File No. 33-52339
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to Form S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact Name of Trust: THE FIRST TRUST COMBINED
SERIES 213
B. Name of Depositor: NIKE SECURITIES L.P.
C. Complete Address of 1001 Warrenville Road
Depositor's Principal Lisle, Illinois 60532
Offices:
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
Being Registered: of 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 $500.00*
(as required by Rule 24f-2):
H. Approximate Date of Proposed
Sale to the Public: As soon as practicable
after the effective date
of the Registration
Statement.
:XXX: Check box if it is proposed that this filing will
become effective on March 23, 1994 at 1:30 p.m.
pursuant to Rule 487.
________________________
*Previously paid
THE FIRST TRUST COMBINED
SERIES 213
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;
Information as to
Sponsor, Trustee and
Evaluator
3. Name and address of Trustee Summary of Essential
Information
Information 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
Information; 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
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 AFFILIATED 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. Financial statements (Instruc- Opinion of Independent
tions 1(c) to Form S-6) Auditors; Statement of
Net Assets of the
Fund
* Inapplicable, answer negative or not required.
The First Trust of Insured Municipal Bonds-Multi-State:
New York Trust, Series 53 Pennsylvania Trust, Series 54
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 213 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 March 23, 1994
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-March 23, 1994
Sponsor: Nike Securities L.P.
Trustee: United States Trust Company of New York
Evaluator: Securities Evaluation Service, Inc.
<TABLE>
<CAPTION>
New York Pennsylvania
Insured Insured
Trust Trust
Series 53 Series 54
__________ __________
<S> <C> <C>
General Information
Principal Amount of Bonds in the Trusts $ 3,145,000 $ 3,380,000
Number of Units 3,237 3,502
Fractional Undivided Interest in the Trust per Unit 1/3,237 1/3,502
Principal Amount (Par Value) of Bonds per Unit (1) $ 971.58 $ 965.16
Public Offering Price
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 3,078,396 $ 3,330,410
Aggregate Offering Price Evaluation per Unit $ 951.00 $ 951.00
Sales Charge (2) $ 49.00 $ 49.00
Public Offering Price per Unit (3) $ 1,000.00 $ 1,000.00
Sponsor's Initial Repurchase Price per Unit (3) $ 951.00 $ 951.00
Redemption Price per Unit (4) $ 946.14 $ 946.26
Excess of Public Offering Price per Unit Over
Redemption Price per Unit $ 53.86 $ 53.74
Excess of Sponsor's Initial Repurchase Price per
Unit Over Redemption Price per Unit $ 4.86 $ 4.74
Discretionary Liquidation Amount (5) $ 629,000 $ 676,000
</TABLE>
First Settlement Date March 30, 1994
Mandatory Termination Date December 31, 2043
Supervisory Fee Maximum of $0.25 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) 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, a New York Trust and a Pennsylvania
Trust, 5.5% (5.820%) for other State Trusts and 3.9% (4.058%)
for an Intermediate Trust.
(3) 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. 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?"
(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 213 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:
New York Trust, Series 53 and Pennsylvania Trust, Series 54 (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.
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 therefor. If an issue is accepted
for insurance, a noncancellable policy for the scheduled payment
of interest
Page 4
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
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 to such failed contract shall
Page 11
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
necessary to cover any such excess and will be reimbursed therefor,
without interest, when funds become
Page 12
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 is Accrued Interest Treated?
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 accrued interest which would
otherwise have to be paid in addition to the Public Offering Price
in the sale of Units to the public, the Trustee will advance the
amount of accrued interest as of the First Settlement Date and
the same will be distributed to the Sponsor as the Unit holder
of record as of the First Settlement Date. Consequently, the amount
of accrued interest to be added to the Public Offering Price of
Units will include only accrued interest from the First Settlement
Date to the date of settlement, less any distributions from the
Interest Account subsequent to the First Settlement Date. See
"Rights of Unit Holders-How are Interest and Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount
of interest actually received by the Trust and distributed to
Unit holders. Therefore, there will always remain an item of accrued
interest that is added to the value of the Units. 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 accrued interest from
the purchaser of his Units. Since the Trustee has the use of the
funds held in the Interest Account for distributions to Unit holders
and since such Account is non-interest-bearing to Unit holders,
the Trustee benefits thereby.
Why and How are the Insured Trusts Insured?
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS.
THE BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED
BY INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as
to the scheduled payment of interest and principal by policies
obtained by each Insured Trust from Financial Guaranty Insurance
Company ("Financial Guaranty" or "FGIC"), a New York stock insurance
company, or AMBAC Indemnity Corporation ("AMBAC Indemnity" or
"AMBAC"), a Wisconsin-domiciled stock insurance company, or obtained
by the Bond issuer, the underwriters, the Sponsor or others prior
to the Date of Deposit directly from Financial Guaranty, AMBAC
Indemnity or other insurers (the "Preinsured Bonds"). The insurance
policy obtained by each Insured Trust is noncancellable and will
continue in force for such Trust so long as such Trust is in existence
and the Bonds described in the policy continue to be held by 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
Page 13
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 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.
Page 14
Financial Guaranty is a wholly owned subsidiary of FGIC Corporation
(the "Corporation"), a Delaware holding company. The Corporation
is a wholly owned subsidiary of General Electric Capital Corporation
("GECC"). Neither the Corporation nor GECC is obligated to pay
the debts of or the claims against Financial Guaranty. Financial
Guaranty is domiciled in the State of New York and is subject
to regulation by the State of New York Insurance Department. As
of December 31, 1993, the total capital and surplus of Financial
Guaranty was approximately $777,000,000. Copies of Financial Guaranty's
financial statements, prepared on the basis of statutory accounting
principles, and the Corporation's financial statements, prepared
on the basis of generally accepted accounting principles, may
be obtained by writing to Financial Guaranty at 115 Broadway,
New York, New York 10006, Attention: Communications Department
(telephone number (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 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.
Page 15
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 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
Page 16
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 December 31, 1993, MBIA
had admitted assets of $3.1 billion (audited), total liabilities
of $2.1 billion (audited), and total capital and surplus of $978
million (audited), 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") is a "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland, and is
a wholly owned subsidiary of Capital Guaranty Corporation, a Maryland
insurance holding company. Capital Guaranty Corporation is a publicly
owned company whose shares are traded on the New York Stock Exchange.
Capital Guaranty is authorized to provide insurance in 49 states,
the District of Columbia and three U.S. territories. Capital Guaranty
focuses on insuring municipal securities, and its policies guaranty
the timely payment of principal and interest when due for payment
on new issue and secondary market issue municipal bond transactions.
Capital Guaranty's claims-paying ability is rated "Triple-A" by
both Moody's Investors Service, Inc. and Standard & Poor's Corporation.
As of September 30, 1993, Capital Guaranty had $13.6 billion in
net exposure outstanding. The total statutory policyholders' surplus
and contingency reserve of Capital Guaranty was $181,383,432 (unaudited)
and the total admitted assets were $270,021,126 (unaudited) as
reported to the Insurance Department of the State of Maryland
as of September 30, 1993. The address of Capital Guaranty's headquarters
and its telephone number are Steuart Tower, 22nd Floor, One Market
Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC. CapMAC is a New York-domiciled monoline stock insurance
company which engages only in the business of financial guarantee
and surety insurance. CapMAC is licensed in 49 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and
the territory of Guam. CapMAC insures structured asset-backed,
corporate and other financial obligations in the domestic and
foreign capital markets.
Page 17
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 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.
Page 18
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 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
Page 19
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.
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
Page 20
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 provisions of
the Revenue Reconciliation Act of 1993 (the "Tax Act") described
below that subject accretion of market discount on tax-exempt
bonds to taxation as ordinary income, gain realized on the sale
or redemption of Bonds by the Trustee or of Units by a Unit holder
that would have been treated as capital gain under prior law is
treated as ordinary income to the extent it is attributable to
accretion of market discount. Market discount can arise based
on the price a Trust pays for Bonds or the price a Unit holder
pays for his Units.
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 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
Page 21
(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 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. 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
Page 22
amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers
who do not live apart at all times during the taxable year and
who file separate returns.
Although tax-exempt interest is included in modified adjusted
gross income solely for the purpose of determining what portion,
if any, of Social Security benefits will be included in gross
income, no tax-exempt interest, including that received from a
Trust, will be subject to tax. A taxpayer whose adjusted gross
income already exceeds the base amount or the adjusted base amount
must include 50% or 85%, respectively, of his Social Security
benefits in gross income whether or not he receives any tax-exempt
interest. A taxpayer whose modified adjusted gross income (after
inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax for corporations, interest
on certain private activity bonds (which includes most industrial
and housing revenue bonds) issued on or after August 8, 1986 is
included as an item of tax preference. THE TRUSTS DO NOT INCLUDE
ANY SUCH PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gains are presently
subject to a maximum stated marginal tax rate of 28 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
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
Page 23
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 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
Page 24
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, 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. 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, a
New York Trust and a
Pennsylvania Trust 4.9% 5.152%
Other State Trusts 5.5 5.820
Intermediate Trust 3.9 4.058
</TABLE>
[FN]
(1) The Public Offering Price includes a proportionate share
of interest accrued but unpaid on the Bonds after the First Settlement
Date to the date of settlement. See "The First Trust Combined
Series-How is Accrued Interest Treated?"
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, 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
Page 25
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 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
Page 26
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.
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 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 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, a New York Trust
and a Pennsylvania Trust, $33 per Unit for other State Trusts,
$30 per
Page 27
Unit for a Long Intermediate Trust, 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 or more
Units Units Units
Series of the Fund Purchased Purchased Purchased
________________ ________ ________ ________
<S> <C> <C> <C>
National Trust, a
New York Trust and a
Pennsylvania 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, a New York Trust and
a Pennsylvania Trust (equivalent to 5.152% of the net amount invested),
and 5.5% of the Public Offering Price of the Units for other State
Trusts (equivalent to 5.820% 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
Page 28
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 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 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.
Page 29
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. 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, 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 Oppenheimer Management Corporation which permits
any Unit holder of a Trust to elect to have each distribution
of interest income or principal, including capital gains, on his
Units automatically reinvested in shares of either the Oppenheimer
Intermediate Tax-Exempt Bond Fund (the "Intermediate Series")
or the Oppenheimer Insured Tax-Exempt Bond Fund (the "Insured
Series"). Oppenheimer Management Corporation is the investment
adviser of each Series which are open-end, diversified management
companies. The investment objective of the Intermediate Series
is to provide a high level of current interest income exempt from
Federal income
Page 30
tax through the purchase of investment grade securities. The investment
objective of the Insured Series is to provide as high a level
of current interest income exempt from Federal income tax as is
consistent with the assurance of the scheduled receipt of interest
and principal through insurance and the preservation of capital
(the income of either Series may constitute an item of preference
for determining the Federal alternative minimum tax). The objectives
and policies of each Series are presented in more detail in the
prospectus for each Series.
Each person who purchases Units of a Series may use the card attached
to this prospectus to request a prospectus describing each Series
and a form by which such person may elect to become a participant
in a Distribution Reinvestment Option with respect to a Series.
Each distribution of interest income or principal, including capital
gains, on the participant's Units will automatically be applied
by the Trustee to purchase shares (or fractions thereof) of a
Series without a sales charge and with no minimum investment requirements.
The shareholder service agent for each Series will mail to each
participant in the Distribution Reinvestment Option confirmations
of all transactions undertaken for such participant in connection
with the receipt of distributions from The First Trust Combined
Series and the purchase of shares (or fractions thereof) of a
Series.
A participant may at any time, by so notifying the Trustee in
writing, elect to terminate his participation in the Distribution
Reinvestment Option and receive future distributions on his Units
in cash. There will be no charge or other penalty for such termination.
The Sponsor and Oppenheimer Management Corporation each have the
right to terminate the Distribution Reinvestment Option, in whole
or in part.
It should be remembered that even if distributions are reinvested
through the Universal Distribution Option or the Distribution
Reinvestment Option they are still treated as distributions for
income tax purposes.
What Reports will Unit Holders Receive?
The Trustee shall furnish Unit holders of each Trust in connection
with each distribution a statement of the amount of interest,
if any, and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
Within a reasonable time after the last business day of each calendar
year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of a Trust of record,
a statement as to (1) the Interest Account: interest received
by such Trust (including amounts representing interest received
upon any disposition of Bonds of such Trust), the amount of such
interest representing insurance proceeds (if applicable), deductions
for payment of applicable taxes and for fees and expenses of the
Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share
of each Unit outstanding on the last business day of such calendar
year; (2) the Principal Account: the dates of disposition of any
Bonds of such Trust and the net proceeds received therefrom (excluding
any portion representing interest and the premium attributable
to the exercise of the right, if applicable, to obtain Permanent
Insurance), deduction for payment of applicable taxes and for
fees and expenses of the Trust, redemptions of Units, and the
balance remaining after such distributions and deductions, expressed
both as a total dollar amount and as a dollar amount representing
the pro rata share of each Unit outstanding on the last business
day of such calendar year; (3) the Bonds held and the number of
Units of such Trust outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5)
the amounts actually distributed during such calendar year from
the Interest Account and from the Principal Account of such Trust,
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
Page 31
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.
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, 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,
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" 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) 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.
Page 32
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, it may purchase
such Units by notifying the Trustee before 12:00 p.m. Eastern
time on the next succeeding business day and by making payment
therefor to the Unit holder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units
held by the Sponsor may be tendered to the Trustee for redemption
as any other Units.
The offering price of any Units acquired by the Sponsor will be
in accord with the Public Offering Price described in the then
currently effective prospectus describing such Units. Any profit
or loss resulting from the resale or redemption of such Units
will belong to the Sponsor.
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell, for the purpose of redeeming
Units tendered by any Unit holder and for the payment of expenses
for which funds may not be available, such of the Bonds in each
Trust on a list furnished by the Sponsor as the Trustee in its
sole discretion may deem necessary. As described in the following
paragraph and in certain other unusual circumstances for which
it is determined by the Depositor to be in the best interests
of the Unit holders or if there is no alternative, the Trustee
is empowered to sell Bonds in a Trust which are in default in
payment of principal or interest or in significant risk of such
default and for which value has been attributed to the insurance,
if any, obtained by the Trust. See "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.
Page 33
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in
1991, acts as Sponsor for successive series of The First Trust
Combined Series, The First Trust Special Situations Trust, The
First Trust Insured Corporate Trust, The First Trust of Insured
Municipal Bonds, The First Trust GNMA, Templeton Growth and Treasury
Trust, Templeton Foreign Fund & U.S. Treasury Securities Trust
and The Advantage Growth and Treasury Securities Trust. First
Trust introduced the first insured unit investment trust in 1974
and to date more than $8 billion in First Trust unit investment
trusts have been deposited. The Sponsor's employees include a
team of professionals with many years of experience in the unit
investment trust industry. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and Securities Investor
Protection Corporation and has its principal offices at 1001 Warrenville
Road, Lisle, Illinois 60532; telephone number (708) 241-4141.
As of December 31, 1993, the total partners' capital of Nike Securities
L.P. was $12,743,032 (audited). (This paragraph relates only to
the Sponsor and not to the Trust or to any series thereof or to
any other Underwriter. The information is included herein only
for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations.
More detailed financial information will be made available by
the Sponsor upon request.)
Who is the Trustee?
The Trustee is United States Trust Company of New York with its
principal place of business at 45 Wall Street, New York, New York
10005 and its unit investment trust offices at 770 Broadway, New
York, New York 10003. Unit holders who have questions regarding
the Fund may call the Customer Service Help Line at 1-800-682-7520.
The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in the selection of the Securities. For information relating to
the responsibilities of the Trustee under the Indenture, reference
is made to the material set forth under "Rights of Unit Holders."
The Trustee and any successor trustee may resign by executing
an instrument in writing and filing the same with the Sponsor
and mailing a copy of a notice of resignation to all Unit holders.
Upon receipt of such notice, the Sponsor is obligated to appoint
a successor trustee promptly. If the Trustee becomes incapable
of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint
a successor as provided in the Indenture. If upon resignation
of a trustee no successor has accepted the appointment within
30 days after notification, the retiring trustee may apply to
a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only
when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which a Trustee shall be a party, shall
be the successor Trustee. The Trustee must be a banking corporation
organized under the laws of the United States or any State and
having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit
holders for taking any action or for refraining from taking any
action in good faith pursuant to the Indenture, or for errors
in judgment, but shall be liable 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
Page 34
to act under the Indenture, the Trustee may act thereunder and
shall not be liable for any action taken by it in good faith under
the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in
respect of the Fund which the Trustee may be required to pay under
any present or future law of the United States of America or of
any other taxing authority having jurisdiction. In addition, the
Indenture contains other customary provisions limiting the liability
of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or
its affairs are taken over by public authorities, then the Trustee
may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and not exceeding amounts prescribed
by the Securities and Exchange Commission, or (b) terminate the
Indenture and liquidate the Trusts as provided herein, or (c)
continue to act as Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East
Roosevelt Road, Suite 200, Wheaton, Illinois 60187. The Evaluator
may resign or may be removed by the Sponsor and the Trustee, in
which event the Sponsor and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon the acceptance of appointment
by the successor Evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within thirty days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Indenture shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator
shall be under no liability to the Trustee, Sponsor or Unit holders
for errors in judgment. This provision shall not protect the Evaluator
in any case of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties.
