances. All of such issuers have been
experiencing certain of these problems in varying degrees.
Certain of the Bonds in the Trusts may be obligations of issuers
whose revenues are primarily derived from the sale of electric
energy. Utilities are generally subject to extensive regulation
by state utility commissions which, among other things, establish
the rates which may be charged and the appropriate rate of return
on an approved asset base. The problems faced by such issuers
include the difficulty in obtaining approval for timely and adequate
rate increases from the governing public utility commission, the
difficulty in financing large construction programs, the limitations
on operations and increased costs and delays attributable to environmental
considerations, increased competition, recent reductions in estimates
of future demand for electricity in certain areas of the country,
the difficulty of the capital market in absorbing utility debt,
the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, Federal,
state and municipal governmental authorities may from time to
time review existing and impose additional regulations governing
the licensing, construction and operation of nuclear power plants,
which may adversely affect the ability of the issuers of such
Bonds to make payments of principal and/or interest on such Bonds.
Certain of the Bonds in the Trusts may be lease obligations issued
for the most part by governmental authorities that have no taxing
power or other means of directly raising revenues. Rather, the
governmental authorities are financing vehicles created solely
for the construction of buildings (schools, administrative offices,
convention centers and prisons, for example) or the purchase of
equipment (police cars and computer systems, for example) that
will be used by a state or local government (the "lessee"). Thus,
these obligations are subject to the ability and willingness of
the lessee government to meet its lease rental payments which
include debt service on the obligations. Lease obligations are
subject, in almost all cases, to the annual appropriation risk,
i.e., the lessee government is not legally obligated to budget
and appropriate for the rental payments beyond the current fiscal
year. These obligations are also subject to construction and abatement
risk in many states - rental obligations cease in the event that
delays in building, damage, destruction or condemnation of the
project prevents its use by the lessee. In these cases, insurance
provisions designed to alleviate this risk become important credit
factors. In the event of default by the lessee government, there
may be significant legal and/or practical difficulties involved
in the re-letting or sale of the project. Some of these issues,
particularly those for equipment purchase, contain the so-called
"substitution safeguard", which bars the lessee government, in
the event it defaults on its rental payments, from the purchase
or use of similar equipment for a certain period of time. This
safeguard is designed to insure that the lessee government will
appropriate, even though it is not legally obligated to do so,
but its legality remains untested in most, if not all, states.
Certain of the Bonds in the Trusts may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are
tax-exempt securities issued by states, municipalities, public
authorities or similar
Page 8
entities to finance the cost of acquiring, constructing or improving
various industrial projects. These projects are usually operated
by corporate entities. Issuers are obligated only to pay amounts
due on the IRBs to the extent that funds are available from the
unexpended proceeds of the IRBs or receipts or revenues of the
issuer under an arrangement between the issuer and the corporate
operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement
or loan agreement, but in each case the payments to the issuer
are designed to be sufficient to meet the payments of amounts
due on the IRBs. Regardless of the structure, payment of IRBs
is solely dependent upon the creditworthiness of the corporate
operator of the project or corporate guarantor. Corporate operators
or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings,
regulatory and environmental restrictions, litigation resulting
from accidents or environmentally-caused illnesses, extensive
competition and financial deterioration resulting from a complete
restructuring pursuant to a leveraged buy-out, takeover or otherwise.
Such a restructuring may result in the operator of a project becoming
highly leveraged which may impact on such operator's creditworthiness,
which in turn would have an adverse impact on the rating and/or
market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact on the market for and
consequently the value of such Bonds, even though no actual takeover
or other action is ever contemplated or affected. The IRBs in
a Trust may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or, with respect
to original issue discount bonds, at issue price plus the amount
of original issue discount accreted to the redemption date plus,
if applicable, a premium. The Sponsor cannot predict the causes
or likelihood of the redemption of IRBs or other Bonds in the
Trusts prior to the stated maturity of such Bonds.
Certain of the Bonds in the Trusts may be obligations which are
payable from and secured by revenues derived from the ownership
and operation of facilities such as airports, bridges, turnpikes,
port authorities, convention centers and arenas. The major portion
of an airport's gross operating income is generally derived from
fees received from signatory airlines pursuant to use agreements
which consist of annual payments for leases, occupancy of certain
terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry
is experiencing significant variations in earnings and traffic,
due to increased competition, excess capacity, increased costs,
deregulation, traffic constraints and other factors, and several
airlines are experiencing severe financial difficulties. The Sponsor
cannot predict what effect these industry conditions may have
on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Bonds related to other facilities
is dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues
due to such factors as increased cost of maintenance, decreased
use of a facility, lower cost of alternative modes of transportation,
scarcity of fuel and reduction or loss of rents.
Certain of the Bonds in the Trusts may be obligations of issuers
which are, or which govern the operation of, schools, colleges
and universities and whose revenues are derived mainly from ad
valorem taxes, or for higher education systems, from tuition,
dormitory revenues, grants and endowments. General problems relating
to school bonds include litigation contesting the state constitutionality
of financing public education in part from ad valorem taxes, thereby
creating a disparity in educational funds available to schools
in wealthy areas and schools in poor areas. Litigation or legislation
on this issue may affect the sources of funds available for the
payment of school bonds in the Trusts. General problems relating
to college and university obligations would include the prospect
of a declining percentage of the population consisting of "college"
age individuals, possible inability to raise tuitions and fees
sufficiently to cover increased operating costs, the uncertainty
of continued receipt of Federal grants and state funding and new
government legislation or regulations which may adversely affect
the revenues or costs of such issuers. All of such issuers have
been experiencing certain of these problems in varying degrees.
Page 9
Certain of the Bonds in the Trusts may be obligations which are
payable from and secured by revenues derived from the operation
of resource recovery facilities. Resource recovery facilities
are designed to process solid waste, generate steam and convert
steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of
certain circumstances, including but not limited to: destruction
or condemnation of a project; contracts relating to a project
becoming void, unenforceable or impossible to perform; changes
in the economic availability of raw materials, operating supplies
or facilities necessary for the operation of a project or technological
or other unavoidable changes adversely affecting the operation
of a project; administrative or judicial actions which render
contracts relating to the projects void, unenforceable or impossible
to perform; or impose unreasonable burdens or excessive liabilities.
The Sponsor cannot predict the causes or likelihood of the redemption
of resource recovery bonds in the Trusts prior to the stated maturity
of the Bonds.
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. See "Portfolio" for each Trust.
A bond subject to optional call is one which is subject to redemption
or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a bond issue is redeemed, at or
before maturity, by the proceeds of a new bond issue. A bond subject
to sinking fund redemption is one which is subject to partial
call from time to time at par or, in the case of a zero coupon
bond, at the accreted value from a fund accumulated for the scheduled
retirement of a portion of an issue prior to maturity. Special
or extraordinary redemption provisions may provide for redemption
at par (or for original issue discount bonds at issue price plus
the amount of original issue discount accreted to redemption date
plus, if applicable, some premium) of all or a portion of an issue
upon the occurrence of certain circumstances. Generally, events
that may permit the extraordinary optional redemption of Bonds
or may require mandatory redemption of Bonds include, among others:
a final determination that the interest on the Bonds is taxable;
the substantial damage or destruction by fire or other casualty
of the project for which the proceeds of the Bonds were used;
an exercise by a local, state or Federal governmental unit of
its power of eminent domain to take all or substantially all of
the project for which the proceeds of the Bonds were used; changes
in the economic availability of raw materials, operating supplies
or facilities or technological or other changes which render the
operation of the project, for which the proceeds of the Bonds
were used, uneconomic; changes in law or an administrative or
judicial decree which renders the performance of the agreement
under which the proceeds of the Bonds were made available to finance
the project impossible or which creates unreasonable burdens or
which imposes excessive liabilities, such as taxes, not imposed
on the date the Bonds are issued on the issuer of the Bonds or
the user of the proceeds of the Bonds; an administrative or judicial
decree which requires the cessation of a substantial part of the
operations of the project financed with the proceeds of the Bonds;
an overestimate of the costs of the project to be financed with
the proceeds of the Bonds resulting in excess
Page 10
proceeds of the Bonds which may be applied to redeem Bonds; or
an underestimate of a source of funds securing the Bonds resulting
in excess funds which may be applied to redeem Bonds. See also
the discussion of single family mortgage and multi-family mortgage
revenue bonds above for more information on the call provisions
of such bonds. The exercise of redemption or call provisions will
(except to the extent the proceeds of the called Bonds are used
to pay for Unit redemptions) result in the distribution of principal
and may result in a reduction in the amount of subsequent interest
distributions; it may also affect the long-term return and the
current return on Units of each Trust. Redemption pursuant to
call provisions is more likely to occur, and redemption pursuant
to sinking fund provisions may occur, when the Bonds have an offering
side valuation which represents a premium over par or for original
issue discount bonds a premium over the accreted value. Unit holders
may recognize capital gain or loss upon any redemption or call.
The contracts to purchase Bonds delivered to the Trustee represent
an obligation by issuers or dealers to deliver Bonds to the Sponsor
for deposit in each Trust. Contracts are typically settled and
the Bonds delivered within a few business days subsequent to the
Date of Deposit. The percentage of the aggregate principal amount
of the Bonds of each Trust relating to "when, as and if issued"
Bonds or other Bonds with delivery dates after the date of settlement
for a purchase made on the Date of Deposit, if any, is indicated
in the section for each Trust entitled "Portfolio." Interest on
"when, as and if issued" and delayed delivery Bonds begins accruing
to the benefit of Unit holders on their dates of delivery. Because
"when, as and if issued" Bonds have not yet been issued, as of
the Date of Deposit each Trust is subject to the risk that the
issuers thereof might decide not to proceed with the offering
of such Bonds or that the delivery of such Bonds or the delayed
delivery Bonds may be delayed. If such Bonds, or replacement bonds
described below, are not acquired by a Trust or if their delivery
is delayed, the Estimated Long-Term Return and the Estimated Current
Return (if applicable) shown in the "Special Trust Information"
for that Trust may be reduced.
In the event of a failure to deliver any Bond that has been purchased
for a Trust under a contract, including those Bonds purchased
on a "when, as and if issued" basis ("Failed Bonds"), the Sponsor
is authorized under the Indenture to direct the Trustee to acquire
other specified bonds ("New Bonds") to make up the original corpus
of such Trust. The New Bonds must be purchased within twenty days
after delivery of the notice of the failed contract and the purchase
price (exclusive of accrued interest) may not exceed the amount
of funds reserved for the purchase of the Failed Bonds. The New
Bonds (i) must satisfy the criteria previously described for Bonds
originally included in the Trust, (ii) must have a fixed maturity
date of at least ten years or, in the case of a shorter term Trust,
within the range of maturities of the Bonds initially deposited
in such Trust, but not exceeding the maturity date of the Failed
Bonds, (iii) must be purchased at a price that results in a yield
to maturity and in a current return, in each case as of the Date
of Deposit, at least equal to that of the Failed Bonds, (iv) shall
not be "when, as and if issued" bonds, (v) with respect to an
Insured Trust, when acquired by such Insured Trust must be insured
by Financial Guaranty and/or AMBAC Indemnity under the insurance
policy obtained by such Insured Trust or must be insured under
an insurance policy obtained by the Bond issuer, the underwriters,
the Sponsor or others and (vi) shall have the benefit of exemption
from state taxation on interest to an equal or greater extent
than the Failed Bonds they replace. Whenever a New Bond has been
acquired for a Trust, the Trustee shall, within five days thereafter,
notify all Unit holders of such Trust of the acquisition of the
New Bond and shall, on the next monthly distribution date which
is more than 30 days thereafter, make a pro rata distribution
of the amount, if any, by which the cost to such Trust of the
Failed Bond exceeded the cost of the New Bond plus accrued interest.
Once the original corpus of a Trust is acquired, the Trustee will
have no power to vary the investment of such Trust, i.e., the
Trustee will have no managerial power to take advantage of market
variations to improve a Unit holder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire New Bonds in the event
of a failed contract, the Sponsor shall refund the sales charge
and the Purchased Interest attributable to such failed contract
to all Unit holders of the affected Trust, and the principal and
accrued interest (at the coupon rate of the relevant Bond to the
date the Sponsor is notified of the failure) attributable
Page 11
to such failed contract shall be distributed not more than thirty
days after the determination of such failure or at such earlier
time as the Trustee in its sole discretion deems to be in the
interest of the Unit holders of the affected Trust. Unit holders
should be aware that at the time of the receipt of such refunded
principal they may not be able to reinvest such principal in other
securities at a yield equal to or in excess of the yield which
such principal would have earned to Unit holders had the Failed
Bond been delivered to the Trust. The portion of such interest
paid to a Unit holder which accrued after the expected date of
settlement for purchase of his Units will be paid by the Sponsor
and accordingly will not be treated as tax-exempt income.
To the best knowledge of the Sponsor, there is no litigation pending
as of the Date of Deposit 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 of Deposit, 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 environmental
protection statutes, may affect the validity of such Bonds or
the tax-free nature of the interest thereon. While the outcome
of litigation of such nature can never be entirely predicted,
the Fund has received opinions of bond counsel to the issuing
authority of each Bond on the date of issuance to the effect that
such Bonds have been validly issued and that the interest thereon
is exempt from Federal income taxes and state and local taxes.
In addition, other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken
with respect to the Bonds.
Each Unit initially offered represents that fractional undivided
interest in such Trust as is set forth in the "Summary of Essential
Information" for each Trust. To the extent that any Units of a
Trust are redeemed by the Trustee, the fractional undivided interest
in such Trust represented by each unredeemed Unit will increase,
although the actual interest in such Trust represented by such
fraction will remain substantially unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination
of the Trust Agreement.
What are Estimated Long-Term Return and Estimated Current Return?
At the opening of business on the Date of Deposit, the Estimated
Current Return (if applicable) and the Estimated Long-Term Return
are as set forth in "Special Trust Information" for each Trust.
Estimated Current Return is computed by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price.
Any change in either the Estimated Net Annual Interest Income
per Unit or the Public Offering Price will result in a change
in the Estimated Current Return. For each Trust, the Public Offering
Price will vary in accordance with fluctuations in the prices
of 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
(if applicable) indicated in the "Special Trust Information" for
each Trust will be realized in the future. Estimated Long-Term
Return is calculated using a formula which (1) takes into consideration
and determines and factors in the relative weightings of the market
values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all
of the Bonds in the Trust; (2) takes into account the expenses
and sales charge associated with each Unit of a Trust; and (3)
takes into effect the tax-adjusted yield from potential capital
gains at the Date of Deposit. Since the market values and estimated
retirements of the Bonds and the expenses of the Trust will change,
there is no assurance that the Estimated Long-Term Return indicated
in the "Special Trust Information" 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 as of the
Date of Deposit. 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.
In order to acquire certain of the Bonds contracted for by the
Sponsor for deposit in a Trust, it may be necessary to pay on
the settlement dates for delivery of such Bonds amounts covering
accrued interest on such Bonds which exceed the amounts furnished
by the Sponsor. The Trustee has agreed to pay for any amounts
Page 12
necessary to cover any such excess and will be reimbursed therefor,
without interest, when funds become available from interest payments
on the particular Bonds with respect to which such payments have
been made. Also, since interest on the Bonds in a Trust does not
begin accruing as tax-exempt interest income to the benefit of
Unit holders until their respective dates of delivery, the Trustee
will, in order to obtain for the Unit holders the estimated net
annual interest income during the first year of each Trust's operations
as is indicated in the "Special Trust Information" for each Trust,
reduce its fee and, to the extent necessary, pay expenses of each
Trust in an amount equal to all or a portion of the amount of
interest that would have so accrued on such Bonds between the
settlement date of units purchased on the Date of Deposit and
such dates of delivery. If none of the Bonds in a portfolio has
a delivery date after the settlement date of Units purchased on
the Date of Deposit, the Trustee will neither reduce its fee nor
pay expenses of a Trust as described above.
Record Dates for distributions of interest are the fifteenth day
of each month. The Distribution Dates for distributions of interest
is the last day of each month in which the related Record Date
occurs. Unit holders will receive such distributions, if any,
from the Principal Account as are made as of the Record Dates
for monthly distributions.
How are Purchased Interest and Accrued Interest Treated?
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" 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
the Trust accrues such interest daily. Because of this, the 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.
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?"
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 the 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 and accrued interest from the
purchaser of his Units. Since the Trustee has the use of the funds
(including Purchased Interest) held in the Interest Account for
distributions to Unit holders and since such Account is non-interest-bearing
to Unit holders, the Trustee benefits thereby.
Why and How are the Insured Trusts Insured?
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS.
THE BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED
BY INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as
to the scheduled payment of interest and principal by policies
obtained by each Insured Trust from Financial Guaranty Insurance
Company ("Financial Guaranty" or "FGIC"), a New York stock insurance
company, or AMBAC Indemnity Corporation ("AMBAC
Page 13
Indemnity" or "AMBAC"), a Wisconsin-domiciled stock insurance
company, or obtained by the Bond issuer, the underwriters, the
Sponsor or others prior to the Date of Deposit directly from Financial
Guaranty, AMBAC Indemnity or other insurers (the "Preinsured Bonds").