OTHER INFORMATION
How May the Indenture be Amended or Terminated?
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision
of the Indenture which may be defective or inconsistent with any
other provision contained therein, or (2) to make such other provisions
as shall not adversely affect the interest of the Unit holders
(as determined in good faith by the Sponsor and the Trustee),
provided that the Indenture is not amended to increase the number
of Units of any Trust issuable thereunder or to permit the deposit
or acquisition of securities either in addition to or in substitution
for any of the Bonds of any Trust initially deposited in a Trust,
except for the substitution of certain refunding securities for
Bonds or New Bonds for Failed Bonds. In the event of any amendment,
the Trustee is obligated to notify promptly all Unit holders of
the substance of such amendment.
Each Trust may be liquidated at any time by consent of 100% of
the Unit holders of such Trust or by the Trustee when the value
of such Trust, as shown by any evaluation, is less than 20% of
the aggregate principal amount of the Bonds initially deposited
in the Trust or by the Trustee in the event that Units of a Trust
not yet sold aggregating more than 60% of the Units of such Trust
are tendered for redemption by the Underwriters, including the
Sponsor. If a Trust is liquidated because of the redemption of
unsold Units of the Trust by the Underwriters, the Sponsor will
refund to each purchaser of Units of such Trust the entire sales
charge paid by such purchaser. The Indenture will terminate upon
the redemption, sale or other disposition of the last Bond held
thereunder, but in no event shall it continue beyond December
31, 2043. 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
Page 35
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.
UNDERWRITING
The Underwriters named below, including the Sponsor, have severally
purchased Units in the following respective amounts:
<TABLE>
<CAPTION>
New York Insured Trust, Series 53
Number of
Name Address Units
________ ________ ________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 1,937
Underwriters
McLaughlin, Piven, Vogel 30 Wall Street, Fifth Floor, New York, NY 10005 1,000
Securities, Inc.
Advest, Inc. One Commercial Plaza, 280 Trumbull Street, 18th Floor, 100
Hartford, CT 06103
Gruntal & Co., Incorporated 14 Wall Street, 14th Floor, New York, NY 10005 100
Oppenheimer & Co., Inc. Oppenheimer Tower, One World Financial Center, 100
8th Floor, New York, NY 10281
________
3,237
========
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Insured Trust, Series 54
Number of
Name Address Units
________ ________ ________
<S> <C> <C>
Sponsor
Nike Securities L.P. 1001 Warrenville Road, Lisle, IL 60532 2,502
Underwriters
Gruntal & Co., Incorporated 14 Wall Street, 14th Floor, New York, NY 10005 250
Janney Montgomery Scott Inc. 1601 Market Street, 19th Floor, Philadelphia, PA 19103 250
Advest, Inc. One Commercial Plaza, 280 Trumbull Street, 18th Floor, 100
Hartford, CT 06103
Hefren-Tillotson, Inc. 308 Seventh Avenue, Pittsburgh, PA 15222 100
McLaughlin, Piven, Vogel 30 Wall Street, Fifth Floor, New York, NY 10005 100
Securities, Inc.
W.H. Newbold's Son & Co., Inc. 1500 Walnut Street, 15th Floor, Philadelphia, PA 19102 100
Wheat First Securities, Inc. West Tower, 3rd Floor, Riverfront Plaza, 901 East Byrd St., 100
Richmond, VA 23219
________
3,502
========
</TABLE>
Page 36
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 27.
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, a New York Trust
and a Pennsylvania Trust $35.00 $37.00 $38.00 $39.00
Other State Trusts $36.00 $38.00 $39.00 $41.00
</TABLE>
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:
<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 including the
effects of portfolio hedging gains and losses and portfolio hedging
transaction costs) 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." McLaughlin, Piven,
Vogel Securities, Inc. ("MPV") and Nike Securities L.P. entered
into an agreement under which MPV will receive from Nike Securities
L.P. reimbursement for certain costs and further compensation,
in addition to that described above, based on the number of Units
it underwrites or otherwise sells and on the total Units of Nike
Securities L.P. products sold.
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
Page 37
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
New York Insured Trust, Series 53
<TABLE>
<CAPTION>
Special Trust Information
Monthly
<S> <C>
Calculation of Estimated Net Annual Unit Income (1)
Estimated Annual Interest Income per Unit $ 55.82
Less: Estimated Annual Expense per Unit $ 2.32
Estimated Net Annual Interest Income per Unit $ 53.50
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 53.50
Divided by 12 $ 4.46
Estimated Daily Rate of Net Interest Accrual per Unit $.148622
Estimated Current Return Based on Public Offering Price (2) 5.35%
Estimated Long-Term Return Based on Public Offering Price (2) 5.38%
CUSIP 33733R 253
</TABLE>
Trustee's Annual Fee $1.37 per Unit, exclusive of expenses of
the Trust commencing March 23, 1995.
Distributions
First distribution of $2.23 per Unit will be paid on April 30,
1994 to Unit holders of record on April 15, 1994.
Regular distributions of $4.46 per Unit will begin on May 31,
1994 to Unit holders of record on May 15, 1994.
Computation Dates Fifteenth day of the month.
Distribution Dates Last day of the month
commencing April 30, 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
$.14) 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 $55.68. 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
New York Insured Trust Summary
The New York Insured Trust consists of seven obligations of issuers
located in New York. 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 15.90%
2 Health Care 31.80%
2 University and School 31.32%
1 Water and Sewer 9.54%
1 Miscellaneous 11.44%
</TABLE>
One of the Bond issues in the New York Insured Trust is insured
by Connie Lee Insurance Company ("Connie Lee"), 2445 M Street,
N.W., Washington D.C. 20037. Connie Lee is a stock insurance company
incorporated in Wisconsin and a wholly-owned subsidiary of College
Construction Loan Insurance Association ("CCLIA"), a District
of Columbia insurance holding company. As of September 30, 1993,
the total policyholders' surplus of Connie Lee was approximately
$104,000,000 (unaudited) and total admitted assets were approximately
$173,000,000 (unaudited), as reported to the Commissioner of Insurance
of the State of Wisconsin.
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
90%. The four largest such issues represent approximately 16%
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 16% of the aggregate principal amount (approximately
16% 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 years after the Date of Deposit. See "What Is the First Trust
Combined Series?", "New York Insured Trust, Series 53-Portfolio"
and "Description of Bond Ratings."
Federal and New York 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 Federal tax
rates and state tax rates scheduled to be in effect in 1994. The
table incorporates increased tax rates for higher-income taxpayers
that were included in the 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. 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 $111,800. 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 - 22.8 $ 0 - 38.0 21.5% 5.73 6.37 7.01
22.8 - 55.1 38.0 - 91.9 33.5 6.77 7.52 8.27
55.1 - 115.0 91.9 - 140.0 36.2 7.05 7.84 8.62
115.0 - 250.0 140.0 - 250.0 40.9 7.61 8.46 9.31
Over 250.0 Over 250.0 44.2 8.06 8.96 9.86
</TABLE>
[FN]
* Combined Federal and State tax rate was computed assuming that
the investor is not subject to local income taxes, such as New
York City taxes. Should a Unit holder reside in a locality which
imposes an income tax, the Unit holder's equivalent taxable estimated
current return would be greater than the equivalent taxable estimated
current returns indicated in the table. The table does not reflect
the New York State supplemental income tax based upon a taxpayer's
New York State taxable income and New York State adjusted gross
income. This supplemental tax results in an increased marginal
State income tax rate to the extent a taxpayer's New York State
adjusted gross income ranges between $100,000 and $150,000. In
addition, the table does not reflect the amendments to the New
York State income tax law that impose limitations on the deductibility
of itemized deductions. The application of the New York State
supplemental income tax and limitation on itemized deductions
may result in a higher combined Federal, State and local tax rate
than indicated in the table.
Certain Considerations
The New York Trust includes obligations issued by New York State
(the "State"), by its various public bodies (the "Agencies"),
and/or by other entities located within the State, including the
City of New York (the "City").
Some of the more significant events and conditions relating to
the financial situation in New York are summarized below. This
section provides only a brief summary of the complex factors affecting
the financial situation in New York and is derived from sources
that are generally available to investors and is believed to be
accurate. It is based in part on Official Statements and prospectuses
issued by, and on other information reported by the State, the
City, and the Agencies in connection with the issuance of their
respective securities.
There can be no assurance that current or future statewide or
regional economic difficulties, and the resulting impact on State
or local government finances generally, will not adversely affect
the market value of New York Municipal Obligations held in the
portfolio of the Trust or the ability of particular obligors to
make timely payments of debt service on (or relating to) those
obligations.
The State: The State has historically been one of the wealthiest
states in the nation. For decades, however, the State economy
has grown more slowly than that of the nation as a whole, gradually
eroding the State's relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration
of the more affluent to the suburbs and an influx of generally
less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and
the West have had in attracting people and business. The City
has also had to face greater competition as other major cities
have developed financial and business capabilities which make
them less dependent on the specialized services traditionally
available almost exclusively in the City.
The State has for many years had a very high state and local tax
burden relative to other states. The burden of State and local
taxation, in combination with the many other causes of regional
economic dislocation, has contributed to the decisions of some
businesses and individuals to relocate outside, or not locate
within, the State.
Slowdown of Regional Economy. A national recession commenced in
mid-1990. The downturn continued throughout the State's 1990-91
fiscal year and was followed by a period of weak economic growth
during the 1991 calendar year. For calendar year 1992, the national
economy continued to recover, although at a rate below all post-war
recoveries. For calendar year 1993, the economy is expected to
grow faster than in 1992, but still at a very moderate rate, as
compared to other recoveries. The national recession has
Page 41
been more severe in the State because of factors such as significant
retrenchment in the financial services industry, cutbacks in defense
spending, and an overbuilt real estate market.
1993-94 Fiscal Year. On April 5, 1993, the State Legislature approved
a $32.08 billion budget. Following enactment of the budget the
1993-94 State Financial Plan was formulated on April 16, 1993.
This Plan projects General Fund receipts and transfers from other
funds at $32.367 billion and disbursements and transfers to other
funds at $32.300 billion. In comparison to the Governor's recommended
Executive Budget for the 1993-94 fiscal year, as revised on February
18, 1993, the 1993-94 State Financial Plan reflects increases
in both receipts and disbursements in the General Fund of $811
million.
While a portion of the increased receipts was the result of a
$487 million increase in the State's 1992-93 positive year-end
margin at March 31, 1993 to $671 million, the balance of such
increased receipts is based upon (i) a projected $269 million
increase in receipts resulting from improved 1992-93 results and
the expectation of an improving economy, (ii) projected additional
payments of $200 million from the Federal government as reimbursements
for indigent medical care, (iii) the early payment of $50 million
of personal tax returns in 1992-93 which otherwise would have
been paid in 1993-94; offset by (iv) the State Legislature's failure
to enact $195 million of additional revenue-raising recommendations
proposed by the Governor. There can be no assurances that all
of the projected receipts referred to above will be received.
Despite the $811 million increase in disbursements included in
the 1993-94 State Financial Plan, a reduction in aid to some local
government units can be expected. To offset a portion of such
reductions, the 1993-94 State Financial Plan contains a package
of mandate relief, cost containment and other proposals to reduce
the costs of many programs for which local governments provide
funding. There can be no assurance, however, that localities that
suffer cuts will not be adversely affected, leading to further
requests for State financial assistance.
There can be no assurance that the State will not face substantial
potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring
receipts base and the spending required to maintain State programs
at current levels. To address any potential budgetary imbalance,
the State may need to take significant actions to align recurring
receipts and disbursements.
1992-93 Fiscal Year. Before giving effect to a 1992-93 year-end
deposit to the refund reserve account of $671 million, General
Fund receipts in 1992-93 would have been $716 million higher than
originally projected. This year-end deposit effectively reduced
1992-93 receipts by $671 million and made those receipts available
for 1993-94.
The State's favorable performance primarily resulted from income
tax collections that were $700 million higher than projected which
reflected both stronger economic activity and tax-induced one-time
acceleration of income into 1992. In other areas larger than projected
business tax collections and unbudgeted receipts offset the loss
of $200 million of anticipated Federal reimbursement and losses
of, or shortfalls in, other projected revenue sources.
For 1992-93 disbursements and transfers to other funds (including
the deposit to the refund reserve account discussed above) totalled
$30.829 billion, an increase of $45 million above projections
in April 1992. After adjusting for a $150 million payment from
the Medical Malpractice Insurance Association to health insurers
pursuant to legislation adopted in January 1993, actual disbursements
were $105 million lower than projected.
Fiscal year 1992-93 was the first time in four years that the
State did not incur a cash-basis operating deficit in the General
Fund requiring the issuance of deficit notes or other bonds, spending
cuts or other revenue raising measures.
Indebtedness. As of March 31, 1993, the total amount of long-term
State general obligation debt authorized but unissued stood at
$2.4 billion. As of the same date, the State had approximately
$5.4 billion in general obligation bonds. The State issued $850
million in tax and revenue anticipation notes ("TRANS") on April
28, 1993. The State does not project the need to issue additional
TRANS during the State's 1993-94 fiscal year.
Page 42
The State anticipates that its borrowings for capital purposes
during the State's 1993-94 fiscal year will consist of $460 million
in general obligation bonds and $140 million in bonds for the
purpose of redeeming outstanding bond anticipation notes. The
Legislature has authorized the issuance of up to $85 million in
certificates of participation during the State's 1993-94 fiscal
year for personal and real property acquisitions. The projection
of the State regarding its borrowings for the 1993-94 fiscal year
may change if actual receipts fall short of State projections
or if other circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation (LGAC), a public benefit corporation
empowered to issue long-term obligations to fund certain payments
to local governments traditionally funded through the State's
annual seasonal borrowing. To date, LGAC has issued its bonds
to provide net proceeds of $3.28 billion. LGAC has been authorized
to issue additional bonds to provide net proceeds of $703 million
during the State's 1993-94 fiscal year.
Ratings. The $850 million in TRANS issued by the State in April
1993 were rated SP-1-Plus by S&P on April 26, 1993, and MIG-1
by Moody's on April 23, 1993, which represents the highest ratings
given by such agencies and the first time the State's TRANS have
received these ratings since its May 1989 TRANS issuance. Both
agencies cited the State's improved fiscal position as a significant
factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at
A on April 23, 1993, and S&P's rating stood at A- with a stable
outlook on April 26, 1993, an improvement from S&P's negative
outlook prior to April 1993. Previously, Moody's lowered its rating
to A on June 6, 1990, its rating having been A1 since May 27,
1986. S&P lowered its rating from A to A- on January 13, 1992.
S&P's previous ratings were A from March 1990 to January 1992,
AA - from August 1987 to March 1990 and A+ from November 1982
to August 1987.
Moody's, in confirming its rating of the State's general obligation
bonds, and S&P, in improving its outlook on such bonds from negative
to stable, noted the State's improved fiscal condition and reasonable
revenue assumptions contained in the 1993-94 State budget.
The City and the Municipal Assistance Corporation ("MAC"): The
City accounts for approximately 41% of the State's population
and personal income, and the City's financial health affects the
State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took
a number of steps to assist the City in returning to fiscal stability.
Among other actions, the State Legislature (i) created MAC to
assist with long-term financing for the City's short-term debt
and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the
City's budgets and City four-year financial plans (the financial
plans also apply to certain City-related public agencies (the
"Covered Organizations")).
Over the past three years, the rate of economic growth in the
City has slowed substantially, and the City's economy is currently
in recession. The Mayor is responsible for preparing the City's
four-year financial plan, including the City's current financial
plan. The City Comptroller has issued reports concluding that
the recession of the City's economy will be more severe and last
longer than is assumed in the financial plan.
Fiscal Year 1993 and 1993-1996 and 1994-1997 Financial Plan. The
City's 1993 fiscal year results are projected to be balanced in
accordance with generally accepted accounting principles ("GAAP").
The City was required to close substantial budget gaps in its
1990, 1991 and 1992 fiscal years in order to maintain balanced
operating results.
The City's modified 1993-1996 Financial Plan dated February 9,
1993 covering fiscal years 1993-1996 projects budget gaps for
1994 through 1996, and is dependent upon a gap-closing program,
certain elements of which the staff of Control Board identified
on March 25, 1993 to be at risk due to projected levels of State
and Federal aid and revenue and expenditures estimates which may
not be achievable. On June 4, 1993, the Office of the State Deputy
Comptroller ("OSDC") reported that expenditures for the 1994 fiscal
year could be $280 million higher than projected in May 1993 by
the City and revenues for the same period could be $111 million
lower than projected. The OSDC also noted possible increases in
budget gaps forecast by the City.