The insurance policy obtained by each Insured Trust is noncancellable
and will continue in force for such Trust so long as such Trust
is in existence and the Bonds described in the policy continue
to be held by such Trust (see "Portfolio" for each Insured Trust).
Nonpayment of premiums on the policy obtained by each Insured
Trust will not result in the cancellation of insurance, but will
permit Financial Guaranty and/or AMBAC Indemnity to take action
against the Trustee to recover premium payments due it. Premium
rates for each issue of Bonds protected by the policy obtained
by each Insured Trust are fixed for the life of such Trust. The
premium for any Preinsured Bonds has been paid in advance by the
Bond issuer, the underwriters, the Sponsor or others and any such
policy or policies are noncancellable and will continue in force
so long as the Bonds so insured are outstanding and the insurer
and/or insurers thereof remain in business. If the provider of
an original issuance insurance policy is unable to meet its obligations
under such policy, or if the rating assigned to the claims-paying
ability of such insurer deteriorates, Financial Guaranty and/or
AMBAC Indemnity has no obligation to insure any issue adversely
affected by either of the above described events. A monthly premium
is paid by each Insured Trust for the insurance obtained by such
Trust, which is payable from the interest income received by such
Trust. In the case of Preinsured Bonds, no premiums for insurance
are paid by the Insured Trust.
Financial Guaranty Insurance Company. Under the provisions of
the aforementioned portfolio insurance issued by Financial Guaranty,
Financial Guaranty unconditionally and irrevocably agrees to pay
to Citibank, N.A., or its successor, as its agent (the "Fiscal
Agent"), that portion of the principal of and interest on the
Bonds covered by the policy which shall become due for payment
but shall be unpaid by reason of nonpayment by the issuer of the
Bonds. The term "due for payment" means, when referring to the
principal of a Bond, its stated maturity date or the date on which
it shall have been called for mandatory sinking fund redemption
and does not refer to any earlier date on which payment is due
by reason of call for redemption (other than by mandatory sinking
fund redemption), acceleration or other advancement of maturity
and means, when referring to interest on a Bond, the stated date
for payment of interest, except that when the interest on a Bond
shall have been determined, as provided in the underlying documentation
relating to such Bond, to be subject to Federal income taxation,
"due for payment" also means, when referring to the principal
of such Bond, the date on which such Bond has been called for
mandatory redemption as a result of such determination of taxability,
and when referring to interest on such Bond, the accrued interest
at the rate provided in such documentation to the date on which
such Bond has been called for such mandatory redemption, together
with any applicable redemption premium. The term "due for payment"
will not include, when referring to either the principal of a
Bond or the interest on a Bond, any acceleration of payment unless
such acceleration is at the sole option of Financial Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent
on the date such principal or interest becomes due for payment
or on the business day next following the day on which Financial
Guaranty shall have received notice of nonpayment, whichever is
later. The Fiscal Agent will disburse to the Trustee the face
amount of principal and interest which is then due for payment
but is unpaid by reason of nonpayment by 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
Page 14
sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance
only if upon such exercise the Insured Trust would receive net
proceeds (sale of Bond proceeds less the insurance premium attributable
to the Permanent Insurance ) from such sale in excess of the sale
proceeds if such Bonds were sold on an uninsured basis. The insurance
premium with respect to each Bond eligible for Permanent Insurance
is determined based upon the insurability of each Bond as of the
Date of Deposit and will not be increased or decreased for any
change in the creditworthiness of such Bond.
Financial Guaranty is a wholly owned subsidiary of FGIC Corporation
(the "Corporation"), a Delaware holding company. The Corporation
is a wholly owned subsidiary of General Electric Capital Corporation
("GECC"). Neither the Corporation nor GECC is obligated to pay
the debts of or the claims against Financial Guaranty. Financial
Guaranty is domiciled in the State of New York and is subject
to regulation by the State of New York Insurance Department. As
of September 30, 1993, the total capital and surplus of Financial
Guaranty was approximately $744,722,000. Copies of Financial Guaranty's
financial statements, prepared on the basis of statutory accounting
principles, and the Corporation's financial statements, prepared
on the basis of generally accepted accounting principles, may
be obtained by writing to Financial Guaranty at 115 Broadway,
New York, New York 10006, Attention: Communications Department
(telephone number (212) 312-3000) or to the New York State Insurance
Department at 160 West Broadway, 18th Floor, New York, New York
10013, Attention: Property Companies Bureau (telephone number
(212) 602-0389).
In addition, Financial Guaranty is currently licensed to write
insurance in all fifty states and the District of Columbia.
The information relating to Financial Guaranty contained above
has been furnished by such corporation. The financial information
contained herein with respect to such corporation is unaudited
but appears in reports or other materials filed with state insurance
regulatory authorities and is subject to audit and review by such
authorities. No representation is made herein as to the accuracy
or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof.
AMBAC Indemnity Corporation ("AMBAC Indemnity"). The Insurance
Policy of AMBAC Indemnity obtained by an Insured Trust is noncancellable
and will continue in force for so long as the Bonds described
in the Insurance Policy are held by an Insured Trust. A monthly
premium is paid by an Insured Trust for the Insurance Policy obtained
by it. The Trustee will pay, when due, successively, the full
amount of each installment of the insurance premium. Pursuant
to a binding agreement with AMBAC Indemnity, in the event of a
sale of a Bond covered by the AMBAC Indemnity Insurance Policy,
the Trustee has the right to obtain permanent insurance for such
Bond upon payment of a single predetermined premium from the proceeds
of the sale of such Bond.
Under the terms of the Insurance Policy, AMBAC Indemnity agrees
to pay to the Trustee that portion of the principal of and interest
on the Bonds insured by AMBAC Indemnity which shall become due
for payment but shall be unpaid by reason of nonpayment by the
issuer of the Bonds. The term "due for payment" means, when referring
to the principal of a Bond so insured, its stated maturity date
or the date on which it shall have been called for mandatory sinking
fund redemption and does not refer to any earlier date on which
payment is due by reason of call for redemption (other than by
mandatory sinking fund redemption), acceleration or other advancement
of maturity and means, when referring to interest on a Bond, the
stated date for payment of interest.
AMBAC Indemnity will make payment to the Trustee not later than
thirty days after notice from the Trustee is received by AMBAC
Indemnity that a nonpayment of principal or of interest on a Bond
has occurred, but not earlier than the date on which the Bonds
are due for payment. AMBAC Indemnity will disburse to the Trustee
the face amount of principal and interest which is then due for
payment but is unpaid by reason of nonpayment by the issuer in
exchange for delivery of Bonds, not less in face amount than the
amount of the payment in bearer form, free and clear of all liens
and encumbrances and uncancelled. In cases where Bonds are issuable
only in a form whereby principal is payable to registered holders
or their assigns, AMBAC Indemnity shall pay principal only upon
presentation and surrender of the unpaid Bonds uncancelled
Page 15
and free of any adverse claim, together with an instrument of
assignment in satisfactory form, so as to permit ownership of
such Bonds to be registered in the name of AMBAC Indemnity or
its nominee. In cases where Bonds are issuable only in a form
whereby interest is payable to registered holders or their assigns,
AMBAC Indemnity shall pay interest only upon presentation of proof
that the claimant is the person entitled to the payment of interest
on the Bonds and delivery of an instrument of assignment, in satisfactory
form, transferring to AMBAC Indemnity all right under such Bonds
to receive the interest in respect of which the insurance payment
was made.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in fifty states,
the District of Columbia and the Commonwealth of Puerto Rico,
with admitted assets of approximately $1,936,000,000 (unaudited)
and statutory capital of approximately $1,096,000,000 (unaudited)
as of September 30, 1993. Statutory capital consists of AMBAC
Indemnity's policyholders' surplus and statutory contingency reserve.
AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc., a
100% publicly-held company. Moody's Investors Service, Inc. and
Standard & Poor's Corporation have both assigned a triple-A claims-paying
ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC Indemnity.
The address of AMBAC Indemnity's administrative offices and its
telephone number are One State Street Plaza, 17th Floor, New York,
New York 10004 and (212) 668-0340.
The information relating to AMBAC Indemnity contained above has
been furnished by AMBAC Indemnity. No representation is made herein
as to the accuracy or adequacy of such information, or as to the
existence of any adverse changes in such information, subsequent
to the date hereof.
In determining whether to insure bonds, Financial Guaranty and/or
AMBAC Indemnity has applied its own standards which are not necessarily
the same as the criteria used in regard to the selection of bonds
by the Sponsor. This decision is made prior to the Date of Deposit,
as bonds not covered by such insurance are not deposited in an
Insured Trust, unless such bonds are Preinsured Bonds. The insurance
obtained by an Insured Trust covers Bonds deposited in such Trust
and physically delivered to the Trustee in the case of bearer
bonds or registered in the name of the Trustee or its nominee
or delivered along with an assignment in the case of registered
bonds or registered in the name of the Trustee or its nominee
in the case of Bonds held in book-entry form. Contracts to purchase
Bonds are not covered by the insurance obtained by an Insured
Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer,
the underwriters, the Sponsor or others does not guarantee the
market value of the Bonds or the value of the Units of such Trust.
The insurance obtained by an Insured Trust is effective only as
to Bonds owned by and held in such Trust. In the event of a sale
of any such Bond by the Trustee, the insurance terminates as to
such Bond on the date of sale. In the event of a sale of a Bond
insured by an Insured Trust, the Trustee has the right to obtain
Permanent Insurance upon the payment of an insurance premium from
the proceeds of the sale of such Bond. Except as indicated below,
insurance obtained by an Insured Trust has no effect on the price
or redemption value of Units. It is the present intention of the
Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance)
for the purpose of computing the price or redemption value of
Units only if the Bonds covered by such insurance are in default
in payment of principal or interest or, in the Sponsor's opinion,
in significant risk of such default. The value of the insurance
will be equal to the difference between (i) the market value of
a Bond which is in default in payment of principal or interest
or in significant risk of such default assuming the exercise of
the right to obtain Permanent Insurance (less the insurance premium
attributable to the purchase of Permanent Insurance) and (ii)
the market value of such Bonds not covered by Permanent Insurance.
See "Public Offering-How is the Public Offering Price Determined?"
herein for a more complete description of the Evaluator's method
of valuing defaulted Bonds and Bonds which have a significant
risk of default. Insurance on a Preinsured Bond is effective as
long as such Bond
Page 16
is outstanding. Therefore, any such insurance may be considered
to represent an element of market value in regard to the Bonds
thus insured, but the exact effect, if any, of this insurance
on such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the negotiations
in respect thereof represent the only relationship between Financial
Guaranty and/or AMBAC Indemnity and the Fund. Otherwise neither
Financial Guaranty nor its parent, FGIC Corporation, or any affiliate
thereof, nor AMBAC Indemnity nor its parent, AMBAC, Inc., or any
affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor
has in the past and may from time to time in the future, in the
normal course of its business, participate as sole underwriter
or as manager or as a member of underwriting syndicates in the
distribution of new issues of municipal bonds in which the investors
or the affiliates of FGIC Corporation and/or AMBAC Inc. have or
will be participants or for which a policy of insurance guaranteeing
the scheduled payment of interest and principal has been obtained
from Financial Guaranty and/or AMBAC Indemnity. Neither the Fund
nor the Units of a Trust nor the portfolio of such Trust is insured
directly or indirectly by FGIC Corporation and/or AMBAC Inc.
Municipal Bond Investors Assurance Corporation. Municipal Bond
Investors Assurance Corporation ("MBIA Corporation" or "MBIA")
is the principal operating subsidiary of MBIA, Inc., a New York
Stock Exchange listed company. MBIA, Inc. is not obligated to
pay the debts of or claims against MBIA Corporation. MBIA Corporation
is a limited liability corporation rather than a several liability
association. MBIA Corporation is domiciled in the State of New
York and licensed to do business in all fifty states, the District
of Columbia and the Commonwealth of Puerto Rico.
As of December 31, 1992, MBIA had admitted assets of $2.6 billion
(audited), total liabilities of $1.7 billion (audited), and total
capital and surplus of $896 million (audited) determined in accordance
with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. As of September 30, 1993, MBIA
had admitted assets of $3.0 billion (unaudited), total liabilities
of $2.0 billion (unaudited), and total capital and surplus of
$951 million (unaudited), determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authority. Copies of MBIA's financial statements prepared in accordance
with statutory accounting practices are available from MBIA .
The address of MBIA is 113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors
Group, Inc. On January 5, 1990, MBIA acquired all of the outstanding
stock of Bond Investors Group, Inc., the parent of Bond Investors
Guaranty Insurance Company (BIG), now known as MBIA Insurance
Corp. of Illinois. Through a reinsurance agreement, BIG has ceded
all of its net insured risks, as well as its unearned premium
and contingency reserves, to MBIA and MBIA has reinsured BIG's
net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA
"Aaa" and short-term loans "MIG 1," both designated to be of the
highest quality. Standard & Poor's Corporation rates all new issues
insured by MBIA "AAA."
Capital Guaranty Insurance Company. Capital Guaranty Insurance
Company ("Capital Guaranty") was incorporated in Maryland on June
25, 1986, and is a wholly-owned subsidiary of Capital Guaranty
Corporation, a Maryland insurance holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas
and Electric; Fleet/Norstar Financial Group, Inc.; Safeco Corporation;
Sibag Finance Corporation, an affiliate of Siemens A.G.; and United
States Fidelity and Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline
financial guaranty insurer engaged in the underwriting and development
of financial guaranty insurance. Capital Guaranty insures general
obligation, tax supported and revenue bonds structured as tax-exempt
and taxable securities as well as selectively insures taxable
corporate/asset backed securities. Standard & Poor's Corporation
rates the claims paying ability of Capital Guaranty "AAA."
Page 17
Capital Guaranty's insured portfolio currently includes over $9
billion in total principal and interest insured. As of September
30, 1992, the total policyholders' surplus of Capital Guaranty
was approximately $113,000,000 (unaudited), and the total admitted
assets were approximately $220,000,000 (unaudited) as reported
to the Insurance Department of the State of Maryland. Financial
statements for Capital Guaranty Insurance Company, that have been
prepared in accordance with statutory insurance accounting standards,
are available upon request. The address of Capital Guaranty's
headquarters and its telephone number are Steuart Tower, 22nd
Floor, One Market Plaza, San Francisco, CA 94105-1413 and (415)
995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance
company which engages only in the business of financial guarantee
and surety insurance. CapMAC is licensed in 49 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and
the territory of Guam. CapMAC insures structured asset-backed,
corporate and other financial obligations in the domestic and
foreign capital markets. CapMAC may also provide financial guarantee
reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation
("Standard & Poor's"), and "AAA" by Duff & Phelps, Inc. ("Duff
& Phelps"). Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time
by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a
company that is owned by a group of institutional and other investors,
including CapMAC's management and employees. CapMAC commenced
operations on December 24, 1987 as an indirect, wholly-owned subsidiary
of Citibank (New York State), a wholly-owned subsidiary of Citicorp.
On June 25, 1992, Citibank (New York State) sold CapMAC to Holdings
(the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay
any claims under any surety bond issued by CapMAC or any debts
of CapMAC or to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the
State of New York. In addition, CapMAC is subject to regulation
by the insurance departments of the other jurisdictions in which
it is licensed. CapMAC is subject to periodic regulatory examinations
by the same regulatory authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may
retain, after giving effect to reinsurance, collateral or other
securities, is also regulated. Statutory and regulatory accounting
practices may prescribe appropriate rates at which premiums are
earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form
of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured.
Such reinsurance does not relieve CapMAC of any of its obligations
under the Surety Bond(s).
THE SURETY BONDS ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE
LAW.
In connection with the Sale, Holdings and CapMAC entered into
an Ownership Policy Agreement (the "Ownership Policy Agreement"),
which sets forth Holdings' intent with respect to its ownership
and control of CapMAC and provides for certain policies and agreements
with respect to Holdings' exercise of its control of CapMAC. In
the Ownership Policy Agreement, Holdings has agreed that, during
the term of the Ownership Policy Agreement, it will not and will
not permit any stockholder of Holdings to enter into any transaction
the result of which would be a change of control (as defined in
the Ownership Policy Agreement) of CapMAC, unless the long-term
debt obligations or claims-paying ability of the person which
would control CapMAC after such transaction or its direct or indirect
parent are rated in a high investment grade category, unless Holdings
or CapMAC has confirmed that CapMAC's claims-paying ability rating
by Moody's (the "Rating") in effect immediately prior to any such
change of control will not be downgraded by Moody's upon
Page 18
such change of control or unless such change of control occurs
as a result of a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements
(i) not to change the "zero-loss" underwriting standards or policies
and procedures of CapMAC in a manner that would materially and
adversely affect the risk profile of CapMAC's book of business,
(ii) that CapMAC will adhere to the aggregate leverage limitations
and maintain capitalization levels considered by Moody's from
time to time as consistent with maintaining CapMAC's Rating and
(iii) that until CapMAC's statutory capital surplus and contingency
reserve ("qualified statutory capital") equal $250 million, CapMAC
will maintain a specified amount of qualified statutory capital
in excess of the amount of qualified statutory capital that CapMAC
is required at such time to maintain under the aggregate leverage
limitations set forth in Article 69 of the New York Insurance
Law.
The Ownership Policy Agreement will terminate on the earlier of
the date on which a change of control of CapMAC occurs and the
date on which CapMAC and Holdings agree in writing to terminate
the Ownership Policy Agreement; provided that, CapMAC or Holdings
has confirmed that CapMAC's Rating in effect immediately prior
to any such termination will not be downgraded upon such termination.
As of December 31, 1992 and 1991, CapMAC had statutory capital
and surplus of approximately $148 million and $232 million, respectively,
and had not incurred any debt obligations. On June 26, 1992, CapMAC
made a special distribution (the "Distribution") to Holdings in
connection with the Sale in an aggregate amount that caused the
total of CapMAC's statutory capital and surplus to decline to
approximately $150 million. Holdings applied substantially all
of the proceeds of the Distribution to repay debt owed to Citicorp
that was incurred in connection with the capitalization of CapMAC.
As of June 30, 1992, CapMAC had statutory capital and surplus
of approximately $150 million and had not incurred any debt obligations.
In addition, on December 31, 1992 CapMAC had a statutory contingency
reserve of approximately $15 million, which is also available
to cover claims under surety bonds issued by CapMAC. Article 69
of the New York State Insurance Law requires that CapMAC establishes
and maintains the contingency reserve.
In addition to its capital (including contingency reserve) and
other reinsurance available to pay claims under its surety bonds,
on June 25, 1992, CapMAC entered into a Stop Loss Reinsurance
Agreement (the "Stop Loss Agreement") with Winterthur Swiss Insurance
Company (the "Reinsurer"), which is rated AAA by Standard & Poor's
and Aaa by Moody's, pursuant to which the Reinsurer will be required
to pay any losses incurred by CapMAC during the term of the Stop
Loss Agreement on the surety bonds covered under the Stop Loss
Agreement in excess of a specified amount of losses incurred by
CapMAC under such surety bonds (such specified amount initially
being $100 million and increasing annually by an amount equal
to 66 2/3% of the increase in CapMAC's statutory capital and surplus)
up to an aggregate limit payable under the Stop Loss Agreement
of $50 million. The Stop Loss Agreement has an initial term of
seven years, is extendable for one-year periods and is subject
to early termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of
banks rated A1+/P1 by Standard & Poor's and Moody's, respectively,
having a term of 360 days. Under the Liquidity Facility CapMAC
will be able, subject to satisfying certain conditions, to borrow
funds from time to time in order to enable it to fund any claim
payments or payments made in settlement or mitigation of claims
payments under its surety bonds, including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance
with statutory accounting standards, which differ from generally
accepted accounting principles, and filed with the Insurance Department
of the State of New York are available upon request. CapMAC is
located at 885 Third Avenue, New York, New York 10022, and its
telephone number is (212) 755-1155.
Financial Security Assurance. Financial Security Assurance ("Financial
Security") is a monoline insurance company incorporated on March
16, 1984 under the laws of the State of New York. The operations
of Financial Security commenced on July 25, 1985, and Financial
Security received its New York State insurance license on September
23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to
Page 19
engage in the financial guaranty insurance business in 49 states,
the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively
in the business of writing financial guaranty insurance, principally
in respect of asset-backed and other collateralized securities
offered in domestic and foreign markets. Financial Security and
its subsidiaries also write financial guaranty insurance in respect
of municipal and other obligations and reinsure financial guaranty
insurance policies written by other leading insurance companies.
In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities,
thereby enhancing the credit rating of those securities, in consideration
for payment of a premium to the insurer.
Financial Security is approximately 91.6% owned by US West, Inc.
and 8.4% owned by The Tokio Marine and Fire Insurance Co., Ltd.
("Tokio Marine"). US West, Inc. operates businesses involved in
communications, data solutions, marketing services and capital
assets, including the provision of telephone services in 14 states
in the western and mid-western United States. Tokio Marine is
the largest property and casualty insurance company in Japan.
No shareholder of Financial Security is obligated to pay any debt
of Financial Security or any claim under any insurance policy
issued by Financial Security or to make any additional contribution
to the capital of Financial Security.
As of March 31, 1993, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were,
in accordance with statutory accounting principles, approximately
$479,110,000 (unaudited) and $220,078,000 (unaudited), and the
total shareholders' equity and the unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were,
in accordance with generally accepted accounting principles, approximately
$628,119,000 (unaudited), and $202,493,000 (unaudited). Copies
of Financial Security's financial statements may be obtained by
writing to Financial Security at 350 Park Avenue, New York, New
York, 10022, Attention Communications Department. Financial Security's
telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written by Financial Security or either of
its subsidiaries are reinsured among such companies on an agreed-upon
percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with
unaffiliated reinsurers under various quota share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized
by Financial Security as a risk management device and to comply
with certain statutory and rating agency requirements; it does
not alter or limit Financial Security's obligations under any
financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc, and "AAA" by Standard & Poor's Corporation,
Nippon Investors Service Inc., Duff & Phelps Inc. and Australian
Ratings Pty. Ltd. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time
by such rating agencies.
Because the Bonds in each Insured Trust are insured as to the
scheduled payment of principal and interest and on the basis of
the financial condition of the insurance companies referred to
above, Standard & Poor's Corporation has assigned to units of
each Insured Trust its "AAA" investment rating. This is the highest
rating assigned to securities by Standard & Poor's Corporation.
See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust should not be construed as an approval of
the offering of the Units by Standard & Poor's Corporation or
as a guarantee of the market value of each Insured Trust or the
Units of such Trust. Standard & Poor's Corporation has indicated
that this rating is not a recommendation to buy, hold or sell
Units nor does it take into account the extent to which expenses
of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit
holders of the interest and principal required to be paid on such
Bonds. There is no guarantee that the "AAA" investment rating
with respect to the Units of an Insured Trust will be maintained.
Page 20
An objective of portfolio insurance obtained by such Insured Trust
is to obtain a higher yield on the Bonds in the portfolio of such
Trust than would be available if all the Bonds in such portfolio
had the Standard & Poor's Corporation "AAA" and/or Moody's Investors
Service, Inc. "Aaa" rating(s) and at the same time to have the
protection of insurance of scheduled payment of interest and principal
on the Bonds. There is, of course, no certainty that this result
will be achieved. Bonds in a Trust for which insurance has been
obtained by the Bond issuer, the underwriters, the Sponsor or
others (all of which were rated "AAA" by Standard & Poor's Corporation
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not
have a higher yield than uninsured bonds rated "AAA" by Standard
& Poor's Corporation or "Aaa" by Moody's Investors Service, Inc.
In selecting Bonds for the portfolio of each Insured Trust, the
Sponsor has applied the criteria herein before described.
Chapman and Cutler, Counsel for the Sponsor, has given an opinion
(if applicable) to the effect that the payment of insurance proceeds
representing maturing interest on defaulted municipal obligations
paid by Financial Guaranty or another insurer would be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations. See "What is the Federal Tax Status
of Unit Holders?"
What is the Federal Tax Status of Unit Holders?
At the respective times of issuance of the Bonds, opinions relating
to the validity thereof and to the exclusion of interest thereon
from Federal gross income were rendered by bond counsel to the
respective issuing authorities. Neither the Sponsor, Chapman and
Cutler, nor any of the Special Counsel to the Fund for State tax
matters have made any special review for the Fund of the proceedings
relating to the issuance of the Bonds or of the bases for such
opinions. Gain realized on the sale or redemption of the Bonds
by the Trustee or of a Unit by a Unit holder is, however, includable
in gross income for Federal income tax purposes. (It should be
noted in this connection that such gain does not include any amounts
received in respect of accrued interest or accrued original issue
discount, if any.) It should be noted that under recently enacted
legislation described below that subjects accretion of market
discount on tax-exempt bonds to taxation as ordinary income, gain
realized on the sale or redemption of Bonds by the Trustee or
of Units by a Unit holder that would have been treated as capital
gain under prior law is treated as ordinary income to the extent
it is attributable to accretion of market discount. Market discount
can arise based on the price a Trust pays for Bonds or the price
a Unit holder pays for his Units.
In the opinion of Chapman and Cutler, Counsel for the Sponsor,
under existing law:
(1) the Trusts are not associations taxable as corporations for
Federal income tax purposes. Tax-exempt interest received by each
of the Trusts on Bonds deposited therein will retain its status
as tax-exempt interest, for Federal income tax purposes, when
distributed to a Unit holder except that the alternative minimum
tax and the environmental tax (the "Superfund Tax") applicable
to corporate Unit holders may, in certain circumstances, include
in the amount on which such tax is calculated, 75% of the interest
income received by the Trust. See "Certain Tax Matters Applicable
to Corporate Unit Holders;"
(2) exemption of interest and accrued original issue discount
on any Bonds for Federal income tax purposes does not necessarily
result in tax exemption under the laws of the several states as
such laws vary with respect to the taxation of such securities
and in many states all or a part of such interest and accrued
original issue discount may be subject to tax;
(3) each Unit holder of a Trust is considered to be the owner
of a pro rata portion of such Trust under subpart E, subchapter
J of chapter 1 of the Internal Revenue Code of 1986 (hereinafter
the "Code") and will have a taxable event when the Trust disposes
of a Bond, or when the Unit holder redeems or sells his Units.
Unit holders must reduce the tax basis of their Units for their
share of accrued interest received, if any, on Bonds delivered
after the date the Unit holders pay for their Units and, 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
Page 21
of Bonds (whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the Unit holder. The
amount of any such gain or loss is measured by comparing the Unit
holder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed
of. In the case of a Unit holder who purchases his Units, such
basis is determined by apportioning the tax basis for the Units
among each of the Trust assets ratably according to value as of
the date of acquisition of the Units. The basis of each Unit and
of each Bond which was issued with original issue discount must
be increased by the amount of accrued original issue discount
and the basis of each Unit and of each Bond which was purchased
by a Trust at a premium must be reduced by the annual amortization
of Bond premium. The tax cost reduction requirements of said Code
relating to amortization of bond premium may, under some circumstances,
result in the Unit holder realizing a taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original
cost; and
(4) any insurance proceeds which represent maturing interest
on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of
the defaulted obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules
provide that original issue discount accrues either on the basis
of a constant compounded interest rate or ratably over the term
of the Bond, depending on the date the Bond was issued. In addition,
special rules apply if the purchase price of a Bond exceeds the
original issue price plus the amount of original issue discount
which would have accrued to prior owners. The application of these
rules will also vary depending on the value of the Bond on the
date a Unit holder acquires his Unit, and the price the Unit holder
pays for his Unit. Because of the complexity of these rules relating
to the accrual of original issue discount, Unit holders should
consult their tax advisers as to how these rules apply. See "Portfolio"
for information relating to Bonds, if any, issued at an original
issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") was recently
enacted. The Tax Act subjects tax-exempt bonds to the market discount
rules of the Code effective for bonds purchased after April 30,
1993. In general, market discount is the amount (if any) by which
the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued).
Under the Tax Act, accretion of market discount is taxable as
ordinary income; under prior law the accretion had been treated
as capital gain. Market discount that accretes while a Trust holds
a Bond would be recognized as ordinary income by the Unit holders
when principal payments are received on the Bond, upon sale or
at redemption (including early redemption) or upon the sale or
redemption of the Units, unless a Unit holder elects to include
market discount in taxable income as it accrues. The market discount
rules are complex and Unit holders should consult their tax advisers
regarding these rules and their application.
Counsel for the Sponsor has also advised that under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units of a Trust is not deductible for Federal
income tax purposes. The Internal Revenue Service has taken the
position that such indebtedness need not be directly traceable
to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would
not be able to deduct any of the interest expense attributable
to ownership of Units. Investors with questions regarding these
issues should consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of
bond counsel indicate that interest on such securities received
by a "substantial user" of the facilities being financed with
the proceeds of these securities, or persons related thereto,
for periods while such securities are held by such a user or related
person, will not be excludable from Federal gross income, although
interest on such securities received by others would be excludable
from Federal gross income. "Substantial user" and "related person"
are defined under U.S.
Page 22
Treasury Regulations. Any person who believes he or she may be
a substantial user or related person as so defined should contact
his tax adviser.
In general, Section 86 of the Code provides that Social Security
benefits are includible in gross income in an amount equal to
the lesser of (1) 50% of the Social Security benefits received
or (2) 50% of the excess of "modified adjusted gross income" plus
50% of the Social Security benefits received over the appropriate
"base amount." The base amount is $25,000 for unmarried taxpayers,
$32,000 for married taxpayers filing a joint return and zero for
married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard
to certain otherwise allowable deductions and exclusions from
gross income and by including tax-exempt interest. To the extent
that Social Security benefits are includible in gross income,
they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted
gross income" plus 50% of Social Security benefits received exceeds
an "adjusted base amount." The adjusted base amount is $34,000
for unmarried taxpayers, $44,000 for married taxpayers filing
a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate
returns.
Although tax-exempt interest is included in modified adjusted
gross income solely for the purpose of determining what portion,
if any, of Social Security benefits will be included in gross
income, no tax-exempt interest, including that received from a
Trust, will be subject to tax. A taxpayer whose adjusted gross
income already exceeds the base amount must include 50% of his
Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross
income (after inclusion of tax-exempt interest) does not exceed
the base amount need not include any Social Security benefits
in gross income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
subject to a maximum stated marginal tax rate of 28 percent. However,
it should be noted that legislative proposals are introduced from
time to time that affect tax rates and could affect relative differences
at which ordinary income and capital gains are taxed. All taxpayers
are presently required to disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. Present
Federal income tax law also provides for an alternative minimum
tax for corporations levied at a rate of 20% of alternative minimum
taxable income. The alternative minimum tax and the environmental
tax (the "Superfund Tax") depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used
in computing AMTI of a corporation (excluding an S Corporation,
Regulated Investment Company, Real Estate Investment Trust, or
REMIC) is an amount equal to 75% of the excess of such corporation's
"adjusted current earnings" over an amount equal to its AMTI (before
such adjustment item and the alternative tax net operating loss
deduction). Although tax-exempt interest received by the Trusts
on Bonds deposited therein will not be included in the gross income
of corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest
on all Bonds in the Trusts.
Unit holders are urged to consult their own tax advisers with
respect to the particular tax consequences to them, including
the corporate alternative minimum tax, the Superfund Tax and the
branch profits tax imposed by Section 884 of the Code.
In the opinion of Carter, Ledyard & Milburn, Special Counsel to
the Fund for New York tax matters, under the existing income tax
laws of the State and City of New York, 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
Page 23
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.
For information with respect to exemption from state or other
local taxes, see the sections in the Prospectus pertaining to
each Trust.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are
to be so construed.
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses
of creating and establishing the Fund, including the cost of the
initial preparation, printing and execution of the Indenture and
the certificates for the Units, legal and accounting expenses,
expenses of the Trustee and other out-of-pocket expenses. The
Sponsor will not receive any fees in connection with its activities
relating to the Trust. However, 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 under "Summary of
Essential Information," 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 Dates of Deposit. The fee may exceed
the actual costs of providing such supervisory services for this
Fund, but at no time will the total amount received for portfolio
supervisory services rendered to unit investment trusts of which
Nike Securities L.P. is the Sponsor in any calendar year exceed
the aggregate cost to First Trust Advisors L.P. of supplying such
services in such year.
For each valuation of the Bonds in a Trust after the initial public
offering period, the Evaluator will receive a fee as indicated
in the "Summary of Essential Information." The Trustee pays certain
expenses of the Trusts for which it is reimbursed by the Trust
or Trusts. After the first year the Trustee will receive for its
ordinary recurring services to a Trust a fee as indicated in the
"Special Trust Information" for each Trust. During the first year
the Trustee has agreed to lower its fee and, to the extent necessary,
pay expenses of the Trust in the amount, if any, stated under
"Special Trust Information" for each Trust. 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." Bankers Trust Company issued the
irrevocable letter of credit for the Fund and provides a line
of credit which the Sponsor may utilize to acquire securities
(which may include certain of the Bonds deposited in the Fund).
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date from the Interest Account of each Trust
to the extent funds are available and then from the Principal
Account of such Trust. Since the Trustee has the use of the funds
being held in the Principal and Interest Accounts for future distributions,
payment of expenses and redemptions and since such Accounts are
non-interest-bearing to Unit holders, the Trustee benefits thereby.
Part of the Trustee's compensation for its services to the Fund
is expected to result from the use of these funds. Both fees may
be increased without approval of the Unit holders by amounts not
exceeding proportionate increases under the category "All Services
Less Rent of Shelter" in the Consumer Price Index published by
the United States Department of Labor.