Page 43
The City Council adopted a balanced budget for Fiscal Year 1993-1994
on June 14, 1993. The State Comptroller on that date criticized
efforts by the Mayor and the City Council to balance the City's
budget which rely primarily on one-shot revenues. The State Comptroller
added that the City's budget should be based on "recurring revenues
that fund recurring expenditures." In a report issued on June
15, 1993, the Control Board also criticized the reliance by the
City on $1 billion of such one-shot revenues to balance the budget.
On June 30, 1993, S&P announced that it was concerned with budget
gaps in post-1994 fiscal years and the inability of the City to
restrain spending and, due to this concern, it was reviewing the
rating of the City's general obligation bonds.
In response to S&P's announcement, the Mayor's Office and the
City Comptroller met with staff of S&P and proposed $130 million
of additional cuts in the recently adopted budget for fiscal year
1994 through reduced spending for capital projects, savings through
workforce attrition and other measures. In addition, the Mayor
proposed $400 million in cuts from the City's fiscal year 1995
budget. Following review of the proposed cuts, S&P announced on
July 2, 1993 that it would maintain its current A- rating of the
City's general obligation bonds, but S&P indicated that it remains
concerned about budgets for fiscal year 1995 and thereafter.
On July 6, 1993, the City prepared its Financial Plan for fiscal
years 1994-1997 which projects a balanced budget for fiscal year
1994 and identifies approximately $2.0 billion in gap-closing
measures including productivity savings, service reductions, sale
of delinquent real property tax receivables, transfers from fiscal
year 1993, reduced debt service costs, increased State and Federal
aid, a continuation of the personal income tax surcharge and other
actions to reduce expenditures and increase revenues. This 1994-1997
Financial Plan projects budget gaps of $1.3 billion, $1.8 billion
and $2.0 billion in fiscal years 1995 through 1997, respectively.
On August 4, 1993, the City Comptroller in a report on the 1994-1997
Financial Plan identified risks of $340 million, $1.5 billion,
$2.0 billion, and $2.2 billion in fiscal years 1994 through 1997,
respectively, which could negatively affect gap-closing efforts.
The City Comptroller noted uncertainties associated with anticipated
Federal aid, projected proceeds from the sale or reorganization
of Off Track Betting operations and approval of certain productivity
savings relating to teachers.
An August 5, 1993 report of the Control Board on the 1994-1997
Financial Plan also identified risks in the City's proposed budget
gap reductions, including items identified by the City Comptroller
and uncertainties associated with the level of State aid and the
City's revenue and expenditure estimates. The Control Board estimated
gap-closing risks to be slightly higher than indicated in the
City Comptroller's report, $687 million, $1.9 billion, $2.4 billion
and $2.5 billion in fiscal years 1994 through 1997, respectively.
OSDC's report on the 1994-1997 Financial Plan released on August
10, 1993, also projected that budget gaps could be higher than
those set forth in such Plan. The OSDC report stated that in fiscal
year 1994 expenditures could be $240 million higher and revenues
$182 million lower than projected by the City. OSDC also noted
that budget gaps could increase by $556 million, $561 million
and $515 million in fiscal years 1995 through 1997, respectively,
above City projections as the result of higher payments to Covered
Organizations, higher overtime costs, and lower than anticipated
lottery and tax receipts. Given the foregoing factors, there can
be no assurance that the City will continue to maintain a balanced
budget, or that it can maintain a balanced budget without additional
tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to State law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections.
The City is required to submit its financial plans to review bodies,
including the Control Board. If the City were to experience certain
adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access
to the public credit markets to satisfy the City's capital and
seasonal financial requirements, the Control Board would be required
by State law to exercise certain powers, including prior approval
of City financial plans, proposed borrowings and certain contracts.
Page 44
The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements.
If the State experiences revenue shortfalls or spending increases
beyond its projections during its 1993 fiscal year or subsequent
years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance
that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures
as a result of such delays.
The City projections set forth in its financial plan are based
on various assumptions and contingencies which are uncertain and
which may not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its budget
as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include
the timing of any regional and local economic recovery, the absence
of wage increases in excess of the increases assumed in its financial
plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets,
levels of education expenditures as may be required by State law,
adoption of future City budgets by the New York City Council,
and approval by the Governor or the State Legislature and the
cooperation of MAC with respect to various other actions proposed
in such financial plan.
The City's ability to maintain a balanced operating budget is
dependent on whether it can implement necessary service and personnel
reduction programs successfully. As discussed above, the City
must identify additional expenditure reductions and revenue sources
to achieve balanced operating budgets for fiscal years 1994 and
thereafter. Any such proposed expenditure reductions will be difficult
to implement because of their size and the substantial expenditure
reductions already imposed on City operations in the past two
years.
Attaining a balanced budget is also dependent upon the City's
ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1994 through
1997 contemplates capital spending of $16.2 billion, which will
be financed through issuance of $10.5 billion of general obligation
bonds, $4.3 billion of Water Authority Revenue Bonds and the balance
by Covered Organization obligations, and will be utilized primarily
to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make capital investments. A significant
portion of such bond financing is used to reimburse the City's
general fund for capital expenditures already incurred. In addition,
the City issues revenue and tax anticipation notes to finance
its seasonal working capital requirements. The terms and success
of projected public sales of City general obligation bonds and
notes will be subject to prevailing market conditions at the time
of the sale, and no assurance can be given that the credit markets
will absorb the projected amounts of public bond and note sales.
In addition, future developments concerning the City and public
discussion of such developments, the City's future financial needs
and other issues may affect the market for outstanding City general
obligation bonds and notes. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from
meeting its planned operating and capital expenditures.
Fiscal Years 1990, 1991 and 1992. The City achieved balanced operating
results as reported in accordance with GAAP for the 1992 fiscal
year. During the 1990 and 1991 fiscal years, the City implemented
various actions to offset a projected budget deficit of $3.2 billion
for the 1991 fiscal year, which resulted from declines in City
revenue sources and increased public assistance needs due to the
recession. Such actions included $822 million of tax increases
and substantial expenditure reductions.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced
and claims asserted against the City arising out of alleged constitutional
violations, torts, breaches of contracts, and other violations
of law and condemnation proceedings. While the ultimate outcome
and fiscal impact, if any, on the proceedings and claims are not
currently predictable, adverse determinations in certain of them
might have a material adverse effect upon the City's ability to
carry out its financial plan. As of June 30, 1992, legal claims
in excess of $341 billion were outstanding against the City for
which the City estimated its potential future liability to be
$2.3 billion.
Ratings. As of the date of this prospectus, Moody's rating of
the City's general obligation bonds stood at Baa1 and S&P's rating
stood at A-. On February 11, 1991, Moody's had lowered its rating
from A.
Page 45
On June 30, 1993, in confirming its Baa1 rating, Moody's noted
that:
The recent trend of declining reliance on [one-shot revenues]
is notable, and it is too early to predict that the increased
reliance on one-shots in the fiscal 1994 budget represents the
beginning of a continuing upward movement in the use of one-shots
. . . Moody's recognized in February of 1991, when the [C]ity's
rating was lowered from an A to Baa1, that the [C]ity faced structural
budgetary imbalances which were unlikely to be cured in the near
term. Moody's continues to expect the [C]ity's progress toward
achieving structural balance to be slow and uneven, but that the
[C]ity will be diligent and prudent in closing each year's gap,
factors which are consistent with the Baa1 rating level.
On August 11, 1993, Moody's confirmed the City's Baa1 rating in
connection with the City's $300 million general obligation bond
issue on that date.
On March 30, 1993, S&P affirmed its A- rating with a negative
outlook, stating that:
The City's key credit factors are marked by a high and growing
debt burden, and taxation levels that are relatively high, but
stable. The City's economy is broad-based and diverse, but currently
is in prolonged recession, with slow growth prospects for the
foreseeable future.
The rating outlook is negative, reflecting the continued fiscal
pressure facing the City, driven by continued weakness in the
local economy, rising spending pressures for eduction and labor
costs of city employees, and increasing costs associated with
rising debt for capital construction and repair.
The current financial plan for the City assumes substantial increases
in aid from national and state governments. Maintenance of the
current rating, and stabilization of the rating outlook, will
depend on the City's success in realizing budgetary aid from these
governments, or replacing those revenues with ongoing revenue-raising
measures or spending reductions under the City's control. However,
increased reliance on non-recurring budget balancing measures
that would support current spending, but defer budgetary gaps
to future years, would be viewed by S&P as detrimental to New
York City's single A- rating.
As discussed above under Fiscal Year 1993 and 1993-1996 Financial
Plan, on July 2, 1993 after a review of the City's budget for
fiscal year 1994, its proposed budget for fiscal year 1995 and
certain additional cuts in both proposed by the Mayor and the
City Comptroller, S&P confirmed its A- rating with a negative
outlook of the City's general obligation bonds.
On May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated
the $900 million Notes then being sold MIG-2. On April 30, 1991
Moody's confirmed its MIG-2 rating for the outstanding revenue
anticipation notes and for the $1.25 billion in notes then being
sold. On April 29, 1991, S&P revised downward its rating on City
revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1992, the City and MAC had, respectively, $20.3
billion and $4.7 billion of outstanding net long-term indebtedness.
The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability
of such Agencies to make payments of interest on, and principal
amounts of, their respective bonds. The difficulties have in certain
instances caused the State (under so-called "moral obligation"
provisions which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds)
to appropriate funds on behalf of the Agencies. Moreover, it is
expected that the problems faced by these Agencies will continue
and will require increasing amounts of State assistance in future
years. Failure of the State to appropriate necessary amounts or
to take other action to permit those Agencies having financial
difficulties to meet their obligations could result in a default
by one or more of the Agencies. Such default, if it were to occur,
would be likely to have a significant adverse effect on investor
confidence in, and therefore the market price of, obligations
of the defaulting Agencies. In addition, any default in payment
on any general obligation of any Agency whose bonds contain a
moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal
Page 46
guarantees of City and MAC obligations and could thus jeopardize
the City's long-term financing plans.
As of September 30, 1992, the State reported that there were eighteen
Agencies that each had outstanding debt of $100 million or more.
These eighteen Agencies had an aggregate of $62.2 billion of outstanding
debt, including refunding bonds, of which the State was obligated
under lease-purchase, contractual obligation or moral obligation
provisions on $25.3 billion.
State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine
governmental operations. Such litigation includes, but is not
limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings,
and other alleged violations of State and Federal laws. Included
in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety
of significant social welfare programs primarily involving the
State's mental hygiene programs. Adverse judgments in these matters
generally could result in injunctive relief coupled with prospective
changes in patient care which could require substantial increased
financing of the litigated programs in the future.
The State is also engaged in a variety of claims wherein significant
monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally
taken from the Indians in violation of various treaties and agreements
during the eighteenth and nineteenth centuries. The claimants
seek recovery of approximately six million acres of land as well
as compensatory and punitive damages.
The U.S. Supreme Court on March 30, 1993, referred to a Special
Master for determination of damages an action by the State of
Delaware to recover certain unclaimed dividends, interest and
other distributions made by issuers of securities held by New
York based-brokers incorporated in Delaware (State of Delaware
v. State of New York). The State had taken such unclaimed property
under its Abandoned Property Law. The State expects that it may
pay a significant amount in damages during fiscal year 1993-94
but it has indicated that it has sufficient funds on hand to pay
any such award, including funds held in contingency reserves.
The State's 1993-94 Financial Plan includes the establishment
of a $100 million contingency reserve fund which would be available
to fund such an award which some reports have estimated at $100-$300
million.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz
1993"), petitioners have challenged the constitutionality of mass
transportation bonding programs of the New York State Thruway
Authority and the Metropolitan Transportation Authority. On May
24, 1993, the Supreme Court, Albany County, temporarily enjoined
the State from implementing those bonding programs. In previous
actions Mr. Schulz and others have challenged on similar grounds
bonding programs for the New York State Urban Development Corporation
and the New York Local Government Assistance Corporation. While
there have been no decisions on the merits in such previous actions,
by an opinion dated May 11, 1993, the New York Court of Appeals
held in a proceeding commenced on April 29, 1991 in the Supreme
Court, Albany County (Schulz v. State of New York), that petitioners
had standing as voters under the State Constitution to bring such
action.
Petitioners in Schulz 1993 have asserted that issuance of bonds
by the two Authorities is subject to approval by statewide referendum.
At this time there can be no forecast of the likelihood of success
on the merits by the petitioners, but a decision upholding this
constitutional challenge could restrict and limit the ability
of the State and its instrumentalities to borrow funds in the
future. The State has not indicated that the temporary injunction
issued by the Supreme Court in this action will have any immediate
impact on its financial condition or interfere with projects requiring
immediate action.
On July 1, 1993, the Appellate Division of the State Supreme Court
affirmed the decision of the Supreme Court, Albany County in three
actions, declaring unconstitutional State legislation affecting
actuarial funding methods for determining State and local contributions
to the State employee retirement system. The State Comptroller's
office has projected that the impact of the decision with respect
to 1990-91 fiscal year contributions alone could require additional
State and local employer contributions of approximately $800
Page 47
million. A final adverse decision in these three actions could
have a material adverse effect on the financial condition of the
State and its local governments.
Adverse developments in the foregoing proceedings or new proceedings
could adversely affect the financial condition of the State in
the future.
Other Municipalities: Certain localities in addition to New York
City could have financial problems leading to requests for additional
State assistance. The potential impact on the State of such actions
by localities is not included in projections of State receipts
and expenditures in the State's 1993-94 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the
City of Yonkers (the "Yonkers Board") by the State in 1984. The
Yonkers Board is charged with oversight of the fiscal affairs
of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $31.6 billion,
of which $16.8 billion was debt of New York City (excluding $6.7
billion in MAC debt). State law requires the Comptroller to review
and make recommendations concerning the budgets of those local
government units other than New York City authorized by State
law to issue debt to finance deficits during the period that such
deficit financing is outstanding. Fifteen localities had outstanding
indebtedness for state financing at the close of their fiscal
year ending in 1991. In 1992, an unusually large number of local
government units requested authorization for deficit financings.
According to the Comptroller, ten local government units have
been authorized to issue deficit financing in the aggregate amount
of $131.1 million.
Certain proposed Federal expenditure reductions could reduce,
or in some cases eliminate, Federal funding of some local programs
and accordingly might impose substantial increased expenditure
requirements on affected localities. If the State, New York City
or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within
the State, including notes or bonds in the New York Insured Trust,
could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation,
judicial decisions, and long-range economic trends. The longer-range
potential problems of declining urban population, increasing expenditures,
and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Other Issuers of New York Municipal Obligations. There are a number
of other agencies, instrumentalities and political subdivisions
of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private
borrowers. These entities are subject to various economic risks
and uncertainties, and the credit quality of the securities issued
by them may vary considerably from the credit quality of obligations
backed by the full faith and credit of the State.
New York Tax Status
In the opinion of Carter, Ledyard & Milburn, New York, New York,
Special Counsel to the Fund for New York tax matters, under existing
law:
The New York Trust is not an association taxable as a corporation
and the income of the Trust will be treated as the income of the
Unit holders under the existing income tax laws of the State and
City of New York in the same manner as for Federal income tax
purposes (subject to differences in accounting for discount and
premium to the extent the State and/or City of New York do not
conform to current Federal law);
Individuals holding units of the New York Insured Trust who reside
in New York State or City will not be subject to State and City
personal income tax on interest income which is excludable from
Federal gross income under section 103 of the Internal Revenue
Code of 1986 and derived from any obligation of New York State
or a political subdivision thereof, or of the Government of Puerto
Rico or a political subdivision thereof, or of the Government
of Guam or by its authority, although they will be subject to
New York State and City personal income tax with respect to any
gains realized when such obligations are sold, redeemed or paid
at maturity or when any such Units are sold or redeemed; and
Page 48
For individuals holding units of the New York Insured Trust who
reside in New York State or City, any proceeds paid to the Trustee
under the applicable insurance policies which represent maturing
interest on defaulted obligations held by the Trustee will not
be subject to New York State or City personal income tax if, and
to the same extent as, such interest would not have been subject
to New York State or City personal income tax if paid by the issuer
of the defaulted obligations.
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
New York Insured Trust, Series 53
Portfolio
Units Rated "AAA"_
At the Opening of Business
On the Date of Deposit of the Bonds-March 23, 1994
<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>
$ 500,000 The City of New York, General Obligation, Fiscal AAA 2003 @ 101.5 $ 503,995
1993 Series E (Capital Guaranty Insured),
6.00%, Due 5/15/2016 (5)
500,000 New York City Health and Hospitals Corporation, AAA 2003 @ 102 486,430
Health System, 1993 Series A (AMBAC Insured), 2021 @ 100 S.F.
5.75%, Due 2/15/2022 (5)
300,000 New York City, Municipal Water Finance Authority, AAA 2004 @ 101.5 294,003
Water and Sewer System Revenue, Fiscal 1994
Series F (MBIA Insured), 5.75%, Due 6/15/2020 (5)
500,000 { Dormitory Authority of the State of New York, AAA 2002 @ 102 489,785
Insured Revenue, Upstate Community Colleges, 1992A 2013 @ 100 S.F.