The aggregate cost of the portfolio insurance obtained by an Insured
Trust is indicated in Note 1 of "Notes to Portfolios." 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. The Trustee will advance the initial
premium for the portfolio insurance obtained by an Insured Trust
and will recover its advancement without interest or other costs
to such Trust from interest received on Bonds in 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 in an Insured Trust 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
Page 24
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 by or 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 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 shall 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?
Units are offered at the Public Offering Price. During the initial
offering period, the Public Offering Price is determined by adding
to the Evaluator's determination of the aggregate offering price
of the Bonds in each Trust, the amount of Purchased Interest for
each Trust and an amount as indicated in the following table.
During the initial offering period, the Sponsor's Repurchase Price
is equal to the Evaluator's determination of the aggregate offering
price of the Bonds in a Trust, including the amount of Purchased
Interest for each Trust. A National Trust consists of The First
Trust of Insured Municipal Bonds. A State Trust consists of The
First Trust of Insured Municipal Bonds-Multi-State and/or The
First Trust Advantage other than an Intermediate, Long Intermediate,
Short Intermediate or Discount Trust. An Intermediate, Long Intermediate,
Short Intermediate or Discount Trust consists of trusts so designated.
<TABLE>
<CAPTION>
Initial Offering Period (1)
Sales Charge
_____________________________
Percentage Percentage
of Public of Net
Offering Amount
Series of the Fund Price Invested
_________________ ____________ ________
<S> <C> <C>
National Trust and a
Georgia Trust 4.9% 5.152%
Other State Trusts 5.5 5.820
Intermediate Trust 3.9 4.058
</TABLE>
[FN]
(1) In addition to the Purchased Interest included therein, the
Public Offering Price includes a proportionate share of other
interest accrued but unpaid on the Bonds after the First Settlement
Date to the date of settlement. See "The First Trust Combined
Series-How are Purchased Interest and Accrued Interest Treated?"
Page 25
The applicable sales charge is reduced by a discount as indicated
below for volume purchases:
<TABLE>
<CAPTION>
Discount per Unit
Dollar Amount Intermediate,
of Transaction Long Intermediate Discount Trusts
at Public and Short National and (% of Public
Offering Price Intermediate Trusts State Trusts Offering Price)
____________________ __________________ ____________ ______________
<S> <C> <C> <C>
$250,000 to $499,999 $ 2.50 - -
$500,000 to $999,999 $ 5.00 $ 7.50 .75%
$1,000,000 or more $10.00 $15.00 1.50%
</TABLE>
The Public Offering Price of Units of a Trust for secondary market
purchases will be determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds in a Trust, and the amount
of Purchased Interest of a Trust, the appropriate sales charge
determined in accordance with the schedule set forth below, based
upon the number of years remaining to the maturity of each Bond
in the portfolio of the Trust, adjusting the total to reflect
the amount of any cash held in or advanced to the principal account
of the Trust and dividing the result by the number of Units of
such trust then outstanding. The minimum sales charge on Units
will be 3% of the Public Offering Price (equivalent to 3.093%
of the net amount invested). For purposes of computation, Bonds
will be deemed to mature on their expressed maturity dates unless:
(a) the Bonds have been called for redemption or funds or securities
have been placed in escrow to redeem them on an earlier call date,
in which case such call date will be deemed to be the date upon
which they mature; or (b) such Bonds are subject to a "mandatory
tender," in which case such mandatory tender will be deemed to
be the date upon which they mature.
The effect of this method of sales charge computation will be
that different sales charge rates will be applied to each of the
various Bonds in the Trust based upon the maturities of such bonds,
in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
________________________________
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
_______________ _________ _________
<S> <C> <C>
0 Months to 1 Year 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
There will be no reduction of the sales charges for volume purchases
for secondary market transactions. A dealer will receive from
the Sponsor a dealer concession of 70% of the total sales charges
for Units sold by such dealer and dealers will not be eligible
for additional concessions for Units sold pursuant to the above
schedule.
An investor may aggregate purchases of Units of two or more consecutive
series of a particular State, National, Discount, Intermediate,
Long Intermediate or Short Intermediate Trust for purposes of
calculating the discount for volume purchases listed above. Additionally,
with respect to the employees and officers (including their immediate
families and trustees, custodians or a fiduciary for the benefit
of such person) of Nike
Page 26
Securities L.P., the sales charge is reduced by 2% of the Public
Offering Price for purchases of Units during the initial and secondary
offering periods.
Any such reduced sales charge shall be the responsibility of the
selling Underwriter or dealer except that with respect to purchases
of Units of $500,000 or more, the Sponsor will reimburse the selling
Underwriter or dealer in an amount equal to $2.50 per Unit (in
the case of a Discount Trust, .25% of the Public Offering Price).
The reduced sales charge structure will apply on all purchases
of Units in a Trust by the same person on any one day from any
one Underwriter or dealer and, for purposes of calculating the
applicable sales charge, purchases of Units in the Fund will be
aggregated with concurrent purchases by the same person from such
Underwriter or dealer of units in any series of tax-exempt unit
investment trusts sponsored by Nike Securities L.P. Additionally,
Units purchased in the name of the spouse of a purchaser or in
the name of a child of such purchaser will be deemed, for the
purpose of calculating the applicable sales charge, to be additional
purchases by the purchaser. The reduced sales charges will also
be applicable to a trustee or other fiduciary purchasing securities
for a single trust estate or single fiduciary account.
On the Date of Deposit, the Public Offering Price is as indicated
in the "Summary of Essential Information" for each Trust. In addition
to fluctuations in the amount of interest accrued but unpaid on
Bonds in each Trust of the Fund, the Public Offering Price at
any time during the initial offering period will vary from the
Public Offering Price stated herein in accordance with fluctuations
in the prices of the underlying Bonds.
The aggregate price of the Bonds in each Trust is determined by
whomever from time to time is acting as evaluator (the "Evaluator"),
on the basis of bid prices or offering prices as is appropriate,
(1) on the basis of current market prices for the Bonds obtained
from dealers or brokers who customarily deal in bonds comparable
to those held by the Trust; (2) if such prices are not available
for any of the Bonds, on the basis of current market prices for
comparable bonds; (3) by determining the value of the Bonds by
appraisal; or (4) by any combination of the above. Unless Bonds
are in default in payment of principal or interest or, in the
Sponsor's opinion, in significant risk of such default, the Evaluator
will not attribute any value to the insurance obtained by an Insured
Trust. On the other hand, the value of insurance obtained by the
issuer of Bonds in a Trust is reflected and included in the market
value of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are
in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds")
and which are covered by insurance obtained by an Insured Trust,
the value of the insurance guaranteeing interest and principal
payments. The value of the insurance will be equal to the difference
between (i) the market value of Defaulted Bonds assuming the exercise
of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance) and
(ii) the market value of such Defaulted Bonds not covered by Permanent
Insurance. In addition, the Evaluator will consider the ability
of Financial Guaranty and/or AMBAC Indemnity to meet its commitments
under the 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.
No value has been attributed to insurance obtained by an Insured
Trust as of the date of this Prospectus. However, the Evaluator
is attributing value to insurance for the purpose of computing
the price or redemption value of Units for certain previous series
of The First Trust of Insured Municipal Bonds.
During the initial public offering period, a determination of
the aggregate price of the Bonds in a Trust is made by the Evaluator
on an offering 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 made subsequent to the last preceding determination.
For purposes of such determinations, the close of trading on the
New York Stock Exchange is 4:00 p.m. Eastern time. For secondary
market purposes, the Evaluator will be requested to make such
a determination, 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.
Page 27
The Public Offering Price of the Units during the initial offering
period is equal to the offering price per Unit of the Bonds in
a Trust and the amount of Purchased Interest per Unit of the Bonds
plus the applicable sales charge. After the completion of the
initial offering period, the secondary market Public Offering
Price will be equal to the bid price per Unit of the Bonds in
the Trust and the amount of Purchased Interest per Unit plus the
applicable sales charge. 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.
Although payment is normally made five business days following
the order for purchase, payment may be made prior thereto. Cash,
if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business
and may be deemed to be a benefit to the Sponsor, subject to the
limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. See "Rights of
Unit Holders-How May Units Be Redeemed?" for information regarding
the ability to redeem Units ordered for purchase.
How are Units Distributed?
Until the primary distribution of the Units offered by this Prospectus
is completed, Units will be offered to the public at the Public
Offering Price, computed as described above, by the Underwriters,
including the Sponsor (see "Underwriting") and through dealers
and others. Upon completion of the initial offering, Units repurchased
in the secondary market (see "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 initially will be made to
dealers and others at prices which represent a concession or agency
commission of $32 per Unit for a National Trust and a Georgia
Trust, $33 per Unit for other State Trusts, and, for secondary
market sales, 4.0% of the Public Offering Price per Unit for each
State or National Trust. However, resales of Units of a Trust
by such dealers and others to the public will be made at the Public
Offering Price described in the 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 fourth preceding
sentence. Under the Glass-Steagall Act, banks are prohibited from
underwriting Fund Units; however, the Glass-Steagall Act does
permit certain agency transactions and the banking regulators
have not indicated that these particular agency transactions are
not permitted under such Act. In Texas and in certain other states,
any banks making Units available must be registered as broker/dealers
under state law. Any broker/dealer or bank will receive additional
concessions for purchases made from the Sponsor on the Date of
Deposit resulting in total concessions as contained in the following
table:
<TABLE>
<CAPTION>
Total Concession per Unit(1)
_________________________________________
250-499 500-999 1,000
Units Units Units
Series of the Fund Purchased Purchased Purchased
________________ ________ ________ ________
<S> <C> <C> <C>
National Trust and a Georgia Trust $35.00 $37.00 $38.00
Other State Trusts $35.00 $37.00 $38.00
Intermediate Trust $26.00 $28.00 $28.00
</TABLE>
[FN]
(1) The applicable concession will be allotted to broker/dealers
or banks who purchase Units from the Sponsor only on the Date
of Deposit of a given Trust.
What are the Sponsor's Profits?
The Underwriters of each Trust, including the Sponsor, will receive
a gross sales commission equal to 4.9% of the Public Offering
Price of the Units for a National Trust and a Georgia Trust (equivalent
to 5.152% of the net amount invested), 5.5% of the Public Offering
Price of the Units of other State Trusts (equivalent to 5.820%
Page 28
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?" See "Underwriting" for
information regarding the receipt of the excess gross sales commissions
by the Sponsor from the other Underwriters and additional concessions
available to Underwriters, dealers and others. In addition, the
Sponsor and the other Underwriters of each Trust may be considered
to have realized a profit or the Sponsor may be considered to
have sustained a loss, as the case may be for each Trust, in the
amount of any difference between the cost of the Bonds to each
Trust (which is based on the Evaluator's determination of the
aggregate offering price of the underlying Bonds of such Trust
on the Date of Deposit) and the cost of such Bonds of such Trust
to the Sponsor (including the cost of insurance obtained by the
Sponsor prior to the Date of Deposit for individual Bonds). See
"Underwriting" and Note 1 of "Notes to Portfolios." Such profits
or losses may be realized or sustained by the Sponsor and the
other Underwriters with respect to Bonds which were acquired by
the Sponsor from underwriting syndicates of which it and the other
Underwriters were members. During the initial offering period,
the Underwriters also may realize profits or sustain losses from
the sale of Units to other Underwriters or as a result of fluctuations
after the Date of Deposit in the offering prices of the Bonds
and hence in the Public Offering Price received by the Underwriters.
The Sponsor has not participated as sole underwriter or manager
or member of underwriting syndicates from which any of the Bonds
in the Fund were acquired. An underwriter or underwriting syndicate
purchases bonds from the issuer on a negotiated or competitive
bid basis as principal with the motive of marketing such bonds
to investors at a profit.
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 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.
Will There be a Secondary Market?
After the initial offering period, 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 and the amount of Purchased
Interest for each Trust plus interest accrued to the date of settlement.
All expenses incurred in maintaining a secondary market, other
than the fees of the Evaluator, the other expenses of the Trust
and the costs of the Trustee in transferring and recording the
ownership of Units, will be borne by the Sponsor. If the supply
of Units exceeds demand, or for some other business reason, the
Sponsor may discontinue purchases of Units at such prices. If
a Unit holder wishes to dispose of his Units, he should inquire
of the Sponsor as to current market prices prior to making a tender
for redemption to the Trustee. Prospectuses relating to certain
other bond funds indicate an intention, subject to change, on
the part of the respective sponsors of such funds to repurchase
units of those funds on the basis of a price higher than the bid
prices of the securities in the funds. Consequently, depending
upon the prices actually paid, the repurchase price of other sponsors
for units of their funds may be computed on a somewhat more favorable
basis than the repurchase price offered by the Sponsor for Units
of a Trust in secondary market transactions. As in this Fund,
the purchase price per unit of such bond funds will depend primarily
on the value of the securities in the portfolio of the fund.
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
Page 29
five business days following such order or shortly thereafter.
Certificates are transferable by presentation and surrender to
the Trustee properly endorsed or accompanied by a written instrument
or instruments of transfer. Certificates to be redeemed must be
properly endorsed or accompanied by a written instrument or instruments
of transfer. A Unit holder must sign exactly as his name appears
on the face of the certificate with signature guaranteed by a
participant in the Securities Transfer Agents Medallion Program
("STAMP") or such other signature guaranty program in addition
to, or in substitution for, STAMP, as may be accepted by the Trustee.
In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or certificates
of corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable
only on the books of the Trustee in denominations of one Unit
or any multiple thereof, numbered serially for purposes of identification.
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 and to pay any governmental charge that may be
imposed in connection with each such transfer or exchange. For
new certificates issued to replace destroyed, stolen or lost certificates,
the Unit holder may be required to furnish indemnity satisfactory
to the Trustee and pay such expenses as the Trustee may incur.
Mutilated certificates must be surrendered to the Trustee for
replacement.
How are Interest and Principal Distributed?
Interest from each Trust after deduction of amounts sufficient
to reimburse the Trustee, without interest, for any amounts advanced
and paid to Financial Guaranty and/or AMBAC Indemnity or to the
Sponsor as the Unit holder of record as of the First Settlement
Date will be distributed on or shortly after the last day of each
month on a pro rata basis to Unit holders of record as of the
preceding Record Date. All distributions for a Trust will be net
of applicable expenses for such Trust.
The pro rata share of cash in the Principal Account of each Trust
will be computed as of the fifteenth day of each month, and distributions
to the Unit holders of such Trust as of such Record Date will
be made on or shortly after the last day of each month. 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. 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. The Trustee
shall be reimbursed, without interest, for any advances from funds
in the Interest Account of such Trust on the ensuing Record Date.
Persons who purchase Units between a Record Date and a Distribution
Date will receive their first distribution on the second Distribution
Date after the purchase. 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
Page 30
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, capital gains or principal on the participant's
Units to, among other investment vehicles, a Unit holder's checking,
bank savings, money market, insurance, reinvestment or any other
account. All such distributions, of course, are subject to the
minimum investment and sales charges, if any, of the particular
investment vehicle to which distributions are directed. The Trustee
will notify the participant of each distribution pursuant to the
Universal Distribution Option. The Trustee will distribute directly
to the Unit holder any distributions which are not accepted by
the specified investment vehicle. A participant may at any time,
by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive
directly future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into
an arrangement with First Trust Tax-Free Bond Fund (the "Tax-Free
Bond Fund"), which permits any Unit holder of a Trust to elect
to have each distribution of interest income or principal, including
capital gains, on his Units automatically reinvested in shares
of the Tax-Free Bond Fund. Oppenheimer Management Corporation
is the investment adviser of the Tax-Free Bond Fund. The Tax-Free
Bond Fund is an open-end, diversified management investment company
which currently offers shares of two Series. The investment objective
of First Trust Tax-Free Bond Fund-Income 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 First Trust Tax-Free Bond Fund-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 of the
Tax-Free Bond Fund are presented in more detail in the Tax-Free
Bond Fund prospectus.
Each person who purchases Fund Units may use the card attached
to this prospectus to request a prospectus describing the Tax-Free
Bond Fund and a form by which such person may elect to become
a participant in a Distribution Reinvestment Option with respect
to the Tax-Free Bond Fund. Each distribution of interest income
or principal, including capital gains, on the participant's Units
will automatically be applied by the Trustee to purchase shares
(or fractions thereof) of the Tax-Free Bond Fund without a sales
charge and with no minimum investment requirements.
The shareholder service agent for the Tax-Free Bond Fund 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 the Tax-Free Bond Fund.
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 the Tax-Free Bond Fund each have the right to
terminate the Distribution Reinvestment Option, in whole or in
part.
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for
income tax purposes.
Page 31
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.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender
to the Trustee at its unit investment trust office in the City
of New York of the certificates representing the Units to be redeemed,
duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed as explained above (or by providing
satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates), and payment of applicable governmental
charges, if any. No redemption fee will be charged. On the seventh
calendar day following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount
for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the
close of trading on the New York Stock Exchange, the date of tender
is the next day on which such Exchange is open for trading and
such Units will be deemed to have been tendered to the Trustee
on such day for redemption at the redemption price computed on
that day. Units so redeemed shall be cancelled.
Purchased Interest and any other accrued interest to the settlement
date paid on redemption shall be withdrawn from the Interest Account
of the Trust or, if the balance therein is insufficient, from
the Principal Account of such Trust. All other amounts paid on
redemption shall be withdrawn from the Principal Account of the
Trust.
The Redemption Price per Unit (as well as the secondary market
Public Offering Price) will be determined on the basis of the
bid price of the Bonds in the Trust and the amount of Purchased
Interest of a Trust, while the Public Offering Price of Units
during the initial offering period will be determined on the basis
of the offering price of the Bonds of such Trust and the amount
of Purchased Interest of a Trust, as of the close of trading on
the New York Stock Exchange on the date any such determination
is made. On the Date of Deposit the Public Offering Price per
Unit (which is based on the offering prices of the Bonds in the
Trust and includes the sales charge) exceeded the Unit value at
which Units could have been redeemed (based upon the current bid
prices of the Bonds in such Trust) by the amount shown under "Summary
of Essential Information"
Page 32
for each Trust. 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 and any other interest accrued thereon, less (a) amounts
representing taxes or other governmental charges payable out of
such Trust, (b) the accrued expenses of such Trust, and (c) cash
held for distribution to Unit holders of record as of a date prior
to the evaluation then being made. The Evaluator may determine
the value of the Bonds in the Trust (1) on the basis of current
bid prices of the Bonds obtained from dealers or brokers who customarily
deal in bonds comparable to those held by such Trust, (2) on the
basis of bid prices for bonds comparable to any Bonds for which
bid prices are not available, (3) by determining the value of
the Bonds by appraisal, or (4) by any combination of the above.
In determining the Redemption Price per Unit for an Insured Trust,
no value will be attributed to the portfolio insurance covering
the Bonds in such Trust unless such Bonds are in default in payment
of principal or interest or in significant risk of such default.
On the other hand, Bonds insured under a policy obtained by the
Bond issuer, the underwriters, the Sponsor or others are entitled
to the benefits of such insurance at all times and such benefits
are reflected and included in the market value of such Bonds.
See "Why and How are the Insured Trusts Insured?" For a description
of the situations in which the evaluator may value the insurance
obtained by an Insured Trust, see "Public Offering-How is the
Public Offering Price Determined?"
The difference between the bid and offering prices of such Bonds
may be expected to average 1-2% of the principal amount. In the
case of actively traded bonds, the difference may be as little
as 1/2 of 1% and, in the case of inactively traded bonds, such
difference usually will not exceed 3%. Therefore, the price at
which Units may be redeemed could be less than the price paid
by the Unit holder. At the opening of business on the Date of
Deposit, the aggregate current offering price of such Bonds per
Unit exceeded the Redemption Price per Unit (based upon current
bid prices of such Bonds) by the amount indicated in the "Summary
of Essential Information."
The Trustee is empowered to sell underlying Bonds in a Trust in
order to make funds available for redemption. To the extent that
Bonds are sold, the size and diversity of such Trust will be reduced.
Such sales may be required at a time when Bonds would not otherwise
be sold and might result in lower prices than might otherwise
be realized. The Trustee may obtain Permanent Insurance on the
Bonds in an Insured Trust. Accordingly, any Bonds so insured may
be sold on an insured basis (as will Bonds on which insurance
has been obtained by the Bond issuer, the underwriters, the Sponsor
or others).
The right of redemption may be suspended and payment postponed
for any period during which the New York Stock Exchange is closed,
other than for customary weekend and holiday closings, or during
which the Securities and Exchange Commission determines that trading
on that Exchange is restricted or an emergency exists, as a result
of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances,
the Sponsor may apply to the Securities and Exchange Commission
for an order permitting a full or partial suspension of the right
of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, which includes
Purchased Interest, it may purchase such Units by notifying the
Trustee before 12:00 p.m. Eastern time on the next succeeding
business day and by making payment therefor to the Unit holder
not later than the day on which the Units would otherwise have
been redeemed by the Trustee. Units held by the Sponsor may be
tendered to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
Page 33
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Bonds in each
Trust on a list furnished by the Sponsor as the Trustee in its
sole discretion may deem necessary. As described in the following
paragraph and in certain other unusual circumstances for which
it is determined by the Depositor to be in the best interests
of the Unit holders or if there is no alternative, the Trustee
is empowered to sell Bonds in a Trust which are in default in
payment of principal or interest or in significant risk of such
default and for which value has been attributed to the insurance,
if any, obtained by the Trust. See "How May Units be Redeemed?"
The Sponsor is empowered, but not obligated, to direct the Trustee
to dispose of Bonds in a Trust in the event of advanced refunding.
The Sponsor may from time to time act as agent for a Trust with
respect to selling Bonds out of a Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject
to the restrictions under the Investment Company Act of 1940,
as amended.
If any default in the payment of principal or interest on any
Bond occurs and no provision for payment is made therefor, either
pursuant to the portfolio insurance, if any, or otherwise, within
thirty days, the Trustee is required to notify the Sponsor thereof.
If the Sponsor fails to instruct the Trustee to sell or to hold
such Bond within thirty days after notification by the Trustee
to the Sponsor of such default, the Trustee may, in its discretion,
sell the defaulted Bond and not be liable for any depreciation
or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made
by an issuer of any of the Bonds to issue new obligations in exchange
and substitution for any Bonds pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto
as the Sponsor may deem proper if the issuer is in default with
respect to such Bonds or in the written opinion of the Sponsor
the issuer will probably default in respect to such Bonds in the
foreseeable future. Any obligations so received in exchange or
substitution will be held by the Trustee subject to the terms
and conditions in the Indenture to the same extent as Bonds originally
deposited thereunder. Within five days after the deposit of obligations
in exchange or substitution for underlying Bonds, the Trustee
is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under
"What is the First Trust Combined Series?" for Failed Bonds, the
acquisition by a Trust of any securities other than the Bonds
initially deposited is prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $7.5 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of August 31, 1993, the total partners' capital of Nike Securities
L.P. was $14,270,063 (unaudited). (This paragraph relates only
to the Sponsor and not to the Trust or to any series thereof or
to any other Underwriter. The information is included herein only
for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Page 34
Who is the Trustee?
The Trustee is United States Trust Company of New York with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Fund may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the Securities. For information relating to
the responsibilities of the Trustee under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
30 days after notification, the retiring trustee may apply to
a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only
when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which a Trustee shall be a party, shall
be the successor Trustee. The Trustee must be a banking corporation
organized under the laws of the United States or any State and
having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit
holders for taking any action or for refraining from taking any
action in good faith pursuant to the Indenture, or for errors
in judgment, but shall be liable 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.
Page 35
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of any Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Bonds of any Trust initially deposited in a Trust,
except for the substitution of certain refunding securities for
Bonds or New Bonds for Failed Bonds. In the event of any amendment,
the Trustee is obligated to notify promptly all Unit holders of
the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of
the Unit holders of such Trust or by the Trustee when the value
of such Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount of the Bonds initially deposited
in the Trust or by the Trustee in the event that Units of a Trust
not yet sold aggregating more than 60% of the Units of such Trust
are tendered for redemption by the Underwriters, including the
Sponsor. If a Trust is liquidated because of the redemption of
unsold Units of the Trust by the Underwriters, the Sponsor will
refund to each purchaser of Units of such Trust the entire sales
charge paid by such purchaser. The Indenture will terminate upon
the redemption, sale or other disposition of the last Bond held
thereunder, but in no event shall it continue beyond December
31, 2042. 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. Carter, Ledyard & Milburn, 2 Wall Street, New York,
New York 10005, will act as counsel for the Trustee and as special
counsel for the Fund for New York tax matters. For information
with respect to state and local tax matters, including the State
Trust special counsel for such matters, see the section of the
Prospectus describing each Trust appearing herein.
Experts
The statements of net assets, including the portfolios, of the
Trusts on the Date of Deposit appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
Page 36
UNDERWRITING
The Underwriters named below, including the Sponsor, have severally
purchased Units in the following respective amounts:
<TABLE>
<CAPTION>
Georgia Insured Trust, Series 3
Number of
Name Address Units
________ ________ ________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 2,196
Underwriters
McLaughlin, Piven, Vogel 30 Wall Street, Fifth Floor, New York,
Securities, Inc. NY 10005 500
J.C. Bradford & Co. 330 Commerce Street, Nashville, TN 37201-1809 100
Morgan Keegan & Morgan Keegan Tower, 50 Front Street, Memphis,
Company, Incorporated TN 38103 100
Sterne, Agee & Leach, Inc. 1901 Sixth Avenue North, Suite 2100,
Birmingham, AL 35203 100
_________
2,996
=========
</TABLE>
<TABLE>
<CAPTION>
Indiana Advantage Trust, Series 12
Number of
Name Address Units
________ ________ ________
<S> <C> <C>
Underwriter
City Securities Corporation 135 North Pennsylvania Street, Suite
Indianapolis, IN 46204 2,200
=========
</TABLE>
On the Date of Deposit, the Underwriters of each Trust became
the owners of the Units of such Trust and entitled to the benefits
thereof, as well as the risks inherent therein.
The Agreement Among Underwriters provides that a public offering
of the Units of each Trust will be made at the Public Offering
Price described in the Prospectus. Units may also be sold to or
through dealers and others during the initial offering period
and in the secondary market at prices representing a concession
or agency commission as described in "Public Offering-How are
Units Distributed?" on page 28.
The Sponsor will receive from the Underwriters the excess over
the gross sales commission contained in the following table:
<TABLE>
<CAPTION>
Underwriting Concession per Unit
___________________________________________________________
100-249 250-499 500-999 1,000 or More
Units Units Units Units
Series of the Fund Underwritten Underwritten Underwritten Underwritten
__________________ ________ ________ ________ ________
<S> <C> <C> <C> <C>
National Trust and a
Georgia Trust $35.00 $37.00 $38.00 $39.00
Other State Trusts* $36.00 $38.00 $39.00 $41.00
</TABLE>
[FN]
* Except for the Indiana Advantage Trust, an Underwriter who
underwrites 2,000 Units or more of the Indiana Advantage Trust
will receive a concession of $37.00
Underwriters, dealers, and others who, in a single month, purchase
from the Sponsor Units of any Series of The First Trust GNMA,
The First Trust of Insured Municipal Bonds, The First Trust Combined
Series or any other unit investment trust of which Nike Securities
L.P. is the Sponsor (the "UIT Units"), which sales of UIT Units
are in the following aggregate dollar amounts, will receive additional
concessions as indicated in the following table:
Page 37
<TABLE>
<CAPTION>
Aggregate Monthly
Dollar Amount of
UIT Units Sold at Additional Concession
Public Offering Price (per $1,000 sold)
____________________ ___________________
<S> <C>
$ 1,000,000 - $2,499,999 $ .50
$ 2,500,000 - $4,999,999 $1.00
$ 5,000,000 - $7,499,999 $1.50
$ 7,500,000 - $9,999,999 $2.00
$10,000,000 - or more $2.50
</TABLE>
Aggregate Monthly Dollar Amount of UIT Units Sold at Public Offering
Price is based on settled trades for a month (excluding trades
without a sales charge at net asset value and including sales
of Units to the Sponsor in the secondary market which are resold),
net of redemptions.
In addition to any other benefits that the Underwriters may realize
from the sale of the Units of a Trust, the Agreement Among Underwriters
provides that the Sponsor will share with the other Underwriters
50% of the net gain, if any, represented by the difference between
the Sponsor's cost of the Bonds in connection with their acquisition
(including the cost of insurance obtained by the Sponsor prior
to the Date of Deposit for individual Bonds) and the Aggregate
Offering Price thereof on the Date of Deposit, less a charge for
acquiring the Bonds in the portfolio and for the Sponsor maintaining
a secondary market for the Units. Furthermore, any underwriter
that sells a total of 1,000 Units or more of any National Trust
will receive an additional $2.00 per Unit sold. However, such
sales will not qualify for the Aggregate Monthly Sales Program.
See "What are the Sponsor's Profits?" and Note 1 of "Notes to
Portfolios."
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Fund may receive nominal awards
from the Sponsor for each of their registered representatives
who have sold a minimum number of UIT Units during a specified
time period. In addition, at various times the Sponsor may implement
other programs under which the sales force of an Underwriter or
dealer may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to any
such Underwriter or dealer that sponsors sales contests or recognition
programs conforming to criteria established by the Sponsor, or
participates in sales programs sponsored by the Sponsor, an amount
not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to
time pursuant to objective criteria established by the Sponsor
pay fees to qualifying Underwriters or dealers for certain services
or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts.
These programs will not change the price Unit holders pay for
their Units or the amount that the Trusts will receive from the
Units sold.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising
and sales materials compare the then current estimated returns
on the Trust and returns over specified periods on other similar
Trusts sponsored by Nike Securities L.P. with returns on taxable
investments such as corporate or U.S. Government bonds, bank CDs
and money market accounts or money market funds, each of which
has investment characteristics that may differ from those of the
Trust. U.S. Government bonds, for example, are backed by the full
faith and credit of the U.S. Government and bank CDs and money
market accounts are insured by an agency of the federal government.
Money market accounts and money market funds provide stability
of principal, but pay interest at rates that vary with the condition
of the short-term debt market. The investment characteristics
of the Trust are described more fully elsewhere in this Prospectus.
THE SEPARATE TRUSTS
Specific information such as the Estimated Long-Term Return, the
Estimated Current Return (if applicable), distributions and tax
status for each of the Trusts commences on the pages immediately
following.
Page 38
Georgia Insured Trust, Series 3
<TABLE>
<CAPTION>
Special Trust Information
Monthly
__________
<S> <C>
Calculation of Estimated Net Annual Unit Income (1)
Estimated Annual Interest Income per Unit $ 50.40
Less: Estimated Annual Expense per Unit $ 1.90
Estimated Net Annual Interest Income per Unit $ 48.50
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 48.50
Divided by 12 $ 4.04
Estimated Daily Rate of Net Interest Accrual per Unit $ .134719
Estimated Current Return Based on Public Offering Price (2) 4.85 %
Estimated Long-Term Return Based on Public Offering Price (2) 4.92 %
CUSIP 33733R 154
</TABLE>
Trustee's Annual Fee $.96 per Unit, exclusive of expenses of
the Trust commencing December 21, 1994.
Distributions
First distribution of $2.16 per Unit will be paid on January 31,
1994 to Unit holders of record on January 15, 1994.
Regular distributions of $4.04 per Unit will begin on February
28, 1994 to Unit holders of record on February 15, 1994.
Computation Dates Fifteenth day of the month.
Distribution Dates Last day of the month
commencing January 31, 1994.
[FN]
(1) During the first year only, the Trustee has agreed to reduce
its fee and pay expenses of the Trust in an amount (approximately
$.04) equal to the interest that would have accrued prior to the
expected delivery dates of Bonds included in the Portfolio that
were purchased on a "when, as and if issued" or delayed delivery
basis. During the first year, Estimated Annual Interest Income
per Unit would be $50.36. Estimated Net Annual Interest Income
per Unit, Estimated Current Return Based on Public Offering Price
and Estimated Long-Term Return Based on Public Offering Price
would be as indicated above. See "What is The First Trust Combined
Series?" and "What are the Expenses and Charges?"
(2) The Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering
Price. The Estimated Net Annual Interest Income per Unit will
vary with changes in fees and expenses of the Trustee, the Portfolio
Supervisor and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Bonds while the Public
Offering Price will vary with changes in the offering price of
the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized
in the future. The Estimated Long-Term Return is calculated using
a formula which (1) takes into consideration, and determines and
factors in the relative weightings of the market values, yields
(which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the
Bonds in the Trust; (2) takes into account the expenses and sales
charge associated with each Unit of the Trust; and (3) takes into
effect the tax-adjusted yield from potential capital gains at
the Date of Deposit. Since the market values and estimated retirements
of the Bonds and the expenses of the Trust will change, there
is no assurance that the present Estimated 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. 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. 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. The estimated cash flows for this Trust are set forth under
"Estimated Cash Flows to Unit Holders."
Page 39
Georgia Insured Trust Summary
The Georgia Insured Trust consists of seven obligations of issuers
located in Georgia and one obligation of an issuer located in
the Commonwealth of Puerto Rico. The Bond issues in the Trust
are either general obligations of governmental entities or are
revenue bonds payable from the income of a specific project or
authority. The Bonds in the Trust are divided by purpose of issue
and represent the percentage of aggregate principal amount of
the Bonds as indicated by the following table:
<TABLE>
<CAPTION>
Number of Purpose of Portfolio
Issues Issue Percentage
________ ________ ________
<C> <S> <C>
1 General Obligation 16.09%
4 Water and Sewer 48.44%
2 Health Care 31.14%
1 Electric 4.33%
</TABLE>
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
82%. The three largest such issues represent approximately 17%
each. None of the Bonds in the Trust are subject to call within
five years of the Date of Deposit, although certain Bonds may
be subject to an extraordinary call.