Issue (Connie Lee Insured), 5.75%, Due 7/01/2022 (5)
485,000 * Dormitory Authority of the State of New York, AAA 2004 @ 102 461,303
Fordham University, Insured Revenue, Series 1994
(FGIC Insured), 5.50%, Due 7/01/2023 (5)
500,000 New York State Medical Care Facilities Finance AAA 2003 @ 102 490,285
Agency, Mental Health Services Facilities 2014 @ 100 S.F.
Improvement Revenue, 1993 Series C (Capital
Guaranty Insured), 5.80%, Due 2/15/2019 (5)
360,000 New York State Urban Development Corporation, AAA 2004 @ 102 352,595
Project Revenue (Higher Education Applied 2011 @ 100 S.F.
Technology Grants), Series 1994 (MBIA Insured),
5.625%, Due 4/01/2014 (5)
__________ __________
$3,145,000 $3,078,396
========== ==========
</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 August
1, 1992 at a price of 94.552% of their original principal amount.
* Sponsor's contracts for the purchase of all or a portion of
these Bonds (approximately 15% 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 April 6, 1994.
For industry concentrations of the Bonds in the Trust, see "New
York Insured Trust Summary."
See "Notes to Portfolios" on page 63.
Page 50
Pennsylvania Insured Trust, Series 54
<TABLE>
<CAPTION>
Special Trust Information
Monthly
_______
<S> <C>
Calculation of Estimated Net Annual Unit Income (1)
Estimated Annual Interest Income per Unit $ 56.97
Less: Estimated Annual Expense per Unit $ 2.31
Estimated Net Annual Interest Income per Unit $ 54.66
Calculation of Interest Distribution per Unit
Estimated Net Annual Interest Income per Unit $ 54.66
Divided by 12 $ 4.55
Estimated Daily Rate of Net Interest Accrual per Unit $ .151827
Estimated Current Return Based on Public Offering Price (2) 5.47%
Estimated Long-Term Return Based on Public Offering Price (2) 5.40%
CUSIP 33733R 261
</TABLE>
Trustee's Annual Fee $1.37 per Unit, exclusive of expenses of
the Trust commencing March 23, 1995.
Distributions
First distribution of $2.28 per Unit will be paid on April 30,
1994 to Unit holders of record on April 15, 1994.
Regular distributions of $4.55 per Unit will begin on May 31,
1994 to Unit holders of record on May 15, 1994.
Computation Dates Fifteenth day of the month.
Distribution Dates Last day of the month
commencing April 30, 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
$1.09) 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 $55.88. 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 51
Pennsylvania Insured Trust Summary
The Pennsylvania Insured Trust consists of ten obligations of
issuers located in Pennsylvania. 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>
4 General Obligation 44.97%
2 Electric 29.59%
3 Health Care 23.96%
1 Miscellaneous 1.48%
</TABLE>
One of the Bond issues in the Pennsylvania Insured Trust is insured
by Connie Lee Insurance Company ("Connie Lee"), 2445 M Street,
N.W., Washington D.C. 20037. Connie Lee is a stock insurance company
incorporated in Wisconsin and a wholly-owned subsidiary of College
Construction Loan Insurance Association ("CCLIA"), a District
of Columbia insurance holding company. As of September 30, 1993,
the total policyholders' surplus of Connie Lee was approximately
$104,000,000 (unaudited) and total admitted assets were approximately
$173,000,000 (unaudited), as reported to the Commissioner of Insurance
of the State of Wisconsin.
Each of six Bond issues represents approximately 15% of the aggregate
principal amount of the Bonds in the Trust or a total of approximately
89%. 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
8-10 years after the Date of Deposit. See "What Is the First Trust
Combined Series?", "Pennsylvania Insured Trust, Series 54-Portfolio"
and "Description of Bond Ratings."
Federal and Pennsylvania 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 Federal tax
rates and state tax rates scheduled to be in effect in 1994. The
table incorporates increased tax rates for higher-income taxpayers
that were included in the 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. 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 $111,800. 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 52
<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 - 22.8 $ 0 - 38.0 17.4% 5.45 6.05 6.66
22.8 - 55.1 38.0 - 91.9 30.0 6.43 7.14 7.86
55.1 - 115.0 91.9 - 140.0 32.9 6.71 7.45 8.20
115.0 - 250.0 140.0 - 250.0 37.8 7.23 8.04 8.84
Over 250.0 Over 250.0 41.3 7.67 8.52 9.37
</TABLE>
[FN]
* The table does not reflect the effect of the exemption of the
Trust from local personal property taxes and from the Philadelphia
School District Investment Net Income Tax, accordingly; residents
of Pennsylvania subject to such taxes would need a higher taxable
estimated current return than those shown to equal the tax-exempt
estimated current return of the Trust.
Certain Considerations
Investors should be aware of certain factors that might affect
the financial conditions of the Commonwealth of Pennsylvania.
Pennsylvania historically has been identified as a heavy industry
state although that reputation has changed recently as the industrial
composition of the Commonwealth diversified when the coal, steel
and railroad industries began to decline. The major new sources
of growth in Pennsylvania are in the service sector, including
trade, medical and the health services, education and financial
institutions. Pennsylvania's agricultural industries are also
an important component of the Commonwealth's economic structure,
accounting for more than $3.5 billion in crop and livestock products
annually, while agribusiness and food related industries support
$38 billion in economic activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1
percent during the recessionary period from 1980 to 1983. In 1984,
the declining trend was reversed as employment grew by 2.9 percent
over 1983 levels. From 1983 to 1990, Commonwealth employment continued
to grow each year, increasing an additional 14.3 percent. For
the last two years, unemployment in the Commonwealth has declined
1.9 percent. The growth in employment experienced in Pennsylvania
is comparable to the growth in employment in the Middle Atlantic
Region which has occurred during this period.
Back-to-back recessions in the early 1980s reduced the manufacturing
sector's employment levels moderately during 1980 and 1981, sharply
during 1982, and even further in 1983. Non-manufacturing employment
has increased steadily since 1980 to its 1992 level of 81.3 percent
of total Commonwealth employment. Consequently, manufacturing
employment constitutes a diminished share of total employment
within the Commonwealth. Manufacturing, contributing 18.7 percent
of 1992 non-agricultural employment, has fallen behind both the
services sector and the trade sector as the largest single source
of employment within the Commonwealth. In 1992 the services sector
accounted for 29.3 percent of all non-agricultural employment
while the trade sector accounted for 22.7 percent.
From 1983 to 1989, Pennsylvania's annual average unemployment
rate dropped from 11.8 percent to 4.5 percent, falling below the
national rate in 1986 for the first time in over a decade. Pennsylvania's
annual average unemployment rate remained below the national average
from 1986 until 1990. Slower economic growth caused the unemployment
rate in the Commonwealth to rise to 6.9 percent in 1991 and 7.5
percent in 1992. As of February 1994, the seasonally adjusted
unemployment rate for the Commonwealth was 5.1 percent compared
to 6.5 percent for the United States.
The five-year period from fiscal 1989 through fiscal 1993 was
marked by public health and welfare costs growing at a rate double
the growth for all the state expenditures. Rising caseloads, increased
utilization of services and rising prices joined to produce the
rapid rise of public health and welfare costs at a time when a
national recession caused tax revenues to stagnate and even decline.
During the period from fiscal 1989 through fiscal 1993, public
health and welfare costs rose by an average annual rate of 10.9
percent while tax revenues were growing at an average rate of
5.5 percent. Consequently, spending on other budget programs was
restrained to a growth rate below 5.0 percent and sources of revenues
other than taxes became
Page 53
larger components of fund revenues. Among those sources are transfers
from other funds and hospital and nursing home pooling of contributions
to use as federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession
in the economy. A $2.7 billion tax increase enacted for fiscal
1992 brought financial stability to the General Fund. That tax
increase included several taxes with retroactive effective dates
which generated some one-time revenues during fiscal 1992. The
absence of those revenues in fiscal 1993 contributed to the decline
in tax revenues shown for fiscal 1993.
It should be noted that the creditworthiness of obligations issued
by local Pennsylvania issuers may be unrelated to the creditworthiness
of obligations issued by the Commonwealth of Pennsylvania, and
there is no obligation on the part of the Commonwealth to make
payment on such local obligations in the event of default.
Financial information for the General Fund is maintained on a
budgetary basis of accounting. A budgetary basis of accounting
is used for the purpose of ensuring compliance with the enacted
operating budget and is governed by applicable statutes of the
Commonwealth and by administrative procedures. The Commonwealth
also prepares annual financial statements in accordance with generally
accepted accounting principles ("GAAP"). The budgetary basis financial
information maintained by the Commonwealth to monitor and enforce
budgetary control is adjusted at fiscal year-end to reflect appropriate
accruals for financial reporting in conformity with GAAP.
Fiscal 1991 Financial Results. GAAP Basis: During fiscal 1991
the General Fund experienced an $861.2 million operating deficit
resulting in a fund balance deficit of $980.9 million at June
30, 1991. The operating deficit was a consequence of the effect
of a national recession that restrained budget revenues and pushed
expenditures above budgeted levels. At June 30, 1991, a negative
unreserved-undesignated balance of $1,146.2 million was reported.
During fiscal 1991, the balance in the Tax Stabilization Reserve
Fund was used to maintain vital state spending.
Budgetary Basis: A deficit of $453.6 million was recorded by the
General Fund at June 30, 1991. The deficit was a consequence of
higher-than-budgeted expenditures and lower-than-estimated revenues
during the fiscal year brought about by the national economic
recession that began during the fiscal year. The budgetary basis
deficit at June 30, 1991 was carried into the 1992 fiscal year
and funded in the fiscal 1992 budget. A number of actions were
taken throughout the fiscal year by the Commonwealth to mitigate
the effects of the recession on budget revenues and expenditures.
Actions taken, together with normal appropriation lapses, produced
$871 million in expenditure reductions and revenue increases for
the fiscal year. The most significant of these actions were a
$214 million transfer from the Pennsylvania Industrial Development
Authority, a $134 million transfer from the Tax Stabilization
Reserve Fund, and a pooled financing program to match federal
Medicaid funds replacing $145 million of state funds.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992
the General Fund reported a $1.1 billion operating surplus. This
operating surplus was achieved through legislated tax rate increases
and tax base broadening measures enacted in August 1991 and by
controlling expenditures through numerous cost reduction measures
implemented throughout the fiscal year. As a result of the fiscal
1992 operating surplus, the fund balance has increased to $87.5
million and the unreserved-undesignated deficit has dropped to
$138.6 million from its fiscal 1991 level of $1,146.2 million.
Budgetary Basis: Eliminating the budget deficit carried into fiscal
1992 from fiscal 1991 and providing revenues for fiscal 1992 budgeted
expenditures required tax revisions that are estimated to have
increased receipts for the 1992 fiscal year by over $2.7 billion.
Total revenues for the fiscal year were $14,516.8 million, a $2,654.5
million increase over cash revenues during fiscal 1991. Originally
based on forecasts for an economic recovery, the budget revenue
estimates were revised downward during the fiscal year to reflect
continued recessionary economic activity. Largely due to the tax
revisions enacted for the budget, corporate tax receipts totalled
$3,761.2 million, up from $2,656.3 million in fiscal 1991, sales
tax receipts increased by $302 million to $4,499.7 million, and
personal income tax receipts totalled $4,807.4 million, an increase
of $1,443.8 million over receipts in fiscal 1991.
Page 54
As a result of the lowered revenue estimate during the fiscal
year, increased emphasis was placed on restraining expenditure
growth and reducing expenditure levels. A number of cost reductions
were implemented during the fiscal year and contributed to $296.8
million of appropriation lapses. These appropriation lapses were
responsible for the $8.8 million surplus at fiscal year-end, after
accounting for the required ten percent transfer of the surplus
to the Tax Stabilization Reserve Fund.
Spending increases in the fiscal 1992 budget were largely accounted
for by increases for education, social services and corrections
programs. Commonwealth funds for the support of public schools
were increased by 9.8 percent to provide a $438 million increase
to $4.9 billion for fiscal 1992. The fiscal 1992 budget provided
additional funds for basic and special education and included
provisions designed to help restrain the annual increase of special
education costs, an area of recent rapid cost increases. Child
welfare appropriations supporting county operated child welfare
programs were increased $67 million, more than 31.5 percent over
fiscal 1991. Other social service areas such as medical and cash
assistance also received significant funding increases as costs
have risen quickly as a result of the economic recession and high
inflation rates of medical care costs. The costs of corrections
programs, reflecting the marked increase in the prisoner population,
increased by 12 percent. Economic development efforts, largely
funded from bond proceeds in fiscal 1991, were continued with
General Fund appropriations for fiscal 1992.
The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135 million
of Commonwealth funds, allowing total spending under the budget
to increase by an equal amount.
Fiscal 1993 Financial Results-GAAP Basis. The fund balance of
the General Fund increased by $611.4 million during the fiscal
year, led by an increase in the unreserved balance of $576.8 million
over the prior fiscal year balance. At June 30, 1993, the fund
balance totaled $698.9 and the unreserved/undesignated balance
totaled $64.4 million. A continuing recovery of the Commonwealth's
financial condition from the effects of the national economic
recession of 1990 and 1991 is demonstrated by this increase in
the balance and a return to a positive unreserved/undesignated
balance. The previous positive unreserved/undesignated balance
was recorded in fiscal 1987. For the second consecutive fiscal
year the increase in the unreserved/undesignated balance exceeded
the increase recorded in the budgetary basis unappropriated surplus
during the fiscal year.
Budgetary Basis. The 1993 fiscal year closed with revenues higher
than anticipated and expenditures about as projected, resulting
in an ending unappropriated balance surplus (prior to the ten
percent transfer to the Tax Stabilization Reserve Fund) of $242.3
million, slightly higher than estimated in May 1993. Cash revenues
were $41.5 million above the budget estimate and totaled $14.633
billion representing less than a one percent increase over revenues
for the 1992 fiscal year. A reduction in the personal income tax
rate in July 1992 and revenues from retroactive corporate tax
increases received in fiscal 1992 were responsible, in part, for
the low revenue growth in fiscal 1993.
Appropriations less lapses totaled an estimated $13.870 billion
representing a 1.1 percent increase over those during fiscal 1992.
The low growth in spending is a consequence of a low rate of revenue
growth, significant one-time expenses during fiscal 1992, increased
tax refund reserves to cushion against adverse decisions on pending
litigations, and the receipt of federal funds for expenditures
previously paid out of Commonwealth funds.
By state statute, ten percent of the budgetary basis unappropriated
surplus at the end of a fiscal year is to be transferred to the
Tax Stabilization Reserve Fund. The transfer for the fiscal 1993
balance is $24.2 million. The remaining unappropriated surplus
of $218.0 million was carried forward into the 1994 fiscal year.
Fiscal 1994 Budget (Budgetary Basis). The enacted 1994 fiscal
year budget provides for $14.995 billion of appropriations of
Commonwealth funds. The largest increase in appropriations is
the Department of Public Welfare-$235 million-to meet the increasing
costs of medical care and rising caseloads. Other large increases
are eduction-$196 million-including $129 million to increase state
educational subsidies for the most needy school districts and
$104 million for correctional institutions to pay operating costs
and lease payments for five new prisons and to expand the capacity
of two existing facilities.
Page 55
The continuing rise in medical assistance costs cannot be met
from the resources provided by a much slower growing tax revenue
base. Consequently, program and financial changes must be implemented
to keep costs within budget limits. For fiscal 1994, the Commonwealth
plans to save $247 million by receiving federal reimbursement
for hospital services provided to state general assistance recipients.
Prior to this time, those costs were fully paid by the Commonwealth.
In addition, the Commonwealth will continue to use pooled financing
for medical assistance costs using intergovernmental transfers
in place of voluntary contributions as was done in earlier fiscal
years. Through the pooled financing, additional federal reimbursements
may be drawn to support the medical assistance program. The pooled
financing is anticipated to replace $99 million of Commonwealth
funds in the 1994 fiscal year budget.
The budget estimates revenue growth of 3.7 percent over fiscal
1993 actual revenues. The revenue estimate is based on an expectation
of continued economic recovery, but at a slow rate. Sales tax
receipts are projected to rise 4.4 percent over 1993 receipts
while personal income tax receipts are projected to increase by
3.3 percent, a rate that is low because of the tax rate reduction
in July 1992.
In February 1994, the Governor recommended $46.4 million of additional
appropriations be enacted for fiscal 1994, raising total appropriations
to $15,041.7 million. The largest increase in additional appropriations
is $27.3 million to make audit payments to the federal Department
of Health and Human Services. No change to the aggregate commonwealth
revenue estimate was made although individual tax estimates have
been revised to reflect actual receipts to date and the tax refund
estimate was reduced to reflect a favorable ruling in Philadelphia
Suburban Corp. vs. Commonwealth. Through February 1994, revenues
are slightly ($1.1million or 0.01 percent) above estimate as below
estimate corporate tax receipts are being offset by above estimate
sales tax, personal income tax and non-tax revenue receipts.