Approximately 68% of the aggregate principal amount (approximately
71% of the aggregate offering price) of the Bonds in the Trust
were purchased at a premium over par value. Certain of these Bonds
are subject to redemption pursuant to call provisions in approximately
10-11 years after the Date of Deposit. See "What Is the First
Trust Combined Series?", "Georgia Insured Trust, Series 3-Portfolio"
and "Description of Bond Ratings."
Federal and Georgia State Tax-Free Income
The following table shows the approximate marginal taxable yields
for individuals that are equivalent to tax-exempt yields under
combined Federal and state taxes, using published 1993 marginal
Federal tax rates and marginal state tax rates currently available
and scheduled to be in effect. The table incorporates increased
tax rates for higher-income taxpayers that were included in the
recently enacted Revenue Reconciliation Act of 1993. For cases
in which more than one state bracket falls within a Federal bracket,
the higher state bracket is combined with the Federal bracket.
The combined state and Federal tax rates shown reflect the fact
that state tax payments are currently deductible for Federal tax
purposes, and have been rounded to the nearest 1/2 of 1%. The
table illustrates what you would have to earn on taxable investments
to equal the tax-exempt yield for your income tax bracket. The
taxable equivalent yields may be somewhat higher than the equivalent
yields indicated in the following table for those individuals
who have adjusted gross incomes in excess of $108,450. The table
does not reflect the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed
to phase out certain benefits of these deductions for higher income
taxpayers. These limitations, in effect, raise the maximum marginal
Federal tax rate to approximately 44% for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately
41% for taxpayers filing a single return entitled to only one
personal exemption. These limitations are subject to certain maximums,
which depend on the number of exemptions claimed and the total
amount of the taxpayer's itemized deductions. For example, the
limitation on itemized deductions will not cause a taxpayer to
lose more than 80% of his allowable itemized deductions, with
certain exceptions.
Page 40
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD
Taxable Income ($1,000's) Tax-Exempt Yield
________________________________ _____________________
Single Joint Tax 4.50% 5.00% 5.50%
Return Return Rate Taxable Equivalent Yield
________ ________ _______ _____ _____ _____
<C> <C> <S> <C> <C> <C>
$ 0- 22.1 $ 0- 36.9 20.0% 5.63 6.25 6.88
22.1- 53.5 36.9- 89.2 32.5 6.67 7.41 8.15
53.5- 115.0 89.2- 140.0 35.0 6.92 7.69 8.46
115.0- 250.0 140.0- 250.0 40.0 7.50 8.33 9.17
Over 250.0 Over 250.0 43.0 7.89 8.77 9.65
</TABLE>
Certain Considerations
The following brief summary regarding the economy of Georgia is
based upon information drawn from publicly available sources and
is included for purposes of providing information about general
economic conditions that may or may not affect issuers of the
Georgia obligations. The Sponsor has not independently verified
any of the information contained in such publicly available documents.
Constitutional Considerations. The Georgia Constitution permits
the issuance by the State of general obligation debt and of certain
guaranteed revenue debt. The State may incur guaranteed revenue
debt by guaranteeing the payment of certain revenue obligations
issued by an instrumentality of the State. The Georgia Constitution
prohibits the incurring of any general obligation debt or guaranteed
revenue debt if the highest aggregate annual debt service requirement
for the then current year or any subsequent fiscal year for outstanding
general obligation debt and guaranteed revenue debt, including
the proposed debt, exceed 10 percent of the total revenue receipts,
less refunds, of the State treasury in the fiscal year immediately
preceding the year in which any such debt is to be incurred.
The Georgia Constitution also permits the State to incur public
debt to supply a temporary deficit in the State treasury in any
fiscal year created by a delay in collecting the taxes of that
year. Such debt must not exceed, in the aggregate, 5% of the total
revenue receipts, less refunds, of the State treasury in the fiscal
year immediately preceding the year in which such debt is incurred.
The debt incurred must be repaid on or before the last day of
the fiscal year in which it is to be incurred out of the taxes
levied for that fiscal year. No such debt may be incurred in any
fiscal year if there is then outstanding unpaid debt from any
previous fiscal year which was incurred to supply a temporary
deficit in the State treasury. No such short-term debt has been
incurred under this provision since the inception of the constitutional
authority referred to in this paragraph.
Virtually all of the issues of long-term debt obligations issued
by or on behalf of the State of Georgia and counties, municipalities
and other political subdivisions and public authorities thereof
are required by law to be validated and confirmed in a judicial
proceeding prior to issuance. The legal effect of an approved
validation in Georgia is to render incontestable the validity
of the pertinent bond issue and the security therefor.
The State and and Its Economy. The State operates on a fiscal
year beginning July 1 and ending June 30. Thus, the 1993 fiscal
year ended June 30, 1993. Based on data of the Georgia Department
of Revenue estimated receipts of the State from income tax and
sales tax for the 1992 fiscal year comprised approximately 48.8%
and 37.9%, respectively, of the total State tax revenues. Such
data shows that total estimated State treasury receipts for the
1992 fiscal year increase by approximately 2.8% over such collections
in the 1991 fiscal year. The estimated 1993 fiscal year figures
indicate that receipts of the State from income tax and sales
tax for the 1993 fiscal year will comprise approximately 49.4%
and 37.9%, respectively, of the total State tax revenues. Total
estimated State tax revenue collections for the 1993 fiscal year
indicate an increase of approximately 8.4% over such collections
in the 1992 fiscal year.
Georgia experienced an economic slowdown in the late 1980s that
continued into 1992. The 1991 fiscal year ended with a balanced
budget, but only because the State had borrowed approximately
$90 million from surpluses maintained for special uses. In light
of weaker than expected monthly revenue collections in May and
June of 1991, Georgia lawmakers, in a special legislative session,
cut budgeted expenditures for the
Page 41
1992 fiscal year by $415 million. Georgia ended its 1992 fiscal
year, however, with strong monthly revenue collections. For the
last four months of fiscal year 1992, Georgia's revenues were
more than 6% higher than revenues reported one year earlier for
the same time period. By year-end, revenue collections fell only
0.1% short of that expected to cover 1992 expenditures. This shortfall
was made up from funds allocated to but not used by state agencies.
The authorized 1993 fiscal year budget consists of an $8.3 billion
spending plan and approximately $750 million in new general obligation
debt. On March 23, 1993, the Georgia General Assembly approved
an $8.9 billion budget for the 1994 fiscal year which includes
authorization for $792 million of general obligation borrowing.
The Georgia economy has performed relatively well during recent
years and generally has expanded at a rate greater than the national
average during that period. However, growth in 1988 through 1992
has slowed somewhat and was modest compared to the robust pace
of the early 1980's. Georgia's leading economic indicators currently
suggest that the rate of growth of the Georgia economy will continue
at the pace of 1988 and 1989 and more closely match the national
economy. The 1992 annual average unemployment rate for Georgia
was 6.9% as compared to the 1992 national annual average unemployment
rate of 7.4%. Georgia's unemployment rates (not seasonally adjusted)
have consistently fallen throughout the first five months of 1993.
The January unemployment rate stood at 6.8%, while the May rate
stood at 5.2%. These 1993 rates are, with one exception, lower
than both the corresponding 1993 national unemployment rates,
7.9% and 6.7% for January and May, and the 1992 Georgia unemployment
rates, 6.0% and 6.6% for January and May. Although many areas
of the economy are expected to continue to perform strongly, some
areas such as the primary metals, carpet and apparel industries
are still experiencing periods of weakness, and others, such as
construction and construction-related manufacturing activities
(e.g., lumber, furniture and stone/clay products), currently show
signs of weakening. In addition, aircraft manufacturers located
within the State are in a tenuous position due to reductions in
the federal defense budget. Presently, Georgia continues to lead
the nation in the production of pulp, pulpwood and paper. Other
industries show potential for great expansion, but policy considerations,
tax reform laws, foreign competition, and other factors may render
these industries less productive.
Bond Ratings. Currently, Moody's Investors Service, Inc. rates
Georgia general obligation bonds Aaa and Standard & Poor's Corporation
rates such bonds AA+.
Legal Proceedings. Georgia is involved in certain legal proceedings
that, if decided against the State, may required the State to
make significant future expenditures or may substantially impair
revenues. Several lawsuits have been filed against Georgia asserting
that the decision in Davis v. Michigan Department of Treasury,
489 U.S. 803 (1989), invalidating Michigan's practice of taxing
retirement benefits paid by the federal government while exempting
state retirement benefits, also invalidates Georgia's tax treatment
of Federal Retirement Benefits for years prior to 1989. Under
Georgia's applicable 3 year statute of limitation the maximum
potential liability under these suits calculated to April 1, 1992
would appear to be no greater than 128 million dollars. The plaintiffs
in these suits, however, have requested refunds for a period from
1980 which could result in a maximum potential liability in the
range of 591 million dollars. Any such liability would be predicated
on a holding by a Georgia court or the United States Supreme Court
that the Davis decision is applicable to Georgia's prior method
of taxing Federal Retirement Benefits, that the Davis decision
is to be given a retroactive effect, i.e., that the decision affects
prior tax years and that a refund remedy is appropriate. In Georgia's
"test case", the Georgia Supreme Court held that no refunds are
due. On June 28, 1993, however, the U.S. Supreme Court vacated
that holding and remanded the case for further consideration in
light of the U.S. Supreme Court decision in Harper v. Virginia
Department of Taxation (Decided June 18, 1993). In Harper, the
Court held that its decision in Davis applied retroactively to
federal retirees who were denied Virginia personal income tax
refunds.
Another suit filed against Georgia seeks a $31 million refund
plus interest of liquor taxes imposed under a Georgia statute
found retroactively invalid by the U.S. Supreme Court. The trail
court's decision that no refunds are due is currently being reviewed
by the Georgia Supreme Court.
Page 42
Two additional suits have been filed with the State of Georgia
by foreign producers of alcoholic beverages seeking $96 million
in refunds of alcohol import taxes imposed under another statute.
These claims constitute 99% of all such taxes paid during the
preceding three years.
In Board of Public Education for Savannah/Chatham County v. State
of Georgia, the local school board claimed that the State should
finance the major portion of costs of its desegregation program.
The Savannah Board originally requested restitution in the amount
of $30 million, but the Federal District Court set forth a formula
which would require a State payment in the amount of approximately
$6 million. Both sides have moved for reconsideration. In a similar
complaint, DeKalb County has requested restitution in the amount
of $90 million, and there are approximately five other school
districts which could file similar claims. It is not possible
to quantify such potential claims at this time.
The foregoing information constitutes only a brief summary of
some of the financial difficulties which may impact certain issuers
of Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers in the Georgia
Insured Trust are subject. Additionally, many factors including
national economic, social and environmental policies and conditions,
which are not within the control of the issuers of Bonds, could
affect or could have an adverse impact on the financial condition
of the State and various agencies and political subdivisions located
in the State. The Sponsor is unable to predict whether or to what
extent such factors or other factors may affect the issuers of
Bonds, the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by the Georgia
Insured Trust to pay interest on or principal of the Bonds. See
"Why and How are the Insured Trusts Insured?"
Georgia Tax Status
In the opinion of Chapman and Cutler, Special Counsel to the Fund
for Georgia tax matters, under existing Georgia law as of the
date of this prospectus:
For Georgia income tax purposes, the Georgia Insured Trust is
not an association taxable as a corporation, and the income of
the Georgia Insured Trust will be treated as the income of the
Unit holders. Interest on the Georgia Bonds which is exempt from
Georgia income tax when received by the Georgia Insured Trust,
and which would be exempt from Georgia income tax if received
directly by a Unit holder, will retain its status as tax-exempt
interest when distributed by the Georgia Insured Trust and received
by the Unit holders.
If the Trustee disposes of a Georgia Bond (whether by sale, exchange,
payment on maturity, retirement or otherwise) or if a Unit holder
redeems or sells his Unit, the Unit holder will recognize gain
or loss for Georgia income tax purposes to the same extent that
gain or loss would be recognized for federal income tax purposes
(except in the case of Georgia Bonds issued before March 11, 1987
issued with original issue discount owned by the Georgia Insured
Trust, in which case gain or loss for Georgia income tax purposes
would be determined by accruing said original issue discount on
a ratable basis). Due to the amortization of bond premium and
other basis adjustments required by the Internal Revenue Code,
a Unit holder, under some circumstances, may realize taxable gain
when his or her Units are sold or redeemed for an amount equal
to their original cost.
Because obligations or evidences of debt of Georgia, its political
subdivisions and public institutions and bonds issued by the Government
of Puerto Rico are exempt from the Georgia intangible personal
property tax, the Georgia Insured Trust will not be subject to
such tax as the result of holding such obligations, evidences
of debt or bonds. Although there currently is no published administrative
interpretation or opinion of the Attorney General of Georgia dealing
with the status of bonds issued by a political subdivision of
Puerto Rico, we have in the past been advised orally by representatives
of the Georgia Department of Revenue that such bonds would also
be considered exempt from such tax. Based on that advice, and
in the absence of a published administrative interpretation to
the contrary, we are of the opinion that the Georgia Insured Trust
would not be subject to such tax as the result of holding bonds
issued by a political subdivision of Puerto Rico.
Page 43
Amounts paid under an insurance policy or policies issued to the
Georgia Insured Trust, if any, with respect to the Georgia Bonds
in the Georgia Insured Trust which represent maturing interest
on defaulted obligations held by the Trustee will be exempt from
State income taxes if, and to the extent as, such interest would
have been so exempt if paid by the issuer of the defaulted obligations.
We express no opinion regarding whether a Unit holder's ownership
of an interest in the Georgia Insured Trust is subject to the
Georgia intangible personal property tax. Although the application
of the Georgia intangible personal property tax to the ownership
of the Units by the Unit holders is not clear, representatives
of the Georgia Department of Revenue have in the past advised
us orally that, for purposes of the intangible personal property
tax, the Department considers a Unit holder's ownership of an
interest in the Georgia Insured Trust as a whole to be taxable
intangible personal property separate from any ownership interest
in the underlying tax-exempt Georgia Bonds.
Neither the Georgia Bonds nor the Units will be subject to Georgia
sales or use 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?"
Page 44
Georgia Insured Trust, Series 3
Portfolio
Units Rated "AAA"_
At the Opening of Business
On the Date of Deposit of the Bonds-December 21, 1993
<TABLE>
<CAPTION>
Aggregate Issue Represented by Sponsor's Redemption Cost to
Principal Contracts to Purchase Bonds (1) Rating (2) Provisions (3) the Trust
________ ________________________________ ________ ________________ ________
<C> <S> <C> <C> <C>
$ 465,000 Cherokee County School System (Georgia), AAA 2004 @ 102 $ 466,000
General Obligation, School, Series 1993 2010 @ 100 S.F.
(AMBAC Insured), 5.375%, Due 2/01/2014 (5)
500,000 Cherokee County (Georgia), Water and Sewerage AAA 2019 @ 100 S.F. 511,050
Authority, Water and Sewerage Revenue,
Refunding and Improvements, Series 1993
(MBIA Insured), 5.50%, Due 8/01/2023 (5)
500,000 Columbus, Georgia, Water and Sewerage AAA 2003 @ 102 517,380
Revenue Refunding, Series 1993 (FGIC 2014 @ 100 S.F.
Insured), 5.70%, Due 5/01/2020 (5)
400,000 The Dalton-Whitfield County Hospital Authority AAA 2004 @ 102 395,816
(Georgia), Refunding Revenue Anticipation 2014 @ 100 S.F.
Certificates, Series 1993 A (MBIA Insured),
5.375%, Due 7/01/2020 (5)
500,000 { The Fulton-Dekalb Hospital Authority (Georgia), AAA 2003 @ 102 502,110
Revenue Refunding Certificates, Series 1993 2013 @ 100 S.F.
(MBIA Insured), 5.50%, Due 1/01/2020 (5)
250,000 Henry County, Georgia and Henry County AAA 2004 @ 102 246,412
Water and Sewerage Authority, Water and 2014 @ 100 S.F.
Sewerage Revenue Refunding and Improvement,
Series 1993A (AMBAC Insured),
5.25%, Due 2/01/2018 (5)
125,000 {{ Puerto Rico Electric Power Authority, Power AAA 2015 @ 87.060 S.F. 36,135
Revenue Refunding, Series N (Capital
Guaranty Insured), Zero Coupon,
Due 7/01/2017 (5)
150,000 * City of Rome (Georgia), Water and Sewerage AAA 2004 @ 102 149,136
Revenue Refunding and Improvement, Series 2010 @ 100 S.F.
1993A (AMBAC Insured), 5.25%, Due 1/01/2012 (5)
__________ ___________
$2,890,000 $ 2,824,039
========== ===========
</TABLE>
[FN]
_ Units are rated "AAA" as a result of insurance. See "Why and
How are the Insured Trusts Insured?"
{ These Bonds were issued at an original issue discount on May
1, 1993 at a price of 94.483% of their original principal amount.
{{ 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 24, 1989 at a
price of 14.517% of their original principal amount.