Upon completion of a review of actual expenditures and revised
estimates for the remainder of fiscal 1994, lapses of current
and prior years' appropriations are projected to be $163.0 million.
The projected lapses and the beginning unappropriated surplus
contribute to a projected ending unappropriated surplus of $296.8
million before the required ten percent transfer to the Tax Stabilization
Reserve Fund.
Proposed Fiscal 1995 Budget. For the fiscal year beginning July
1, 1994, the Governor has proposed a budget containing a 4.1 percent
increase in appropriations over the actual and proposed supplemental
appropriations for fiscal 1994. Total appropriations recommended
amount to $15,665 million. The budget is balanced by drawing down
of a projected $267 million unappropriated surplus for fiscal
1994. The fastest growing portion of the budget continues to be
medical assistance which is proposed to receive the largest increase,
$264 million or 42.4 percent of the proposed net increase in spending.
Other program areas budgeted to receive major increases are education-$165
million-and corrections-$126 million. The proposed budget recommends
a tightening of eligibility criteria for state-financed welfare
benefits as a cost reduction measure. Those individuals not meeting
the revised criteria would only qualify for 60 days of cash grants
in a two-year period.
The Governor's proposal also includes a recommended reduction
in the corporate net income tax rate from 12.25 percent to 9.99
percent over a three-year period. The corporate tax cut and a
proposed increase in poverty exemption for the personal income
tax are estimated to cost $124.7 million in fiscal 1995.
The recommended budget includes Commonwealth revenue growth of
4.7 percent without the effect of the proposed tax reduction.
The revenue estimate is based on the expectation of a continued
slow national economic recovery and continued economic growth
of the Pennsylvania economy at a rate slightly below the national
rate. Total estimate Commonwealth revenue, adjusted for refunds
and the proposed tax reduction, is $15,400 million.
All outstanding general obligation bonds of the Commonwealth are
rated AA- by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must
be obtained from the rating agencies. There is no assurance that
any ratings will continue for any period of time or that they
will not be revised or withdrawn.
Page 56
The City of Philadelphia ("Philadelphia") is the largest city
in the Commonwealth, with an estimated population of 1,585,577
according to the 1990 Census. Philadelphia functions both as a
city of the first class and a county for the purpose of administering
various governmental programs.
For the fiscal year ending June 30, 1991, Philadelphia experienced
a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992, place
the Cumulative General Fund balance deficit at $224.9.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first
class cities in remedying fiscal emergencies was enacted by the
General Assembly and approved by the Governor in June 1991. PICA
is designed to provide assistance through the issuance of funding
debt to liquidate budget deficits and to make factual findings
and recommendations to the assisted city concerning its budgetary
and fiscal affairs. An intergovernmental cooperation agreement
between Philadelphia and PICA was approved by City Council on
January 3, 1992, and approved by the PICA Board and signed by
the Mayor on January 8,1992. At this time, Philadelphia is operating
under a five-year fiscal plan approved by PICA on April 6, 1992.
Full implementation of the five-year plan was delayed due to labor
negotiations that were not completed until October 1992, three
months after the expiration of the old labor contracts. The terms
of the new labor contracts are estimated to cost approximately
$144.0 million more than what was budgeted in the original five-year
plan. An amended five-year plan was approved by PICA in May 1993.
The audit findings show a surplus of approximately $3 million
for the fiscal year ending June 30, 1993. The fiscal 1994 budget
projects no deficit and a balanced budget for the year ending
June 30, 1994. The Mayor presented the latest update of the five-year
financial plan on January 13, 1994; it will be considered by PICA
in the spring of 1994.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue
Bonds to provide financial assistance to Philadelphia and to liquidate
the cumulative General Fund balance deficit. In July 1993, PICA
issued $643,430,000 of Special Tax Revenue Bonds to refund certain
general obligation bonds of the city and to fund additional capital
projects.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Ba
by Moody's and BB by S&P. Any explanation concerning the significance
of such ratings must be obtained from the rating agencies. There
is no assurance that any ratings will continue for any period
of time or that they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of
some of the financial difficulties which may impact certain issuers
of bonds and does not purport to be a complete or exhaustive description
of all adverse conditions to which the issuers of the Bonds in
the Pennsylvania Trust are subject. Additionally, many factors
including national economic, social and environmental policies
and conditions, which are not within the control of the issuers
of Bonds, could have an adverse impact on the financial condition
of the State and various agencies and political subdivisions located
in the State. The Sponsor is unable to predict whether or to what
extent such factors or other factors may affect the issuers of
Bonds, the market value or marketability of the Bonds or the ability
of the respective issuers of the Bonds acquired by the Pennsylvania
Trust to pay interest on or principal of the Bonds.
Pennsylvania Tax Status
In rendering its opinion, Saul, Ewing, Remick & Saul has not,
for timing reasons, made an independent review of proceedings
related to the issuance of the Bonds. It has relied on the Sponsor
for assurance that the Bonds have been issued by the Commonwealth
of Pennsylvania or by or on behalf of municipalities or other
governmental agencies within the Commonwealth.
In the opinion of Saul, Ewing, Remick & Saul, Special Counsel
to the Fund for Pennsylvania tax matters, under existing law:
Units evidencing fractional undivided interests in the Pennsylvania
Trust, which are represented by obligations issued by the Commonwealth
of Pennsylvania, any public authority, commission, board or other
agency created by the Commonwealth of Pennsylvania, any political
subdivision of the Commonwealth of Pennsylvania
Page 57
or any public authority created by any such political subdivision,
are not taxable under any of the personal property taxes presently
in effect in Pennsylvania;
Distributions of interest income to Unit holders are not subject
to personal income tax under the Pennsylvania Tax Reform Code
of 1971; nor will such interest be taxable under the Philadelphia
School District Investment Income Tax imposed on Philadelphia
resident individuals;
A Unit holder will have a taxable event under the Pennsylvania
state and local income taxes referred to in the preceding paragraph
upon the redemption or sale of his Units. Units will be taxable
under the Pennsylvania inheritance and estate taxes;
A Unit holder which is a corporation will have a taxable event
under the Pennsylvania Corporate Net Income Tax when it redeems
or sells its Units. Interest income distributed to Unit holders
which are corporations is not subject to Pennsylvania Corporate
Net Income Tax or Mutual Thrift Institutions Tax. However, banks,
title insurance companies and trust companies may be required
to take the value of the Units into account in determining the
taxable value of their shares subject to tax;
Under Act No. 68 of December 3, 1993, gains derived by the Fund
from the sale, exchange or other disposition of Bonds may be subject
to Pennsylvania personal or corporate income taxes. Those gains
which are distributed by the Fund to Unit holders who are individuals
will be subject to Pennsylvania Personal Income Tax and, for residents
of Philadelphia, to Philadelphia School District Investment Income
Tax. For Unit holders which are corporations, the distributed
gains will be subject to Corporate Net Income Tax or Mutual Thrift
Institutions Tax. Gains which are not distributed by the Fund
will nevertheless be taxable to Unit holders if derived by the
Fund from the sale, exchange or other disposition of Bonds issued
on or after February 1, 1994. Gains which are not distributed
by the Fund will remain nontaxable to Unit holders if derived
by the Fund from the sale, exchange or other disposition of Bonds
issued prior to February 1, 1994. However, for gains from the
sale, exchange or other disposition of these Bonds to be taxable
under the Philadelphia School District Investment Income Tax,
the Bonds must be held for six months or less; and
Any proceeds paid under insurance policies issued to the Trustee
or obtained by issuers of the Bonds with respect to the Bonds
which represent maturing interest on defaulted obligations held
by the Trustee will be excludable from Pennsylvania gross income
if, and to the same extent as, such interest would have been so
excludable if paid by the issuer of the defaulted obligations.
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 58
Pennsylvania Insured Trust, Series 54
Portfolio
Units Rated "AAA"_
At the Opening of Business
On the Date of Deposit of the Bonds-March 23, 1994
<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>
$ 150,000 { Allegheny County (Pennsylvania) Hospital Development AAA 2002 @ 102 $ 150,579
Authority, Hospital Revenue Refunding, Series 1992 2009 @ 100 S.F.
(Magee-Womens Hospital) (FGIC Insured),
6.00%, Due 10/01/2013 (5)
500,000 Beaver County (Pennsylvania) Industrial AAA 2003 @ 102 462,120
Development Authority, Pollution Control Revenue
Refunding, 1993 Series A (Ohio Edison Company
Mansfield Project) (AMBAC Insured),
5.45%, Due 9/15/2033 (5)
500,000 * Bedford Area School District (Bedford County, AAA 2004 @ 100 497,815
Pennsylvania), General Obligation, Series of 1994 2018 @ 100 S.F.
(MBIA Insured), 5.875%, Due 4/15/2024 (5)
500,000 Cambria County (Pennsylvania) Hospital AAA 2002 @ 102 516,075
Development Authority, Hospital Revenue Refunding 2009 @ 100 S.F.
and Improvement, Series B of 1992 (Conemaugh
Valley Memorial Hospital Project) (Connie Lee
Insured), 6.375%, Due 7/01/2018 (5)
160,000 Dauphin County General Authority, Hospital Revenue AAA 2002 @ 102 163,626
Refunding, HAPSCO Group, Inc. Tax-Exempt Loan 2009 @ 100 S.F.
Program (The Western Pennsylvania Hospital
Project), 1992 Series B (MBIA Insured),
6.25%, Due 7/01/2016 (5)
20,000 {{Girard School District, Erie County, Pennsylvania, AAA 4,121
General Obligation, Series B of 1992 (FGIC
Insured), Zero Coupon, Due 10/01/2020 (5)
500,000 * City of Jeannette, Westmoreland County, AAA 2004 @ 100 503,735
Pennsylvania, General Obligation, Series of 1994 2019 @ 100 S.F.
(MBIA Insured), 6.00%, Due 4/01/2024 (5)
500,000 Lehigh County Industrial Development Authority, AAA 2002 @ 102 519,440
Pollution Control Revenue Refunding, 1992 Series A
(Pennsylvania Power & Light Company Project)
(MBIA Insured), 6.40%, Due 11/01/2021 (5)
500,000 * Ligonier Valley School District (Westmoreland AAA 2004 @ 100 503,685
County, Pennsylvania), General Obligation, Series of
1994 (MBIA Insured), 6.00%, Due 3/01/2023 (5)
Page 59
</TABLE>
Pennsylvania Insured Trust, Series 54
Portfolio (continued)
Units Rated "AAA"_
At the Opening of Business
On the Date of Deposit of the Bonds-March 23, 1994
<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>
$ 50,000 {{Municipal Authority of Westmoreland County AAA $ 9,214
(Westmoreland County, Pennsylvania), Municipal
Service Revenue, Series C of 1993 (FGIC Insured),
Zero Coupon, Due 8/15/2022 (5)
__________ __________
$3,380,000 $3,330,410
========== ==========
</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 October
15, 1992 at a price of 93.236% of their original principal amount.
* Sponsor's contracts for the purchase of all or a portion of
these Bonds (approximately 44% 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 April 18, 1994.
{{ These Bonds have no stated interest rate ("zero coupon bonds")
and, accordingly, will have no periodic interest payments to the
Trust. Upon maturity, the holders of these Bonds are entitled
to receive 100% of the stated principal amount. The Bonds were
issued at an original issue discount on the following dates and
at the following percentages of their original principal amount:
Date %
________ _______
Girard School District 12/15/92 15.800
Municipal Authority Westmoreland County 11/9/93 19.306
For industry concentrations of the Bonds in the Trust, see
"Pennsylvania Insured Trust Summary."
See "Notes to Portfolios" on page 63.
Page 60
REPORT OF INDEPENDENT AUDITORS
The Sponsor, Nike Securities L.P., and Unit Holders
THE FIRST TRUST COMBINED SERIES 213
We have audited the accompanying statements of net assets, including
the portfolios, of The First Trust of Insured Municipal Bonds-Multi-State:
New York Trust, Series 53 and Pennsylvania Trust, Series 54, comprising
The First Trust Combined Series 213 (the Trusts) as of the opening
of business on March 23, 1994. 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 March 23, 1994. 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: New
York Trust, Series 53 and Pennsylvania Trust, Series 54, comprising
The First Trust Combined Series 213 at the opening of business
on March 23, 1994 in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Chicago, Illinois
March 23, 1994
Page 61
Statements of Net Assets
The First Trust Combined Series 213
At the Opening of Business on the Date of Deposit
March 23, 1994
<TABLE>
<CAPTION>
New York Pennsylvania
Insured Insured
Trust, Trust,
Series 53 Series 54
___________ ___________
NET ASSETS
<S> <C> <C>
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $ 3,078,396 $ 3,330,410
Accrued interest on underlying bonds (2)(3)(5) 25,391 29,052
___________ ___________
3,103,787 3,359,462
Less distributions payable (5) 25,391 29,052
___________ ___________
Net assets $ 3,078,396 $ 3,330,410
=========== ===========
Outstanding Units 3,237 3,502
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET ASSETS
<S> <C> <C>
Cost to investors (4) $ 3,237,009 $ 3,502,008
Less gross underwriting commissions (4) 158,613 171,598
___________ ___________
Net assets
$ 3,078,396 $ 3,330,410
=========== ===========
</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 ($445 in the New York Insured Trust and
$3,809 in the Pennsylvania 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>
New York Insured
Trust, Series 53 $ 3,200,000 $ 3,104,445 $ 3,078,396 $25,391 $ 658
Pennsylvania Insured
Trust, Series 54 $ 3,500,000 $ 3,361,642 $ 3,330,410 $29,052 $2,180
</TABLE>
(3) Insurance coverage providing for the scheduled payment of
principal and interest on all Bonds deposited in the New York
Insured Trust and the Pennsylvania Insured Trust and delivered
to the Trustee has been obtained by each 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 (exclusive of accrued interest)
and the aggregate gross underwriting commissions of 4.9% are computed
assuming no reduction of sales charge for quantity purchases.
(5) The Trustee will advance to each Trust the amount of net interest
accrued to March 30, 1994, the First Settlement Date, for distribution
to the Sponsor as the Unit holder of record.
Page 62
NOTES TO PORTFOLIOS
The following Notes to Portfolios pertain to the information contained
in the Trust Portfolios (the New York Insured Trust, Series 53
on page 50, and the Pennsylvania Insured Trust, Series 54
on pages 59-60).
(1) Sponsor's contracts to purchase Bonds were entered into during
the period from February 4, 1994 to March 22, 1994. All contracts
to purchase Bonds are expected to be settled on or prior to March
30, 1994 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>
New York Insured
Trust, Series 53 $ 3,078,396 $ 3,063,026 $ 15,370 $ 3,062,671 $ - $180,675
Pennsylvania Insured
Trust, Series 54 $ 3,330,410 $ 3,295,346 $ 35,064 $ 3,313,793 $ - $199,500
</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 and
certain portfolio hedging transaction costs and hedging gains
or losses. 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
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?", "New York Insured Trust Summary-New York Tax
Status" and "Pennsylvania Insured Trust Summary-Pennsylvania 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.
Page 63
(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:
I. 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;
II. Nature of and provisions of the obligation;
III. 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.
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
Page 64
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 65
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>
New York Insured Trust, Series 53
Monthly
Estimated Estimated Estimated
Interest Principal Total
Date (Each Month) Distribution Distribution Distribution
_________________ _____________ ___________ _____________
<S> <C> <C> <C>
April 1994 2.23 2.23
May 1994-May 2005 4.46 4.46
June 2005 4.46 154.46 158.92
July 2005-April 2014 3.70 3.70
May 2014 3.45 111.21 114.66
June 2014-February 2019 3.20 3.20
March 2019 3.20 154.46 157.66
April 2019-June 2020 2.47 2.47
July 2020 2.47 92.68 95.15
August 2020-February 2022 2.03 2.03
March 2022 2.03 154.46 156.49
April 2022-July 2022 1.31 1.31
August 2022 0.95 154.46 155.41
September 2022-July 2023 0.59 0.59
August 2023 0.25 149.83 150.08
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Insured Trust, Series 54
Monthly
Estimated Estimated Estimated
Interest Principal Total
Date (Each Month) Distribution Distribution Distribution
_________________ _____________ ___________ _____________
<S> <C> <C> <C>
April 1994 2.28 2.28
May 1994-March 2004 4.55 4.55
April 2004 4.21 142.78 146.99
May 2004 3.51 142.78 146.29
June 2004-July 2004 3.16 3.16
August 2004 2.67 188.47 191.14
September 2004-October 2004 2.18 2.18
November 2004 2.08 42.83 44.91
December 2004 1.60 142.78 144.38
January 2005-October 2020 1.23 1.23
November 2020 1.23 5.71 6.94
December 2020-August 2022 1.23 1.23
September 2022 1.23 14.28 15.51
October 2022-April 2024 1.23 1.23
May 2024 1.23 142.78 144.01
June 2024-September 2033 0.55 0.55
October 2033 0.55 142.78 143.33
</TABLE>
Page 66
This page is intentionally left blank.
Page 67
<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 is 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? 23
Public Offering:
How is the Public Offering Price Determined? 25
How are Units Distributed? 27
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? 29
How Can Distributions to Unit Holders be
Reinvested? 30
What Reports will Unit Holders Receive? 31
How May Units be Redeemed? 31
How May Units be Purchased by the Sponsor? 33
How May Bonds be Removed from the Fund? 33
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 34
Who is the Trustee? 34
Limitations on Liabilities of Sponsor and
Trustee 34
Who is the Evaluator? 35
Other Infromation:
How May the Indenture be Amended or
Terminated? 35
Legal Opinions 36
Experts 36
Underwriting 36
The Separate Trusts:
New York Insured Trust, Series 53 39
Pennsylvania Insured Trust, Series 54 51
Report of Independent Auditors 61
Statements of Net Assets 62
Notes to Statements of Net Assets 62
Notes to Portfolios 63
Descriptions of Bond Ratings 64
Estimated Cash Flows to Unit Holders 66
</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 registered trademark
THE FIRST TRUST COMBINED SERIES 213
The First Trust of Insured
Municipal Bonds-Multi-State:
NEW YORK TRUST, Series 53
PENNSYLVANIA TRUST, Series 54
First Trust registered trademark
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
United States Trust Company
of New York
770 Broadway
New York, New York 10003
1-800-682-7520
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
March 23, 1994
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 on Form S-6 comprises the
following papers and documents:
The Facing Sheet
The Cross-Reference Sheet
The Prospectus
The Signatures
Exhibits
S-1
SIGNATURES
The Registrant, The First Trust Combined Series 213, hereby
identifies The First Trust Combined Series 83, The First Trust
Combined Series 198 and The First Trust Special Situations Trust,
Series 18, for purposes of the representations required by Rule
487 and represents the following:
(1) that the portfolio securities deposited in the series
as to the securities of which this Registration Statement is
being filed do not differ materially in type or quality from
those deposited in such previous series;
(2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide
essential financial information for, the series with respect to
the securities of which this Registration Statement is being
filed, this Registration Statement does not contain disclosures
that differ in any material respect from those contained in the
registration statements for such previous series as to which the
effective date was determined by the Commission or the staff; and
(3) that it has complied with Rule 460 under the
Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 213, has duly
caused this Amendment of Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
Village of Lisle and State of Illinois on March 23, 1994.
THE FIRST TRUST COMBINED SERIES 213
By: NIKE SECURITIES L.P.
(Depositor)
By: Carlos E. Nardo
Senior Vice President
S-2
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 ) March 23, 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., Depositor.
** An executed copy of the related power of attorney was filed
with the Securities and Exchange Commission in connection
with the Amendment No. 1 to Form S-6 of The First Trust
Special Situations Trust, Series 18 (File No. 33-42683) and
the same is hereby incorporated herein by this reference.
S-3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated March 23, 1994 in
Amendment No. 1 to the Registration Statement (Form S-6) (File
No. 33-52339) and related Prospectus of The First Trust Combined
Series 213.
ERNST & YOUNG
Chicago, Illinois
March 23, 1994
CONSENTS OF COUNSEL
The consents of counsel are contained in their respective
opinions filed by this amendment as Exhibits 3.1, 3.2, 3.3, 3.4
and 3.5 to the Registration Statement.
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 the Registration Statement is
filed as Exhibit 4.2 to the Registration Statement.
S-4
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. 33-43289] filed on
behalf of The First Trust Combined Series 145).
1.1.1 Form of Trust Agreement for Series 213 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).
1.7 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).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1
on page 2 and incorporated herein by reference).
S-5
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 as to New York tax status of
securities being registered.
3.4 Opinion of counsel as to advancement of funds by Trustee.
3.5 Opinions of state counsel.
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).
S-6
EXHIBIT 1.1.1
THE FIRST TRUST COMBINED SERIES 213
TRUST AGREEMENT
Dated: March 23, 1994
This Trust Agreement 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, sets forth certain
provisions in full and incorporates other provisions by reference
to the document entitled "Standard Terms and Conditions of Trust
for The First Trust Combined Series 145 and subsequent Series,
Effective October 16, 1991" (herein called the "Standard Terms
and Conditions of Trust"), and such provisions as are set forth
in full and such provisions as are incorporated by reference
constitute a single instrument. All references herein to
Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the
Evaluator and Portfolio Supervisor agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the
provisions contained in the Standard Terms and Conditions of
Trust are herein incorporated by reference in their entirety and
shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in
full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed
to:
(a) The Bonds defined in Section 1.01(5) listed in Schedule
A hereto have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of
the Trust Fund represented by each Unit for a Trust is the amount
set forth under the captions "Summary of Essential Information -
Fractional Undivided Interest in the Trust per Unit" in the
Prospectus.
(c) The number of units in a Trust referred to in Section
2.03 is set forth under the caption "Summary of Essential
Information - Number of Units" in the Prospectus.
(d) The approximate amount, if any, which the Trustee shall
be required to advance out of its own funds and cause to be paid
to the Depositor pursuant to the second sentence of Section 3.05
shall be the amount per Unit for each Trust that the Trustee
agreed to reduce its fee or pay Trust Fund expenses set forth in
the footnotes to the "Summary of Essential Information" for each
Trust in the Prospectus times the number of units for such Trust
referred to in Part II (c) of this Trust Agreement.
(e) For each Trust the First General Record Date and the
amount of the second distribution of funds from the Interest
Account shall be the record date for the Interest Account and the
amount set forth under "Trust Summary-Distributions" for such
Trust in the Prospectus.
(f) For each Trust the "First Settlement Date" is the date
set forth under "Summary of Essential Information-First
Settlement Date" for such Trust in the Prospectus.
(g) Section 1.01(4) shall be amended to read as follows:
"(4) "Portfolio Supervisor" shall mean First Trust Advisors
L.P. and its successors in interest, or any successor portfolio
supervisor appointed as hereinafter provided."
(h) The first three sentences of Section 6.04 shall be
amended in their entirety to read as follows:
"For services performed under this Indenture the Trustee
shall be paid an amount per annum specified in Part II of the
Trust Agreement. During the first year of a Trust, such
compensation shall be reduced by the amount of interest which
accrues on "when-issued" Bonds and Contract Bonds from the
First Settlement Date, as defined in Part II of the Trust
Agreement, to the respective delivery dates of such Bonds and
Contract Bonds.
-2-
(i) The Trustee's annual fee referred to in Section 6.04 is
set forth for each Trust under "Trust Summary-Special Trust
Information" for such Trust in the Prospectus.
(j) The first paragraph of Section 3.05 shall be amended to
read as follows:
"The Trustee, as of the "First Settlement Date", as
defined in Part II of the Trust Agreement, shall advance from
its own funds and shall pay to the Depositor the amount of
interest accrued to such date on the Bonds deposited in the
respective Trusts. The Trustee, as of the "First Settlement
Date," as defined in Part II of the Trust Agreement, shall
also advance to the Trust from its own funds and distribute
to the Depositor the amount specified in Part II of the Trust
Agreement, which is the amount by which the Trustee's fee is
reduced in respect of interest accrued on "when-issued" Bonds
and on Contract Bonds delivered to the Trustee subsequent to
the First Settlement Date pursuant to Section 6.04. The
Trustee shall be entitled to reimbursement, without interest,
for such advancements from interest received by the Trust.
Subsequent distributions shall be made as hereinafter
provided."
(k) Notwithstanding anything to the contrary in Section
3.05, Certificateholders may not elect to receive distributions
on a semiannual basis.
PART III
Notwithstanding any provision to the contrary contained in
the Standard Terms and Conditions of Trust and in lieu of the
receipt of Certificates evidencing ownership of Units of the
Fund, the Sponsor or any Underwriter of the Fund listed under the
caption "Underwriting" in the Prospectus, at its option, may
elect that Units of the Fund owned by it be reflected by book
entry on the books and records of the Trustee. For all purposes
such Sponsor or Underwriter shall be deemed the owner of such
Units as if a Certificate evidencing ownership of Units of the
Fund had actually been issued by the Trustee. The Units
reflected by book entry on the books and records of the Trustee
may be transferable by the registered owner of such Units by
written instrument in form satisfactory to the Trustee. The
registered owner of Units reflected by book entry on the books
and records of the Trustee shall have the right at any time to
obtain Certificates evidencing ownership of such Units.
-3-
IN WITNESS WHEREOF, Nike Securities L.P., United States
Trust Company of New York, Securities Evaluation Service, Inc.
and First Trust Advisors L.P. have each caused this Trust
Agreement to be executed and the respective corporate seal to be
hereto affixed and attested (if applicable) by authorized
officers; all as of the day, month and year first above written.
NIKE SECURITIES L.P.,
Depositor
By Carlos E. Nardo
Senior Vice President
UNITED STATES TRUST COMPANY OF NEW
YORK, Trustee
(SEAL) By Thomas Porrazzo
Vice President
Attest:
Desmond O'Regan
Assistant Secretary
SECURITIES EVALUATION SERVICE,
INC., Evaluator
(SEAL) By James R. Couture
President
Attest:
James G. Prince
Vice President and
Assistant Secretary
FIRST TRUST ADVISORS L.P.,
Portfolio Supervisor
By Carlos E. Nardo
Senior Vice President
-4-
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
THE FIRST TRUST COMBINED SERIES 213
(Note: Incorporated herein and made a part hereof is the
"Portfolio" as set forth for each Trust in the
Prospectus.)
-5-
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 23, 1994
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 213
Gentlemen:
We have served as counsel for Nike Securities L.P., as
Sponsor and Depositor of The First Trust Combined Series 213, in
connection with the preparation, execution and delivery of a
Trust Agreement dated March 23, 1994 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, pursuant to
which the Depositor has delivered to and deposited the Bonds
listed in Schedule A to the Trust Agreement with the Trustee and
pursuant to which the Trustee has issued to or on the order of
the Depositor a certificate or certificates representing units of
fractional undivided interest in and ownership of the Fund
created under said Trust Agreement.
In connection therewith, we have examined such pertinent
records and documents and matters of law as we have deemed
necessary in order to enable us to express the opinions
hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and
the execution and issuance of certificates evidencing the Units
in the Fund have been duly authorized; and
2. the certificates evidencing the Units in the Fund when
duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will
constitute valid and binding obligations of the Fund and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 33-52339)
relating to the Units referred to above, to the use of our name
and to the reference to our firm in said Registration Statement
and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/jlg
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, IL 60603
March 23, 1994
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
United States Trust Company
of New York
770 Broadway, 6th Floor
New York, New York 10003
Re: The First Trust Combined Series 213
Gentlemen:
We have served as counsel for Nike Securities L.P.,
Depositor of The First Trust Combined Series 213 (the "Fund") in
connection with the issuance of Units of fractional undivided
interest in said Fund under a Trust Agreement dated March 23,
1994 (the "Indenture") 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.
In this connection, we have examined the Registration
Statement, the form of Prospectus proposed to be filed with the
Securities and Exchange Commission, the Indenture and such other
instruments and documents as we have deemed pertinent.
Based upon the foregoing, and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing federal income tax law:
(i) Each Trust is not taxable as an association but
will be governed by the provisions of Subchapter J (relating
to Trusts) of Chapter 1, Internal Revenue Code of 1986 (the
"Code").
(ii) Each Certificateholder will be considered as
owning a share of each asset of the respective Trust in the
proportion that the number of Units of such Trust held by
him bears to the total number of Units outstanding of such
Trust. Under Subpart E, Subchapter J of Chapter 1 of the
Code, income of the Trust will be treated as income of each
Certificateholder in the proportion described, and an item
of Trust income will have the same character in the hands of
a Certificateholder as it would have in the hands of the
Trustee. Accordingly, to the extent that the income of a
Trust consists of interest and original issue discount
excludable from gross income under Section 103 of the Code,
such income will be excludable from federal gross income of
the Certificateholder, except in the case of a
Certificateholder who is a substantial user (or a person
related to such user) of a facility financed through
issuance of any industrial development bonds or certain
private activity bonds held by the Trust. In the case of
such Certificateholder who is a substantial user (and no
other) interest received and original issue discount with
respect to his Units attributable to such industrial
development bonds or such private activity bonds is
includable in his gross income. To the extent a Trust holds
Bonds that are "specified private activity Bonds" within the
meaning of Section 57(a)(5) of the Code, a
Certificateholder's pro rata portion of the income on such
Bonds will be included as an item of tax preference in the
computation of the alternative minimum tax applicable to
individuals, trusts and corporations. In the case of
certain corporations, interest on all of the Bonds is
included in computing the alternative minimum tax pursuant
to Section 56(c) of the Code, the environmental tax (the
"Superfund Tax") imposed by Section 59A of the Code, and the
branch profits tax imposed by Section 884 of the Code with
respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a
Certificateholder upon redemption or sale of his Units.
Such gain or loss is measured by comparing the proceeds of
such redemption or sale with the adjusted basis of the Units
represented by his Certificate. Before adjustment, such
basis would normally be cost if the Certificateholder had
acquired his Units by purchase, plus his aliquot share of
advances by the Trustee to the respective Trust to pay
interest on Bonds delivered after the Certificateholder's
settlement date to the extent that such interest accrued on
the Bonds during the period from the Certificateholder's
settlement date to the date such Bonds are delivered to the
Trust, but only to the extent that such advances are to be
repaid to the Trustee out of interest received by such Trust
with respect to such Bonds. In addition, such basis will be
increased by the Certificateholder's aliquot share of the
accrued original issue discount with respect to each Bond
held by the Trust with respect to which there was an
original issue discount at the time the Bond was issued and
reduced by the annual amortization of bond premium, if any,
on Bonds held by the Trust.
(iv) If the Trustee disposes of an asset of a Trust
(whether by sale, payment on maturity, redemption or
otherwise), gain or loss is recognized to the
Certificateholder and the amount thereof is measured by
comparing the Certificateholder's aliquot share of the total
proceeds from the transaction with his basis for his
fractional interest in the asset disposed of. Such basis is
ascertained by apportioning the tax basis for his Units
among each of the assets of such Trust (as of the date on
which his Units were acquired) ratably according to their
values as of the valuation date nearest the date on which he
purchased such Units. A Certificateholder's basis in his
Units and of his fractional interest in each asset of the
Trust must be reduced by the amount of his aliquot share of
interest received by the Fund, if any, on Bonds delivered
after the Certificateholder's settlement date to the extent
that such interest accrued on the Bonds during the period
from the Certificateholder's settlement date to the date
such Bonds are delivered to the Trust; must be reduced by
the annual amortization of bond premium, if any, on Bonds
held by the Trust; and must be increased by the
Certificateholder's share of the accrued original issue
discount with respect to each Bond which, at the time the
Bond was issued, had original issue discount.
(v) In the case of any Bond held by the Trust where
the "stated redemption price at maturity" exceeds the "issue
price", such excess shall be original issue discount. With
respect to each Certificateholder, upon the purchase of his
Units subsequent to the original issuance of Bonds held by
the Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original
issue discount upon the purchase of a Bond subsequent to the
Bond's original issue, under certain circumstances. In the
case of any Bond held by the Trust the interest on which is
excludable from gross income under Section 103 of the Code,
any original issue discount which accrues with respect
thereto will be treated as interest which is excludable from
gross income under Section 103 of the Code.
(vi) Certain bonds in the portfolio of the Trust have
been insured by the issuers, underwriters, the Sponsor or
others against default in the prompt payment of principal
and interest (the "Insured Bonds"). Such Bonds are so
designated on the portfolio pages in the Prospectus for each
Trust. Insurance on Insured Bonds is effective so long as
such bonds remain outstanding. For each of these bonds, we
have been advised that the aggregate principal amount of
such bonds listed on the portfolio page was acquired by the
Trust and are part of the series of such bonds in the listed
aggregate principal amount. Based upon the assumption that
the Insured Bonds of the Trust are part of a series covered
by an insurance policy, it is our opinion that any amounts
received by the Trust representing maturing interest on such
bonds will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so
excludable if paid in normal course by the Issuer
notwithstanding that the source of the payment is from
policy proceeds. Paragraph (ii) of this opinion is
accordingly applicable to such payment representing maturing
interest.
Sections 1288 and 1272 of the Code provide a complex set of
rules governing the accrual of original issue discount. These
rules provide that original issue discount accrues either on the
basis of a constant compound interest rate or ratably over the
term of the bond, depending on the date the Bond was issued. In
addition, special rules apply if the purchase price of a Bond
exceeds the original issue price plus the amount of original
issue discount which would have accrued to prior owners. The
application of these rules will also vary depending on the value
of the Bond on the date a Certificateholder acquires his Units,
and the price the Certificateholder pays for his Units.