* Sponsor's contracts for the purchase of all or a portion of
these Bonds (approximately 5% of the aggregate principal amount
of the Bonds in the Trust) are either on a "when, as and if issued"
basis or are delayed delivery Bonds and are expected to be settled
on or before January 5, 1994.
For industry concentrations of the Bonds in the Trust, see "Georgia
Insured Trust Summary."
See "Notes to Portfolios" on page 53.
Page 45
Indiana Advantage Trust, Series 12
<TABLE>
<CAPTION>
Special Trust Information
Monthly
__________
<S> <C>
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 51.90
Less: Estimated Annual Expense per Unit $ 1.91
Estimated Net Annual Interest Income per Unit $ 49.99
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 49.99
Divided by 12 $ 4.17
Estimated Daily Rate of Net Interest Accrual per Unit $ .138871
Estimated Current Return Based on Public Offering Price (1) 5.00 %
Estimated Long-Term Return Based on Public Offering Price (1) 5.07 %
CUSIP 33732C 851
</TABLE>
Trustee's Annual Fee $.97 per Unit, exclusive of expenses of
the Trust commencing December 21, 1993.
Distributions
First distribution of $2.22 per Unit will be paid on January 31,
1994 to Unit holders of record on January 15, 1994.
Regular distributions of $4.17 per Unit will begin on February
28, 1994 to Unit holders of record on February 15, 1994.
Computation Dates Fifteenth day of the month.
Distribution Dates Last day of the month
commencing January 31, 1994.
[FN]
(1) The Estimated Current Return is calculated by dividing the
Estimated Net Annual Interest Income per Unit by the Public Offering
Price. The Estimated Net Annual Interest Income per Unit will
vary with changes in fees and expenses of the Trustee, the Portfolio
Supervisor and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Bonds while the Public
Offering Price will vary with changes in the offering price of
the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized
in the future. The Estimated Long-Term Return is calculated using
a formula which (1) takes into consideration, and determines and
factors in the relative weightings of the market values, yields
(which take into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the
Bonds in the Trust; (2) takes into account the expenses and sales
charge associated with each Unit of the Trust; and (3) takes into
effect the tax-adjusted yield from potential capital gains at
the Date of Deposit. Since the market values and estimated retirements
of the Bonds and the expenses of the Trust will change, there
is no assurance that the present Estimated 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. 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. 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. The estimated cash flows for this Trust are set forth under
"Estimated Cash Flows to Unit Holders."
Page 46
Indiana Advantage Trust Summary
The Indiana Advantage Trust consists of seven obligations of
issuers located in Indiana. The Bond issues in the Trust are either
general obligations of governmental entities or are revenue bonds
payable from the income of a specific project or authority. The
Bonds in the Trust are divided by purpose of issue and represent
the percentage of aggregate principal amount of the Bonds as indicated
by the following table:
<TABLE>
<CAPTION>
Number of Purpose of Portfolio
Issues Issue Percentage
________ ________ ________
<C> <S> <C>
3 University and School 41.18%
2 Health Care 23.53%
2 Miscellaneous 35.29%
</TABLE>
Each of six Bond issues represents 10% or more of the aggregate
principal amount of the Bonds in the Trust or a total of approximately
94%. The two largest such issues represent approximately 24%
each. None of the Bonds in the Trust are subject to call within
five years of the Date of Deposit, although certain Bonds may
be subject to an extraordinary call.
Approximately 82% of the aggregate principal amount (approximately
86% of the aggregate offering price) of the Bonds in the Trust
were purchased at a premium over par value. Certain of these Bonds
are subject to redemption pursuant to call provisions in approximately
9-11 years after the Date of Deposit. See "What Is the First Trust
Combined Series?", "Indiana Advantage Trust, Series 12-Portfolio"
and "Description of Bond Ratings."
Federal and Indiana State Tax-Free Income
The following table shows the approximate marginal taxable yields
for individuals that are equivalent to tax-exempt yields under
combined Federal and state taxes, using published 1993 marginal
Federal tax rates and marginal state tax rates currently available
and scheduled to be in effect. The table incorporates increased
tax rates for higher-income taxpayers that were included in the
recently enacted Revenue Reconciliation Act of 1993. For cases
in which more than one state bracket falls within a Federal bracket,
the higher state bracket is combined with the Federal bracket.
The combined state and Federal tax rates shown reflect the fact
that state tax payments are currently deductible for Federal tax
purposes, and have been rounded to the nearest 1/2 of 1%. The
table illustrates what you would have to earn on taxable investments
to equal the tax-exempt yield for your income tax bracket. The
taxable equivalent yields may be somewhat higher than the equivalent
yields indicated in the following table for those individuals
who have adjusted gross incomes in excess of $108,450. The table
does not reflect the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed
to phase out certain benefits of these deductions for higher income
taxpayers. These limitations, in effect, raise the maximum marginal
Federal tax rate to approximately 44% for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately
41% for taxpayers filing a single return entitled to only one
personal exemption. These limitations are subject to certain maximums,
which depend on the number of exemptions claimed and the total
amount of the taxpayer's itemized deductions. For example, the
limitation on itemized deductions will not cause a taxpayer to
lose more than 80% of his allowable itemized deductions, with
certain exceptions.
Page 47
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD
Taxable Income ($1,000's) Tax-Exempt Yield
________________________________ ______________________
Single Joint Tax 4.50% 5.00% 5.50%
Return Return Rate Taxable Equivalent Yield
________ ________ _______ _____ _____ _____
<C> <C> <S> <C> <C> <C>
$ 0- 22.1 $ 0- 36.9 18.0% 5.49 6.10 6.71
22.1- 53.5 36.9- 89.2 30.50 6.47 7.19 7.91
53.5- 115.0 89.2- 140.0 33.5 6.77 7.52 8.27
115.0- 250.0 140.0- 250.0 38.0 7.26 8.06 8.87
Over 250.0 Over 250.0 41.5 7.69 8.55 9.40
</TABLE>
Certain Considerations
The economy of Indiana (the "State") is balanced among diversified
industry, services and agriculture. Durable goods manufacturing
in the State is comprised of such items as lumber and wood, furniture,
stone and glass, primary metals including steel, fabricated metals,
nonelectrical and electrical machinery and transportation equipment.
Nondurable goods manufacturing in the State includes food, apparel
and textiles, paper and printing, chemicals and pharmaceuticals,
petroleum derivatives, and rubber and plastics. The non-manufacturing
sector includes mining and quarrying, contract construction, transportation
and trucking, wholesale and retail trade and service industries
such as banking, insurance and health care. The leaders in terms
of total employment are primary metals, transportation equipment,
contract construction, transportation and communications, wholesale
and retail trade, finance, insurance and real-estate related services,
health services and government and education. The foregoing is
based upon information supplied by the State's Department of Employment
and Training Services.
For fiscal year 1991-92, total State expenditures equaled $10,111,411,375.
The estimated total State expenditures for 1992-93 equaled $11,649,480,740;
and the requested total State expenditures for 1993-94 equaled
$12,660,803,442. For fiscal year 1991-92 actual State revenues
totaled $10,056,267,435; for fiscal years 1992-93 and 1993-94
the estimated State revenues totaled $10,968,079,561 and $10,805,302,083,
respectively. The foregoing is based on information provided by
the State.
The foregoing information constitutes only a brief summary of
some of the financial difficulties which may impact certain issuers
of Bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers in the Indiana
Trust are subject. Additionally, many factors including national
economic, social and environmental policies and conditions, which
are not within the control of the issuers of Bonds, could affect
or could have an adverse impact on the financial condition of
the State and various agencies and political subdivisions located
in the State. The Sponsor is unable to predict whether or to what
extent such factors or other factors may affect the issuers of
Bonds, the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by the Indiana
Trust to pay interest on or principal of the Bonds.
Indiana Tax Status
In the opinion of Chapman and Cutler, Special Counsel to the Fund
for Indiana tax matters, under existing law:
The Indiana Trust is not an association taxable as a corporation
for purposes of the Indiana State Adjusted Gross Income Tax, the
Supplemental Corporate Net Income Tax, the County Adjusted Gross
Income Tax and the Indiana Financial Institutions Tax (collectively,
the "State Income Tax").
Each Indiana Unit holder will be treated as owning a pro rata
share of each asset of the Indiana Trust for Indiana State Income
Tax purposes in the proportion that the number of Units of such
Trust held by the Unit holder bears to the total number of outstanding
Units of the Indiana Trust, and the income of the Indiana Trust
Page 48
will therefore be treated as income of each Indiana Unit holder
for Indiana State Income Tax purposes in the proportion described.
Interest on Bonds that would not be includible in income for Indiana
State Income Tax purposes when paid directly to an Indiana Unit
holder will be exempt from the Indiana State Income Tax when received
by the Indiana Trust and attributed to such Indiana Unit holder
and when distributed to such Indiana Unit holder.
For purposes of both the Indiana State Income Tax and the Gross
Receipts Tax (in the case of taxpayers other than individuals
that are subject to such tax), each Indiana Unit holder will realize
taxable gain or loss when the Indiana Trust disposes of a Bond
(whether by sale, exchange, redemption, or payment at maturity)
or when the Indiana Unit holder redeems or sells Units at a price
that differs from original cost as adjusted for amortization of
bond discount or premium and other basis adjustments (including
any basis reduction that may be required to reflect an Indiana
Unit holder's share of interest, if any, accruing on Bonds during
the interval between the Indiana Unit holder's settlement date
and the date such Bonds are delivered to the Indiana Trust, if
later).
Tax cost reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Indiana Unit
holders realizing taxable gain when their Units are sold or redeemed
for an amount equal to or less than their original cost.
If interest on indebtedness incurred or continued by an Indiana
Unit holder to purchase Units in the Indiana Trust is not deductible
for federal income tax purposes, it also will be non-deductible
for Indiana State Income Tax purposes.
Indiana imposes a Gross Receipts Tax generally applicable to taxpayers
other than individuals. No opinion is expressed herein as to whether
distributions from the Indiana Trust to a Unit holder are subject
to the Gross Receipts Tax. However, the Indiana Department of
Revenue has advised that distributions from the Indiana Trust
will be exempt from Indiana Gross Receipts Tax to the extent such
distributions relate to payments of interest received by the Indiana
Trust on bonds that would, if received directly by such Unit holder,
be exempt from such tax, provided that the Indiana Trust complies
with certain information reporting and certification requirements.
We have been advised that this merely represents the current position
of the Indiana Department of Revenue and is subject to change.
Indiana has recently imposed the Indiana Financial Institutions
Tax applicable to corporations transacting the business of a financial
institution in Indiana. It should be noted that taxable income
for purposes of computing such tax includes interest on bonds
that is excludible from gross income for federal income tax purposes.
Accordingly, interest income attributable to a Unit holder to
which the Indiana Financial Institutions Tax applies would generally
be subject to such tax.
Units will be subject to the Indiana inheritance tax when held
by a Unit holder subject to such 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?"
Page 49
Indiana Advantage Trust, Series 12
Portfolio
At the Opening of Business
On the Date of Deposit of the Bonds-December 21, 1993
<TABLE>
<CAPTION>
Aggregate Issue Represented by Sponsor's Redemption Cost to
Principal Contracts to Purchase Bonds (1) Rating (2) Provisions(3) the Trust
________ ________________________________ ________ ________________ ________
<C> <S> <C> <C> <C>
$ 250,000 Eastern Howard Multi-School Building A 2004 @ 102 $ 254,328
Corporation (Howard County, Indiana), 2008 @ 100 S.F.
First Mortgage Refunding, Series 1993,
5.80%, Due 1/15/2014
500,000 Fishers Town Hall Building Corporation, A- 2003 @ 102 508,695
First Mortgage Improvement of 1993 (Town of 2009 @ 100 S.F.
Fishers, Indiana), 5.80%, Due 7/15/2014
250,000 { Indiana Health Facility Financing Authority, AAA 2002 @ 102 253,937
Hospital Revenue Refunding and Improvement 2009 @ 100 S.F.
(Ancilla Systems Incorporated), Series 1992A
(MBIA Insured), 5.75%, Due 7/01/2015
250,000 { Indiana Health Facility Financing Authority, AA- 2002 @ 102 253,963
Hospital Revenue Refunding, Series 1992A 2012 @ 100 S.F.
(Methodist Hospital of Indiana, Inc.),
5.75%, Due 9/01/2015
125,000 {{ The Trustees of Indiana University, Indiana AA- 37,541
University Student Fee, Series 1,
Zero Coupon, Due 8/01/2015
500,000 Lake Ridge Schools Renovation Corporation A 2004 @ 102 504,320
(Lake County, Indiana), First Mortgage, 2011 @ 100 S.F.
Series 1993, 5.70%, Due 2/15/2014
250,000 { Marion County Convention and Recreational AAA 2003 @ 100 247,757
Facilities Authority (Indiana), Excise Tax 2009 @ 100 S.F.
Lease Rental Revenue Refunding, Series 1993A
(AMBAC Insured), 5.375%, Due 6/01/2013
__________ __________
$2,125,000 $2,060,541
========== ==========
</TABLE>
[FN]
{ These Bonds were issued at an original issue discount on the
following dates and at the following percentages of their original
principal amount:
Date %
_______ ______
Indiana Health Facility (Ancilla Systems, Inc.) 9/15/92 91.135
Indiana Health Facility (Methodist Hospital) 8/1/92 93.349
Marion County Convention & Recreational Facilities 3/15/93 93.839
{{ 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 13, 1992 at a
price of 23.531% of their original principal amount.
For industry concentrations of the Bonds in the Trust, see "Indiana
Advantage Trust Summary."
See "Notes to Portfolios" on page 53.
Page 50
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
THE FIRST TRUST COMBINED SERIES 207
We have audited the accompanying statements of net assets, including
the portfolios, of The First Trust of Insured Municipal Bonds-Multi-State:
Georgia Trust, Series 3 and The First Trust Advantage: Indiana
Trust, Series 12, comprising The First Trust Combined Series 207
(the Trusts) as of the opening of business on December 21, 1993.
These statements of net assets are the responsibility of the Trusts'
Sponsor. Our responsibility is to express an opinion on these
statements of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statements
of net assets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of net assets. Our procedures included
confirmation of the letter of credit held by the Trustee and allocated
among the Trusts on December 21, 1993. An audit also includes
assessing the accounting principles used and significant estimates
made by the Sponsor, as well as evaluating the overall presentation
of the statements of net assets. We believe that our audit of
the statements of net assets provides a reasonable basis for our
opinion.
In our opinion, the statements of net assets referred to above
present fairly, in all material respects, the financial position
of The First Trust of Insured Municipal Bonds-Multi-State: Georgia
Trust, Series 3 and The First Trust Advantage: Indiana Trust,
Series 12, comprising The First Trust Combined Series 207 at the
opening of business on December 21, 1993 in conformity with generally
accepted accounting principles.
ERNST & YOUNG
Chicago, Illinois
December 21, 1993
Page 51
Statements of Net Assets
The First Trust Combined Series 207
At the Opening of Business on the Date of Deposit
December 21, 1993
<TABLE>
<CAPTION>
Georgia Indiana
Insured Advantage
Trust, Trust,
Series 3 Series 12
__________ _________
NET ASSETS
<S> <C> <C>
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $ 2,824,039 $ 2,060,541
Accrued interest on underlying bonds (2)(3)(5) 32,454 15,927
____________ ____________
2,856,493 2,076,468
Less liabilities (5) 32,454 15,927
____________ ____________
Net assets $ 2,824,039 $ 2,060,541
============ ============
Outstanding Units 2,996 2,200
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET ASSETS
<S> <C> <C>
Cost to investors (4) $ 2,996,009 $ 2,200,006
Less Purchased Interest (6) 25,166 18,465
Less gross underwriting commissions (4) 146,804 121,000
____________ ____________
Net assets $ 2,824,039 $ 2,060,541
============ ============
</TABLE>
[FN]
NOTES TO STATEMENTS OF NET ASSETS
(1) The aggregate offering price of the bonds for each Trust at
the opening of business on the Date of Deposit and the cost to
the applicable Trust are the same. The offering price is determined
by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
bonds, an irrevocable letter of credit has been allocated among
the Trusts as collateral. The amount of available letter of credit
and the amount expected to be utilized for each Trust is shown
below. The amount expected to be utilized is (a) the cost to the
respective Trust of the principal amount of the bonds to be purchased,
(b) accrued interest on those bonds to the Date of Deposit, and
(c) accrued interest on those bonds from the Date of Deposit to
the expected dates of delivery of the bonds, which is exclusive
of the amount by which the Trustee has agreed to reduce its fees
during the first year ($131 in the Georgia Insured Trust).
<TABLE>
<CAPTION>
Accrued
Aggregate Accrued Interest to
Letter of Credit Offering Interest to Expected
To be Price of Date of Dates of
Trust Allocated Utilized Bonds Deposit Delivery
_______ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Georgia Insured
Trust, Series 3 $ 3,000,000 $ 2,856,728 $ 2,824,039 $ 32,454 $ 235
Indiana Advantage
Trust, Series 12 $ 2,100,000 $ 2,077,571 $ 2,060,541 $ 15,927 $ 1,103
</TABLE>
(3) Insurance coverage providing for the scheduled payment of
principal and interest on all Bonds deposited in the Georgia Insured
Trust and delivered to the Trustee has been obtained by such Insured
Trust or has been obtained directly by the Bond issuer, the underwriters,
the Sponsor or others prior to the Date of Deposit.