Except with respect to those Trusts that hold "specified
private activity bonds" within the meaning of Section 57(a)(5) of
the Code issued on or after August 8, 1986 as identified in the
Prospectus related hereto (the "AMT Trusts"), the Trusts do not
include any specified private activity bonds and accordingly none
of the interest income of the Trusts (other than the AMT Trusts,
if any) shall be treated as an item of tax preference when
computing the alternative minimum tax. Because the AMT Trusts
include "specified private activity bonds," all or a portion of
the income of the AMT Trusts shall be treated as an item of tax
preference for alternative minimum tax purposes in the case of
individuals, trusts and corporations. In the case of
corporations, for taxable years beginning after December 31,
1986, the alternative minimum tax and the Superfund Tax depend
upon the corporation's alternative minimum taxable income
("AMTI"), which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment
items used in computing AMTI and the Superfund Tax of a
corporation (other than an S Corporation, Regulated Investment
Company, Real Estate Investment Trust or REMIC) for taxable years
beginning after 1989, is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount
equal to its AMTI (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax-exempt interest, including interest on
all Bonds in the Trust, and tax-exempt original issue discount.
Effective for tax returns filed after December 31, 1987, all
taxpayers are required to disclose to the Internal Revenue
Service the amount of tax-exempt interest earned during the year.
Section 265 of the Code generally provides for a reduction
in each taxable year of 100% of the otherwise deductible interest
on indebtedness incurred or continued by financial institutions,
to which either Section 585 or Section 593 of the Code applies,
to purchase or carry obligations acquired after August 7, 1986,
the interest on which is exempt from federal income taxes for
such taxable year. Under rules prescribed by Section 265, the
amount of interest otherwise deductible by such financial
institutions in any taxable year which is deemed to be
attributable to tax-exempt obligations acquired after August 7,
1986, will be the amount that bears the same ratio to the
interest deduction otherwise allowable (determined without regard
to Section 265) to the taxpayer for the taxable year as the
taxpayer's average adjusted basis (within the meaning of Section
1016) of tax-exempt obligations acquired after August 7, 1986,
bears to such average adjusted basis for all assets of the
taxpayer, unless such financial institution can otherwise
establish, under regulations to be prescribed by the Secretary of
the Treasury, the amount of interest an indebtedness incurred or
continued to purchase or carry such obligations.
We also call attention to the fact that, under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units by taxpayers other than certain financial
institutions, as referred to above, is not deductible for federal
income tax purposes. Under rules used by the Internal Revenue
Service for determining when borrowed funds are considered used
for the purpose of purchasing or carrying particular assets, the
purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly
traceable to the purchase of Units. However, these rules
generally do not apply to indebtedness incurred for expenditures
of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
subjects tax-exempt bonds to the market discount rules of the
Code effective for bonds purchased after April 30, 1993. In
general, market discount is the amount (if any) by which the
stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued).
Market discount can arise based on the price a Trust pays for
Bonds or the price a Certificateholder pays for his or her Units.
Under the Tax Act, accretion of market discount is taxable as
ordinary income; under prior law, the accretion had been treated
as capital gain. Market discount that accretes while a Trust
holds a Bond would be recognized as ordinary income by the
Certificateholders when principal payments are received on the
Bond, upon sale or at redemption (including early redemption), or
upon the sale or redemption of his or her Units, unless a
Certificateholder elects to include market discount in taxable
income as it accrues.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 33-52339)
relating to the Units referred to above and to the use of our
name and to the reference of our firm in said Registration
Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/jlg
CARTER, LEDYARD & MILBURN
2 WALL STREET
NEW YORK, NEW YORK 10003
March 23, 1994
The First Trust Combined Series 213
c/o United States Trust Company
of New York
770 Broadway
New York, New York 10003
Dear Sirs:
We have acted as special counsel for The First Trust
Combined Series 213 (the "Fund") consisting of several
separate trusts including The First Trust of Insured
Municipal Bonds--Multi-State: New York Trust, Series 53
(the "Insured New York Trust") for purposes of determining
the applicability of certain New York State and New York
City taxes under the circumstances hereinafter described.
We have not examined any of the obligations to be deposited
into the Fund and express no opinion herein as to whether
the interest on any such obligations would in fact be exempt
from Federal, New York State and New York City income taxes
if directly received by a Unit holder, nor have we made any
review of the proceedings relating to the issuance of such
obligations or the basis for bond counsel opinion as to the
tax-exempt character of the interest thereon.
As a basis for rendering our opinion, we have reviewed
the Trust Agreement for the Fund (the "Indenture"), dated as
of today (the "Date of Deposit"), among Nike Securities L.P.
(the "Depositor") , Securities Evaluation Service, Inc. , as
Evaluator, First Trust Advisors L.P., as Portfolio
Supervisor, and United States Trust Company of New York, as
Trustee (the "Trustee"), and the prospectus dated today to
be filed as an amendment to a registration statement
relating to the Fund previously filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended (respectively, the "Prospectus" and the
"Registration Statement").
The Fund is created pursuant to the Indenture and its
objectives are to produce income exempt from Federal, State
and local income and property taxation, and to conserve
capital through investment in portfolios of tax-exempt
bonds.
As more fully set forth in the Indenture and in the
Prospectus, the activities of the Trustee will include the
following:
On the Date of Deposit, the Depositor will deposit with
the Trustee with respect to the Fund the total principal
amount of interest bearing obligations and/or contracts for
the purchase thereof together with an irrevocable letter of
credit in the amount required for the purchase price and
accrued interest, if any. In addition, obligations in the
separate trust identified as "Insured," including the
Insured New York Trust have the timely payment of principal
and interest guaranteed by insurance policies purchased by
the issuers, the underwriters, the Depositor or others as
more fully set forth in the Prospectus and the Registration
Statement with respect to the Fund.
We understand that all of the insurance policies
described in the preceding paragraph provide or will provide
that the insurer will pay the amount of principal and
interest due but not paid on any obligation and such payment
will in no event relieve the issuer from its continuing
obligation to pay such defaulted principal and interest in
accordance with the terms of the obligation.
The Trustee will not participate in the selection of
the obligations to be deposited in the Fund, and, upon the
receipt thereof, will deliver to the Depositor certificates
for the number of units of fractional undivided interest
(the "Units") representing the entire capital of the Fund as
more fully set forth in the Prospectus and the Registration
Statement. The Units, which are represented by certificates
(the "Certificates"), will be offered to the public by the
Prospectus when the Registration Statement becomes
effective.
The duties of the Trustee are ministerial in nature,
and consist primarily of crediting the appropriate accounts
with interest received by, and with the proceeds from the
disposition of obligations held in, the Fund and the
distribution of such interest and proceeds to the Unit
holders thereof. The Trustee will also maintain records of
the registered holders of certificates representing an
interest in the Fund and administer the redemption of Units
by such certificateholders, and may perform certain
administrative functions with respect to an automatic
reinvestment option.
Generally, obligations held in the Fund may be removed
therefrom by the Trustee only upon redemption prior to their
stated maturity, at the direction of the Depositor in the
event of an advance refunding or upon the occurrence of
certain other specified events which adversely affect the
sound investment character of the Fund, such as default by
the issuer in payment of interest or principal on the
obligations, where no provision for payment is made therefor
within thirty (30) days either pursuant to the portfolio
insurance, where such is part of a trust identified as
Insured, or otherwise, and the Depositor fails to instruct
the Trustee, within thirty (30) days after notification by
the Trustee, to hold such obligation.
Except as described in the preceding paragraph, prior
to the termination of the Fund the Trustee is empowered to
sell obligations designated for such purposes by the
Depositor only to redeem Units tendered to it and to pay
expenses for which funds are not available. The Trustee
does not have the power to vary the investment of any Unit
holder in the Fund, and under no circumstances may the
proceeds of sale of any obligations held by the Fund be used
to purchase new obligations to be held therein.
The Trustee will receive an annual fee for its services
based upon the principal amount of the underlying
obligations, plus reimbursement of its reasonably incurred
expenses.
NEW YORK STATE FRANCHISE TAX
Article 9-A of the New York State Tax Law imposes a
franchise tax on business corporations, and, for purposes of
that Article, Section 208(l) defines the term "corporation"
to include, among other things, "any business conducted by a
trustee or trustees wherein interest or ownership is
evidenced by certificate or other written instrument."
The Regulations promulgated under Section 208 provide
as follows:
"The term 'corporation' includes . . . (2) [a] business
conducted by a trustee or trustees in which interest or
ownership is evidenced by certificate or other written
instrument... but is not limited to, an association
commonly referred to as a business trust or Massachusetts
trust. In determining whether a trustee or trustees are
conducting a business, the form of the agreement is of
significance but is not controlling. The actual activities
of the trustee or trustees, not their purposes and powers,
will be regarded as decisive factors in determining whether
a trust is subject to tax under Article 9-A of the Tax Law.
The mere investment of funds and the collection of income
therefrom, with incidental replacement of securities and
reinvestment of funds, does not constitute the conduct of a
business in the case of a business conducted by a trustee or
trustees." 20 NYCRR 1-2.3(b)(2) (Amended July 11, 1990).
New York cases dealing with the question of whether a
trust will be subject to the franchise tax have also set out
the general rule that where a trustee merely invests funds
and collects and distributes the income therefrom, the trust
is not engaged in business and is not subject to the
franchise tax. Burrell v. Lynch, 274 App. Div. 347, 84
N.Y.S.2d 171 (3rd Dept. 1948).
In an Opinion of the Attorney General of the State of
New York, 47 N.Y. Att'y. Gen. Rep. 213 (Nov. 24, 1942), it
was held that where the trustee of an unincorporated
investment trust was without authority to reinvest amounts
received upon the sales of securities and could dispose of
securities making up the trust only upon the happening of
certain specified events or the existence of certain
specified conditions, the trust was not subject to the
franchise tax.
In an Advisory Opinion of the Commissioner of Taxation
and Finance, CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,
TSB-A-90(24)C (November 30, 1990), it was held that a trust
established as a nuclear decommissioning fund under
Section 468A of the Internal Revenue Code of 1986, as
amended (the "Code"), for the sole purpose of accumulating
funds for the eventual decommissioning of nuclear plants,
was not subject to the business corporation franchise tax.
The trustee was only responsible for the investment of funds
in government debt securities and bank time or demand
deposits and for the collection of income from the trust and
the incidental replacement and reinvestment of funds in the
trust.
In the instant situation, the Trustee is not empowered
to sell obligations contained in the corpus of the Fund and
reinvest the proceeds therefrom. Further, the power to sell
such obligations is limited to circumstances in which the
creditworthiness or soundness of the obligation is in
question or in which cash is needed to pay redeeming Unit
holders or to pay expenses, or where the Fund is liquidated
pursuant to the termination of the Indenture. Only in
circumstances in which the issuer of an obligation attempts
to refinance it can the Trustee exchange an obligation for a
new security. In substance, the Trustee will merely collect
and distribute income and will not reinvest any income or
proceeds, and the Trustee has no power to vary the
investment of any Unit holder in the Fund.
NEW YORK CITY GENERAL CORPORATION TAX
Section 11-603(1) of the Administrative Code of the
City of New York (the "Administrative Code") imposes a
general corporation tax on domestic and foreign corporations
for the privilege of doing business, employing capital or
owning or leasing property within the City of New York. For
this purpose, Section 11-602(l) of the Administrative Code
defines the term "corporation" to include, among other
things, "any business conducted by a trustee or trustees
wherein interest or ownership is evidenced by certificate or
other written instrument".
The Rules promulgated under Section 11-602 provide
that:
"The term 'corporation' includes . . . (2)(ii) any business
conducted by a trustee or trustees wherein interest or
ownership is evidenced by certificate or other written
instrument, such as a Massachusetts or business trust, an
investment trust and an entity treated as a real estate
investment trust for Federal tax purposes . . ." Rule
Sec. 11-02 (2) (ii) .
A New York City Department of Finance letter ruling
discussed the application of the General Corporation Tax
(and the Unincorporated Business Tax) to trusts formed in
connection with net long-term lease agreements. Finance
Letter Ruling (93)-GC & UB (August 6, 1984). The Department
of Finance took the position that since the trustee's duties
were "passive" and "ministerial in nature," the trusts were
not taxable as corporations. The Department specifically
described the trustee's duties as follows:
"Under the Trust Agreement, A [the trustee] will have no
power or discretion to manage, control, use, sell or
otherwise transfer title to or dispose of or otherwise deal
with the Vessels or otherwise take or refrain from taking
any action under or in connection with the transaction,
except as expressly required by the terms of the various
agreements.
The duties that A will perform under each Trust Agreement
are ministerial in nature. At the closing, in its capacity
as owner trustee, A will accept the investments of the owner
participants and record such in the records of each Vessel
Trust. It will also execute the documents that are
necessary to effectuate the purchase, and accept title with
respect to the related Vessels . . . . Once the transaction
has closed, A will only be required to perform specific
duties, which are basically limited to the keeping of
appropriate books and records relating to each Vessel Trust
and forwarding or executing various documents including tax
returns, notices, requests, demands, certificates and the
like."
In reaching its decision, the Department of Finance
relied on analogous rulings interpreting Article 9-A of the
New York State Tax Law and pointed out the identicality of
language between the two statutes. Finance Letter Ruling
(93)-GC & UB (August 6, 1984), citing Matter of City Bank
Farmers Trust Co. v. Graves, 272 N.Y. 1 (1936); Matter of
Smadbeck v. State Tax Commission, 33 N.Y. 2d 930 (1973);
and Burrell v. Lynch, 274 App. Div. 347, 84 N.Y.S.2d 171 (3d
Dept. 1948).
NEW YORK CITY UNINCORPORATED BUSINESS TAX
Section 11-503(a) of the Administrative Code imposes an
unincorporated business tax on the unincorporated business
taxable income of every unincorporated business carried on
within New York City. For purposes of the unincorporated
business tax, section 11-502(a) of the Administrative Code
defines the term "unincorporated business" to mean ". . .
any trade, business, profession or occupation conducted,
engaged in or being liquidated by an individual or
unincorporated entity, including a . . . fiduciary . . . ."
Section 11-502(b) of the Administrative Code excludes
certain transactions from the applicability of the
unincorporated business tax and provides as follows: "[
t]he performance of services by an individual . . . as a
fiduciary, shall not be deemed an unincorporated business,
unless such services constitute part of a business regularly
carried on by such individual."
Department of Finance Letter Ruling 93 relied on People
ex rel. Nauss V. Graves, 283 N.Y. 383 (1940), in which the
Court interpreted language under the former New York State
Unincorporated Business Tax, imposed by Article 16-A of the
Tax Law, similar to the New York City statutory language.
The Finance Letter Ruling quoted from Nauss as follows:
"When used in tax statutes similar to that involved in the
case at bar, 'business' or 'doing business' connotes
something more than the ownership of property and the
receipt of income derived from property . . . Although the
very nature of the case does not permit an exact formula by
which to determine when the activities of a property owner
amount to the doing of business, there has been evolved the
principle which distinguishes between a passive and an
active owner or investor. One who allocates the active
administration of the properties to others and himself
performs only such acts as are appropriate to safeguard his
ownership, is to be distinguished from one who himself
actively participates in administering the management of the
properties . . . Nauss at 386-387.11
Finance Letter Ruling 93 concluded that:
" . . . [I]t does not appear that any individual equipment
trust is carrying on an unincorporated business. The
activities of the trustee are passive in nature involving no
discretionary authority nor any responsibility regarding the
operation, maintenance or management of the equipment. The
equipment trust, therefore, will not be subject to the
Unincorporated Business Tax."
Finance Letter Ruling (93)-GC & UB (August 6, 1984).
The Department of Finance, Bureau of Hearings decided
in In the Matter of the Petition of KAL 727/707 1978
Equipment Trust, et al. (Revised decision, August 1, 1985)
that where the activities of the trustee were passive acts
without the trustee having discretionary authority to
manage, control, use, sell, dispose or otherwise deal with
the trust corpus, the trust did not carry on a taxable
unincorporated business as the activities did not constitute
part of a business regularly carried on within the purview
of section S46-2.0(b) (currently Section 11-502(b)) of the
Administrative Code, citing Nauss.
Section 11-502(c) of the Administrative Code provides:
"(c) Purchase and sale for own account. - An individual or
other unincorporated entity, except a dealer holding
property primarily for sale to customers in the ordinary
course of his or her trade or business, shall not be deemed
engaged in an unincorporated business solely by reason of
the purchase and sale of property or the purchase, sale or
writing of stock option contracts, or both, for his or her
own account, but this subdivision shall not apply if the
unincorporated entity is taxable as a corporation for
Federal income tax purposes."
The above quoted section appears to exclude from the
unincorporated business tax entities whose principal
activity is investing, so long as the investment activities
are for the account of the entity.
NEW YORK STATE AND CITY INDIVIDUAL INCOME TAX
Under Subpart E of Part I, Subchapter J of Chapter 1 of
the Code, the grantor of a trust will be deemed to be the
owner of the trust under certain circumstances, and
therefore taxable on his proportionate interest in the
income thereof. Where this Federal tax rule applies, the
income attributed to the grantor will also be income to him
for New York income tax purposes. Ruling, Department of
Taxation and Finance, dated October 22, 1936.
Article 22 (Personal Income Tax) of the New York State
Tax Law imposes a tax on a New York State resident
individual's State adjusted gross income. Such amount is
defined by Section 612(a) as his Federal adjusted gross
income, with certain modifications. One of such
modifications is the addition of interest income on the
obligations of a state or political subdivision of a state
other than New York, if excluded from his Federal adjusted
gross income. Title 11, Chapter 17 of the Administrative
Code imposes a personal income tax on a New York City
resident individual's City adjusted gross income. Such
amount is defined by Section 11-1712(a) of the
Administrative Code as his Federal adjusted gross income,
with certain modifications. One of such modifications is
the addition of interest income on the obligations of a
state or political subdivision thereof of a state other than
New York, if excluded from his Federal adjusted gross
income. 48 U.S.C. Section 745 exempts interest of a bond
issued by the Government of Puerto Rico or by its authority
from tax of the United States, of any State, and of any
county, municipality, or municipal subdivision thereof. 48
U.S.C. Section 1423a exempts interest on a bond issued by
the Government of Guam or by its authority from taxation by
the United States, by any State or political subdivision
thereof. The Insured New York Trust will hold only
obligations issued by New York State or a political
subdivision thereof or by the Government of Puerto Rico or a
political subdivision thereof, or by the Government of Guam
or by its authority or a combination of two or more of the
above. Therefore, to the extent that the income of the
Insured New York Trust consists of interest and original
issue discount excludable from gross income under Section
103 of the Code, a resident individual of New York State or
City who is a certificateholder of such Trust will not be
subject to the State or City personal income tax on his
proportionate share of interest income of such Trust. These
exemptions do not apply to gains on the transfer of the
obligations in the Fund. Therefore, such certificateholders
will be subject to such taxes on gains realized, if any,
when the Fund's obligations are sold, redeemed, or paid at
maturity or when Units are sold or redeemed.
NEW YORK STATE STOCK TRANSFER TAX
Section 270(l) of Article 12 of the New York State Tax
Law imposes a transfer tax on, among other things, the sale,
or agreement to sell, and deliveries or transfers of shares
or certificates of interest in any business conducted by a
trustee or trustees. Section 270(8)(a) of the Tax Law,
however, specifically excludes from the stock transfer tax
"sales, agreements to sell, memoranda of sales, deliveries
or transfers of shares or certificates (a) issued under a
noncorporate investment trust agreement of the fixed type
and no such sale, agreement to sell, memorandum of sale,
delivery or transfer shall result in imposing a tax under
this section on the securities held in such an investment
trust. . . ."
Based on the foregoing and on the opinion, dated today,
of Messrs. Chapman and Cutler, counsel for the Depositor,
as to certain Federal income tax matters, upon which we
specifically rely, we are of the opinion that under existing
laws, rulings, and court decisions interpreting the laws of
the State and City of New York:
1. Each of the separate trusts included in the fund
will not constitute an association taxable as a corporation
or as an unincorporated business under New York State and
City law, and, accordingly, such Trust will not be subject
to tax on its income under the New York State franchise tax,
the New York City general corporation tax or the New York
City unincorporated business tax.
2. The income each of the separate trusts included in
the fund will be treated as the income of the Unit holders
of such Trust under the income tax laws of the State and
City of New York in the same manner as for Federal income
tax purposes (subject to differences in accounting for
discount and premium to the extent that the income tax laws
of the State and/or City of New York do not conform to
current Federal law).
3. Resident individuals of New York State and City
who hold Units of the Insured New York Trust will not be
subject to the State or City personal income taxes on (a)
interest income on their proportionate shares of interest
income earned by the Insured New York Trust on any
obligation of New York State or a political subdivision
thereof or of the Government of Puerto Rico or a political
subdivision thereof or of the Government of Guam or by its
authority, to the extent such income is excludable from
Federal gross income under Code Section 103, or (b) any
proceeds paid under the applicable insurance policies to the
Trustee which represent maturing interest on defaulted
obligations held by the Trustee if, and to the same extent
as, such interest would not have been subject to New York
State or City personal income tax under clause (a) hereof if
paid by the issuer of the defaulted obligations.
4. Resident individuals of New York State and City
who hold Units of the Insured New York Trust will recognize
gain or loss, if any, under the State or City personal
income tax law if the Trustee disposes of an asset of such
Trust. The amount of such gain or loss is measured by
comparing the Unit holder's aliquot share of the total
proceeds from the transaction with his basis for his
fractional interest in the asset disposed of.
5. Resident individuals of New York State and City
who hold Units of the Insured New York Trust will recognize
gain or loss, if any, under the State or City personal
income tax law if the Unit holder redeems or sells any
Units. Such gain or loss is measured by comparing the
proceeds of such redemption or sale with the adjusted basis
of the Units redeemed or sold.
In addition, we are of the opinion that no New York
State stock transfer tax will be payable in respect of any
transfer of the Certificates by reason of the exemption in
Section 270(8)(a) of the New York State Tax Law.
This opinion is as of the date hereof and we undertake
no, and hereby disclaim any, obligation to advise you of any
change in any matter set forth herein.
We consent to the filing of this opinion as an exhibit
to the Registration Statement (No. 33-52339) filed with the
Securities and Exchange Commission with respect to the
registration of the sale of the Units and to the references
to our name in such Registration Statement and the
preliminary prospectus included therein.
Very truly yours,
CARTER, LEDYARD & MILBURN
EXHIBIT 3.4
CARTER, LEDYARD & MILBURN
COUNSELLORS AT LAW
2 WALL STREET
NEW YORK, NEW YORK 10005
March 23, 1994
United States Trust Company
of New York, as Trustee of
The First Trust Combined
Series 213
770 Broadway - 6th Floor
New York, New York 10003
Attention: Mr. C. William Steelman
Executive Vice President
Re: The First Trust Combined Series 213
Dear Sirs:
We are acting as counsel for United States Trust Company of
New York (the "Trust Company") in connection with the execution
and delivery of a Standard Terms and Conditions of Trust dated
October 16, 1991, and a related Trust Agreement, dated today's
date (collectively, the "Indenture"), among Nike Securities L.P.,
as Depositor (the "Depositor"); Securities Evaluation Service,
Inc., as Evaluator; First Trust Advisors L.P., as Portfolio
Supervisor; and the Trust Company, as Trustee (the "Trustee"),
establishing The First Trust Combined Series 213, and the
execution by the Trust Company, as Trustee under the Indenture,
of a certificate or certificates evidencing ownership of units in
the aggregate number set forth in the Indenture (such certificate
or certificates and such aggregate units being herein called
"Certificates" and "Units"), each of which represents an
undivided interest in the Trusts, which consist of interest
bearing, tax-exempt bonds (including confirmations of contracts
for the purchase of certain bonds not yet delivered and cash,
cash equivalents or an irrevocable letter of credit or a
combination thereof, in the amount required for such purchase
upon the receipt of such bonds), such bonds being defined in the
Indenture as Bonds and listed in the Schedule or Schedules to the
Indenture. Upon delivery of the Bonds in an Insured Trust to the
Trustee, such Bonds shall be insured against the nonpayment of
principal and interest.
United States Trust Company
of New York
We have examined the Indenture, the Closing Memorandum dated
today's date and such other documents as we have deemed necessary
in order to render this opinion. Based on the foregoing, we are
of the opinion that:
1. The Trust Company is a duly organized and existing
corporation having the powers of a trust company under the laws
of the State of New York.
2. The Indenture has been duly executed and delivered by
the Trust Company and, assuming due execution and delivery by the
other parties thereto, constitutes the valid and legally binding
obligation of the Trust Company.
3. The Certificates are in proper form for execution and
delivery by the Trust Company as Trustee.
4. The Trust Company, as Trustee, has duly executed and
delivered to or upon the order of the Depositor a Certificate or
Certificates evidencing ownership of the Units, registered in the
name of the Depositor. Upon receipt of confirmation of the
effectiveness of the registration statement for the sale of the
Units filed with the Securities and Exchange Commission under the
Securities Act of 1933, the Trustee may deliver such other
Certificates, in such names and denominations as the Depositor
may request, to or upon the order of the Depositor as provided in
the Closing Memorandum.
5. The Trust Company, as Trustee, may lawfully under the
New York Banking Law advance to each Trust amounts as may be
necessary to provide monthly interest distributions of
approximately equal amounts, and be reimbursed, without interest,
for any such advances from funds in the interest account on the
ensuing record date, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered,
among other things, whether the Bonds have been duly authorized
and delivered, the efficacy of the insurance, or the federal tax
status of the Bonds.
Very truly yours,
CARTER, LEDYARD & MILBURN
EXHIBIT 4.1
SES
Securities Evaluation Service, Inc.
Suite 200
531 E. Roosevelt Road
Wheaton, Illinois 60187
March 23, 1994
Nike Securities L.P.
1001 Warrenville Road
Lisle, IL 60532
Re: THE FIRST TRUST COMBINED SERIES 213
Gentlemen:
We have examined the Registration Statement File No. 33-
52339 for the above captioned fund. We hereby consent to the use
in the Registration Statement of the references to Securities
Evaluation Service, Inc. as evaluator.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Securities Evaluation Service, Inc.
James R. Couture
President
Standard & Poor's Corporation
Bond Insurance Administration
25 Broadway
New York, New York 10004-1064
March 23, 1994
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
Re: The First Trust Combined Series 213
Pursuant to your request for a Standard & Poor's rating on
the units of the above-captioned trust, SEC # 33-52339, we have
reviewed the information presented to us and have assigned a
'AAA' rating to the units of the trust and a 'AAA' rating to the
securities contained in the trust for as long as they remain in
the trust. The ratings are direct reflections, of the portfolio
of the trust, which will be composed solely of securities covered
by bond insurance policies that insure against default in the
payment of principal and interest on the securities so long as
they remain in the trust. Since such policies have been issued
by one or more insurance companies which have been assigned 'AAA'
claims paying ability ratings by S&P, S&P has assigned a 'AAA'
rating to the units of the trust and to the securities contained
in the trust for as long as they remain in the trust.
You have permission to use the name of Standard & Poor's
Corporation and the above-assigned ratings in connection with
your dissemination of information relating to these units,
provided that it is understood that the ratings are not "market"
ratings nor recommendations to buy, hold, or sell the units of
the trust or the securities contained in the trust. Further, it
should be understood the rating on the units does not take into
account the extent to which fund expenses or portfolio asset
sales for less than the fund's purchase price will reduce payment
to the unit holders of the interest and principal required to be
paid on the portfolio assets. S&P reserves the right to advise
its own clients, subscribers, and the public of the ratings. S&P
relies on the sponsor and its counsel, accountants, and other
experts for the accuracy and completeness of the information
submitted in connection with the ratings. S&P does not
independently verify the truth or accuracy of any such
information.
This letter evidences our consent to the use of the name of
Standard & Poor's Corporation in connection with the rating
assigned to the units in the registration statement or prospectus
relating to the units or the trust. However, this letter should
not be construed as a consent by us, within the meaning of
Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Corporation in connection with the ratings
assigned to the securities contained in the trust. You are
hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send us three copies of your final
prospectus as soon as it becomes available. Should we not
receive them within a reasonable time after the closing or should
they not conform to the representations made to us, we reserve
the right to withdraw the rating.
We are pleased to have had the opportunity to be of service
to you. If we can be of further help, please do not hesitate to
call upon us.
Sincerely,
STANDARD & POOR'S
CORPORATION
Exhibit 3.5
LAW OFFICES OF
SAUL, EWING, REMICK & SAUL
3800 CENTRE SQUARE WEST
PHILADELPHIA, PENNSYLVANIA 19102
March 23, 1994
Nike Securities L.P. United States Trust
1001 Warrenville Road Company of New York
Lisle, Illinois 60432 770 Broadway
New York, NY 10003
Re: The First Trust Combined Series 213, The First Trust of
Insured Municipal Bonds - Multi-State:
Pennsylvania Trust, Series 54
Gentlemen:
We are acting as special counsel with respect to
Pennsylvania tax matters for The First Trust Combined Series 213,
The First Trust of Insured Municipal Bonds - Multi-State:
Pennsylvania Trust Series 54 (the "Fund") in connection with the
issuance of Units of fractional undivided interests in the Fund,
under a Trust Indenture and Agreement dated March 23, 1994
between Nike Securities L.P. as Sponsor, Securities Evaluation
Service, Inc. as Evaluator, United States Trust Company of New
York, as Trustee, and First Trust Advisors L.P., as Portfolio
Supervisor. It is our understanding that the Fund consists of a
portfolio composed of interest-bearing obligations issued by the
Commonwealth of Pennsylvania or by municipalities and other
governmental authorities within the Commonwealth of Pennsylvania
(the "Bonds").
We have not examined any preliminary or final official
statements of issuers of the Bonds, nor have we examined any
legal opinions, or summaries of such opinions, relating to the
validity of the Bonds in the Fund, the exemption of interest
thereon from federal income tax, the exemption of the Bonds from
personal property taxes in Pennsylvania, or the exemption of the
interest on and any gain from the sale of the Bonds from the
Pennsylvania personal income tax, given or to be given by bond
counsel to the issuer at the time such Bonds are issued.
Further, we have made no review of the proceedings relating to
the issuance of the Bonds or of the basis for such opinions. Our
opinion expressed below is based in part on the assurance of Nike
Securities L.P. that the Bonds being deposited in the Fund have
been issued only by the Commonwealth of Pennsylvania or by
municipalities or other governmental authorities within the
Commonwealth of Pennsylvania.
We have examined certified copies, or copies otherwise
identified to our satisfaction, of such other documents as we
have deemed necessary or appropriate for the purpose of rendering
this opinion, including those related to previous transactions in
which Nike Securities L.P. was the Depositor which we have been
assured by Nike Securities L.P. are substantially the same as
those relating to the Fund. We have also examined the Standard
Terms and Conditions of Trust dated October 16, 1991 pertaining
to the Fund.
Based upon the foregoing, we are of the opinion that:
(1) Units evidencing fractional undivided interests in
the Fund, to the extent represented by obligations issued by
the Commonwealth of Pennsylvania, any public authority,
commission, board or other agency created by the
Commonwealth of Pennsylvania, any political subdivision of
the Commonwealth of Pennsylvania or any public authority
created by any such political subdivision, are not taxable
under any of the personal property taxes presently in effect
in Pennsylvania;
(2) Distributions of interest income to Unitholders
that would not be taxable if received directly by a
Pennsylvania resident are not subject to personal income tax
under the Pennsylvania Tax Reform Code of 1971; nor will
such interest be taxable under Philadelphia School District
Investment Income Tax imposed on Philadelphia resident
individuals;
(3) A Unitholder may have a taxable event under the
Pennsylvania state and local income tax referred to in the
preceding paragraph upon the redemption or sale of his
Units;
(4) Units are subject to Pennsylvania inheritance and
estate taxes;
(5) A Unitholder which is a corporation may have a
taxable event under the Pennsylvania Corporate Net Income
Tax upon the redemption or sale of its Units. Interest
income distributed to Unitholders which are corporations is
not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title
insurance companies and trust companies may be required to
take the value of Units into account in determining the
taxable value of their shares subject to Shares Tax;
(6) Under Act No. 68 of December 3, 1993, gains
derived by the Fund from the sale or their disposition of
Bonds may be subject to Pennsylvania personal or corporate
income taxes. Those gains which are distributed by the Fund
to Unit holders who are individuals will be subject to
Pennsylvania Personal Income Tax and, for residents of
Philadelphia, to Philadelphia School District Investment
Income Tax. For Unit holders which are corporations, the
distributed gains will be subject to Corporate Net Income
Tax Or Mutual Thrift Institutions Tax. Gains which are not
distributed by the Fund will nevertheless be taxable to Unit
holders if derived by the Fund from the sale, exchange or
other disposition of Bonds issued on or after February 1,
1994. Gains which are not distributed by the Fund will
remain nontaxable to Unit holders if derived by the Fund
from the sale, exchange or other disposition of Bonds issued
prior to February 1, 1994. However, for gains from the
sale, exchange or other disposition of these Bonds to be
taxable under the Philadelphia School District Investment
Income Tax, the Bonds must be held for six months or less;
(7) Any proceeds paid under insurance policies issued
to the Trustee or obtained by issuers or the underwriters of
the Bonds, the Sponsor or others which represent interest on
defaulted obligations held by the Trustee will be excludable
from Pennsylvania gross income if, and to the same extent
as, such interest would have been so excludable if paid in
the normal course by the issuer of the defaulted
obligations; and
(8) The Fund is not taxable as a corporation under
Pennsylvania tax laws applicable to corporations.
On December 3, 1993, changes to Pennsylvania law affecting
taxation of income and gains from the sale of Commonwealth of
Pennsylvania and local obligations were enacted. Among these
changes was the repeal of the exemption from tax of gains
realized upon the sale or other disposition of such obligations.
The Pennsylvania Department of Revenue has not issued any
regulations or other guidance concerning these changes. The
opinions expressed above are based on our analysis of the law but
are subject to modification upon review of regulations or other
guidance that may be issued by the Department of Revenue.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (SEC No. 33-52339) relating
to the Units referred to above and to the use of our name and to
the reference to our firm in the said Registration Statement and
in the related Prospectus.
Very truly yours,
Saul, Ewing, Remick & Saul