(4) The aggregate cost to investors (including Purchased Interest)
and the aggregate gross underwriting commissions of 4.9% for the
Georgia Insured Trust and 5.5% for the Indiana Advantage Trust
are computed assuming no reduction of sales charge for quantity
purchases.
(5) Accrued interest on the underlying Bonds represents the interest
accrued as of the Date of Deposit from the later of the last payment
date on the Bonds or the date of issuance thereof. Such amount
applicable to
Page 52
each Trust is a liability of such Trust because the Trusts are
entitled to earn interest income beginning on the Date of Deposit.
In addition, the Trustee may advance to each Trust a portion of
the accrued interest on the underlying Bonds and a portion of
the amount of interest which each Trust will earn from the Date
of Deposit to December 29, 1993, the First Settlement Date, for
distribution to the Sponsor as the Unit holder of record.
(6) Purchased Interest is a portion of the accrued interest on
the underlying Bonds as of the Date of Deposit, plus a portion
of the interest that the Trust will earn from the Date of Deposit
through the First Settlement Date. Purchased Interest is included
in the Public Offering Price.
NOTES TO PORTFOLIOS
The following Notes to Portfolios pertain to the information contained
in the Trust Portfolios (the Georgia Insured Trust, Series 3 on
page 45 and the Indiana Advantage Trust, Series 12 on page 50).
(1) Sponsor's contracts to purchase Bonds were entered into during
the period from July 12, 1993 to December 20, 1993. All contracts
to purchase Bonds are expected to be settled on or prior to December
29, 1993 unless otherwise indicated.
Other information regarding the Bonds in each Trust on the Date
of Deposit is as follows:
<TABLE>
<CAPTION>
Aggregate Annual Annual
Offering Cost of Profit Or Insurance Interest
Price of Bonds To (Loss) To Bid Price Cost To Income
Trust Bonds Sponsor Sponsor of Bonds Trust to Trust
__________________ ________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Georgia Insured
Trust, Series 3 $ 2,824,039 $ 2,809,989 $ 14,050 $ 2,810,034 $ - $ 150,994
Indiana Advantage
Trust, Series 12 $ 2,060,541 $ 2,027,833 $ 32,708 $ 2,050,354 $ - $ 114,188
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor
reflects underwriting profits or losses received or incurred by
the Sponsor through its participation in underwriting syndicates
but such amounts reflect the cost of insurance obtained by the
Sponsor prior to the Date of Deposit for individual Bonds. The
Offering and Bid Prices of Bonds were determined by Securities
Evaluation Service, Inc., certain shareholders of which are officers
of the Sponsor.
(2) All ratings are by Standard & Poor's Corporation unless otherwise
indicated (NR indicates "No Rating"). Such ratings were obtained
from a municipal bond information reporting service.
(3) There is shown under this heading the year in which each issue
of Bonds initially is redeemable and the redemption price for
that year or, if currently redeemable, the redemption price in
effect on the Date of Deposit. Issues of Bonds are redeemable
at declining prices (but not below par value) in subsequent years
except for original issue discount Bonds which are redeemable
at prices based on the issue price plus the amount of original
issue discount accreted to the redemption date plus, if applicable,
some premium, the amount of which will decline in subsequent years.
"S.F." indicates a sinking fund is established with respect to
an issue of Bonds. In addition, certain Bonds in the portfolio
may be redeemed in whole or in part other than by operation of
the stated redemption or sinking fund provisions under certain
unusual or extraordinary circumstances specified in the instruments
setting forth the terms and provisions of such Bonds. See "What
Is the First Trust Combined Series?" for a description of certain
of such unusual or extraordinary circumstances. Redemption pursuant
to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium
over par or for original issue discount Bonds a premium over the
accreted value. To the extent that the Bonds were deposited in
the Fund at a price higher than the price at which they are redeemed,
this will represent a loss of capital when compared with the original
Public Offering Price of the Units. Conversely, to the extent
that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared
to the original Public Offering Price of the Units, excluding
the effect of the sales charge on the Units. Distributions will
generally be reduced by the amount of the income which would otherwise
have been paid with respect to redeemed Bonds and there will be
distributed to Unit holders the principal amount and any premium
received on such redemption (except to the extent the proceeds
of the redeemed Bonds are used to pay for Unit redemptions). The
estimated current return and the long-term return in this event
may be affected by such redemptions. For the Federal and state
Page 53
tax effect on Unit holders of such redemptions and resultant distributions,
see "The First Trust Combined Series-What is the Federal Tax Status
of Unit Holders?", "Georgia Insured Trust Summary-Georgia Tax
Status" and "Indiana Advantage Trust Summary-Indiana Tax Status."
(4) Ratings by Moody's Investors Service, Inc. Such ratings were
obtained from a municipal bond information reporting service.
(5) Insurance has been obtained by the Bond issuer, the underwriters,
the Sponsor or others prior to the Date of Deposit. No insurance
premium is payable by the Trust.
(6) Rating is contingent upon the issuance of insurance.
(7) Rating is contingent upon receipt of documentation confirming
investments and cash flow.
DESCRIPTION OF BOND RATINGS*
* As published by the rating companies.
Standard & Poor's Corporation. A brief description of the applicable
Standard & Poor's Corporation rating symbols and their meanings
follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect
to a specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
l. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements
under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
** Bonds insured by Financial Guaranty Insurance Company, AMBAC
Indemnity Corporation, Municipal Bond Investors Assurance Corporation,
Connie Lee Insurance Company, Financial Security Assurance and
Capital Guaranty Insurance Company are automatically rated "AAA"
by Standard & Poor's Corporation.
AA-Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.
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.
Page 54
Credit Watch: Credit Watch highlights potential changes in ratings
of bonds and other fixed income securities. It focuses on events
and trends which place companies and government units under special
surveillance by S&P's 180-member analytical staff. These may include
mergers, voter referendums, actions by regulatory authorities,
or developments gleaned from analytical reviews. Unless otherwise
noted, a rating decision will be made within 90 days. Issues appear
on Credit Watch where an event, situation, or deviation from trends
occurred and needs to be evaluated as to its impact on credit
ratings. A listing, however, does not mean a rating change is
inevitable. Since S&P continuously monitors all of its ratings,
Credit Watch is not intended to include all issues under review.
Thus, rating changes will occur without issues appearing on Credit
Watch.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings
follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Their safety
is so absolute that with the occasional exception of oversupply
in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in
Aaa securities. Their market value is virtually immune to all
but money market influences, with the occasional exception of
oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future. The market value of A-rated
bonds may be influenced to some degree by economic performance
during a sustained period of depressed business conditions, but,
during periods of normalcy, A-rated bonds frequently move in parallel
with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum
in security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness
of offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well. The market value of Baa-rated bonds is more sensitive
to changes in economic circumstances, and aside from occasional
speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of
a generic rating classification. The modifier 1 indicates that
the bond ranks at the high end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction
or elimination of basis of condition.
Page 55
Estimated Cash Flows to Unit Holders
The tables below set forth the per Unit estimated monthly distributions
of interest and principal to Unit holders. The tables assume the
receipt of principal of the underlying Bonds upon their maturity
or expected retirement date, no changes in expenses, no changes
in the current interest rates, no exchanges, redemptions, sales
or prepayments of the underlying Bonds prior to their maturity
or expected retirement date. To the extent the foregoing assumptions
change, actual distributions will vary.
<TABLE>
<CAPTION>
Georgia Insured Trust, Series 3
Monthly
Estimated Estimated Estimated
Interest Principal Total
Date (Each Month) Distribution Distribution Distribution
_________________ _____________ ___________ _____________
<S> <C> <C> <C>
January 1994 2.16 2.16
February 1994-July 2005 4.04 4.04
August 2005 3.67 166.89 170.56
September 2005-November 2005 3.29 3.29
December 2005 2.90 166.89 169.79
January 2006-February 2006 2.51 2.51
March 2006 2.17 155.21 157.38
April 2006-January 2012 1.83 1.83
February 2012 1.72 50.07 51.79
March 2012-July 2017 1.61 1.61
August 2017 1.61 41.72 43.33
September 2017-February 2018 1.62 1.62
March 2018 1.44 83.44 84.88
April 2018-July 2020 1.26 1.26
August 2020 0.96 133.51 134.47
September 2020-August 2023 0.67 0.67
September 2023 8.69 166.89 175.58
</TABLE>
<TABLE>
<CAPTION>
Indiana Advantage Trust, Series 12
Monthly
Estimated Estimated Estimated
Interest Principal Total
Date (Each Month) Distribution Distribution Distribution
_________________ _____________ ___________ _____________
<S> <C> <C> <C>
January 1994 2.22 2.22
February 1994-July 2004 4.17 4.17
August 2004 3.90 113.64 117.54
September 2004 3.63 3.63
October 2004 3.36 113.64 117.00
November 2004-July 2005 3.10 3.10
August 2005 3.10 227.27 230.37
September 2005-January 2006 2.02 2.02
February 2006 2.02 113.64 115.66
March 2006 1.48 227.27 228.75
April 2006-June 2013 0.41 0.41
July 2013 8.56 164.00 172.56
</TABLE>
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Page 58
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Page 59
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
Summary of Essential Information 3
The First Trust Combined Series:
What is the First Trust Combined Series? 4
What are Estimated Long-Term Return
and Estimated Current Return? 12
How are Purchased Interest and
Accrued Interest Treated? 13
Why and How are the Insured Trusts Insured? 13
What is the Federal Tax Status of Unit Holders? 21
What are the Expenses and Charges? 24
Public Offering:
How is the Public Offering Price Determined? 25
How are Units Distributed? 28
What are the Sponsor's Profits? 28
Will There be a Secondary Market? 29
Rights of Unit Holders:
How are Certificates Issued and Transferred? 29
How are Interest and Principal Distributed? 30
How Can Distributions to Unit Holders
be Reinvested? 31
What Reports will Unit Holders Receive? 32
How May Units be Redeemed? 32
How May Units be Purchased by the Sponsor? 33
How May Bonds be Removed from the Fund? 34
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 34
Who is the Trustee? 35
Limitations on Liabilities of Sponsor and Trustee 35
Who is the Evaluator? 35
Other Information:
How May the Indenture be Amended
or Terminated? 36
Legal Opinions 36
Experts 36
Underwriting 37
The Separate Trusts 38
Georgia Insured Trust, Series 3 39
Indiana Advantage Trust, Series 12 46
Report of Independent Auditors 51
Statements of Net Assets 52
Notes to Statements of Net Assets 52
Notes to Portfolios 53
Description of Bond Ratings 54
Estimated Cash Flows to Unit Holders 56
</TABLE>
___________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE 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
THE FIRST TRUST COMBINED SERIES 207
The First Trust of Insured
Municipal Bonds-Multi-State:
Georgia Trust, Series 3
The First Trust Advantage:
Indiana Trust, Series 12
First Trust
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
December 21, 1993
Page 60
MEMORANDUM
Re: The First Trust Combined Series 209
As indicated in our cover letter transmitting the
Registration Statement on Form S-6 and other related material
under the Securities Act of 1933 to the Commission, the only
difference of consequence (except as described below) between The
First Trust Combined Series 207, which is the current fund, and
The First Trust Combined Series 209, the filing of which this
memorandum accompanies, is the change in the series number. The
list of bonds comprising the Fund, the evaluation, record and
distribution dates and other changes pertaining specifically to
the new series, such as size and number of Units in the Fund and
the statement of condition of the new Fund, will be filed by
amendment.
1940 Act
Forms N-8A and N-8B-2
These forms were not filed, as the Form N-8A and Form N-8B-2
filed in respect of The First Trust of Insured Municipal Bonds,
Series 1 (File No. 811-2541) related also to the subsequent
series of the Fund.
1933 Act
Prospectus
The only significant changes in the Prospectus from the
Series 207 Prospectus relate to the series number and size and
the date and various items of information which will be derived
from and apply specifically to the bonds deposited in the Fund.
CONTENTS OF REGISTRATION STATEMENT
Item A. Bonding Arrangements of Depositor
Nike Securities L.P. is covered by a Brokers' Fidelity
Bond, in the total amount of $1,000,000, the insurer
being National Union Fire Insurance Company of
Pittsburgh.
Item B. This Registration Statement comprises the following
papers and documents:
See "Exhibit Index" on page S-5.
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 209, has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Village of
Lisle and State of Illinois on January 5, 1994.
THE FIRST TRUST COMBINED SERIES
209
(Registrant)
By: NIKE SECURITIES L.P.
(Depositor)
By Carlos E. Nardo
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
Name Title* Date
Robert D. Van Kampen Sole Director )
of Nike Securities )
Corporation, the ) January 5, 1994
General Partner of )
Nike Securities L.P. )
)
) Carlos E. Nardo
) Attorney-in-fact**
____________________
* The title of the person named herein
represents his capacity in and relationship to Nike
Securities L.P., the Depositor.
** An executed copy of the related power of
attorney was filed with the Securities and Exchange
Commission in connection with Amendment No. 1 to Form S-6 of
The First Trust Special Situations Trust, Seris 18 (File No.
33-42683) and the same is hereby incorporated herein by this
reference.
S-2
CONSENTS OF COUNSEL
The consents of counsel to the use of their names in the
Prospectus included in this Registration Statement will be
contained in their respective opinions to be filed as
Exhibits 3.1, 3.2, 3.3 and 3.4 of the Registration Statement.
CONSENT OF ERNST & YOUNG
The consent of Ernst & Young to the use of its name and to
the reference to such firm in the Prospectus included in this
Registration Statement will be filed by amendment.
CONSENT OF SECURITIES EVALUATION SERVICE, INC.
The consent of Securities Evaluation Service, Inc. to the
use of its name in the Prospectus included in the Registration
Statement is filed as Exhibit 4.1 to the Registration Statement
CONSENT OF STANDARD & POOR'S CORPORATION
The consent of Standard & Poor's Corporation to the use of
its name in the Prospectus included in this Registration
Statement will be filed as Exhibit 4.2 to the Registration
Statement.
S-3
EXHIBIT INDEX
1.1 Form of Standard Terms and Conditions of Trust for The
First Trust Combined Series 145 and subsequent Series
effective October 16, 1991, among Nike Securities L.P.,
as Depositor, United States Trust Company of New York, as
Trustee, Securities Evaluation Service, Inc., as
Evaluator, and Nike Financial Advisory Services L.P. as
Portfolio Supervisor (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-3289] filed on
behalf of The First Trust Combined Series 145).
1.1.1_ Form of Trust Agreement for Series 209 among Nike
Securities L.P., as Depositor, United States Trust
Company of New York, as Trustee, Securities Evaluation
Service, Inc., as Evaluator, and First Trust Advisors
L.P., as Portfolio Supervisor.
1.2 Copy of Certificate of Limited Partnership of Nike
Securities L.P. (incorporated by reference to Amendment
No. 1 to Form S-6 [File No. 33-42683] filed on behalf of
The First Trust Special Situations Trust, Series 18).
1.3 Copy of Amended and Restated Limited Partnership
Agreement of Nike Securities L.P. (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18)
1.4 Copy of Articles of Incorporation of Nike Securities
Corporation, General Partner of Nike Securities L.P.,
Depositor (incorporated by reference to Amendment No. 1
to Form S-6 [File No. 33-42683] filed on behalf of The
First Trust Special Situations Trust, Series 18).
1.5 Copy of By-Laws of Nike Securities Corporation, General
Partner of Nike Securities L.P., Depositor (incorporated
by reference to Amendment No. 1 to Form S-6 [File No. 33-
42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
1.6 Master Agreement Among Underwriters (incorporated by
reference to Amendment No. 1 to Form S-6 [File No. 33-
43289] filed on behalf of The First Trust Combined
Series 145).
S-4
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
filed herewith on page 2 and incorporated herein by
reference).
3.1_ Opinion of counsel as to legality of securities being
registered.
3.2_ Opinion of counsel as to Federal income tax status of
securities being registered.
3.3_ Opinion of counsel to New York tax status of securities
being registered.
3.4_ Opinion of counsel as to advancement of funds by Trustee.
4.1_ Consent of Securities Evaluation Service, Inc.
4.2_ Consent of Standard & Poor's Corporation.
6.1 List of Directors and Officers of Depositor and other
related information (incorporated by reference to
Amendment No. 1 to Form S-6 [File No. 33-42683] filed on
behalf of The First Trust Special Situations Trust,
Series 18).
7.1 Power of Attorney executed by the Director listed on page
S-3 of this Registration Statement (incorporated by
reference to Amendment No. 1 to Form S-6 [File
No. 33-42683] filed on behalf of The First Trust Special
Situations Trust, Series 18).
_________________
_ To be filed by amendment.
S-5
