File No. 33-57919
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
THE FIRST TRUST COMBINED SERIES 246
(Exact Name of Trust)
NIKE SECURITIES L.P.
(Exact Name of Depositor)
1001 Warrenville Road
Lisle, Illinois 60532
(Complete address of Depositor's principal executive offices)
NIKE SECURITIES L.P. CHAPMAN AND CUTLER
Attn: James A. Bowen Attn: Eric F. Fess
1001 Warrenville Road 111 West Monroe Street
Lisle, Illinois 60532 Chicago, Illinois 60603
(Name and complete address of agents for service)
It is proposed that this filing will become effective (check
appropriate box)
: : immediately upon filing pursuant to paragraph (b)
: x : August 1, 1996
: : 60 days after filing pursuant to paragraph (a)
: : on (date) pursuant to paragraph (a) of rule (485 or 486)
Pursuant to Rule 24f-2 under the Investment Company Act of
1940, the issuer has registered an indefinite amount of
securities. A 24f-2 Notice for the offering was last filed on
May 17, 1996.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
9,870 UNITS
PROSPECTUS
Part One
Dated July 25, 1996
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two and Part Three.
In the opinion of Counsel, interest income to the Trust and to Unit holders,
with certain exceptions, is exempt under existing law from all Federal income
taxes, but may be subject to state and local taxes. Capital gains, if any,
are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds, Series 233 (the "Trust") is an
insured and fixed portfolio of interest-bearing obligations issued by or on
behalf of municipalities and other governmental authorities, the interest on
which is, in the opinion of recognized bond counsel to the issuing
governmental authorities, exempt from all Federal income taxes under existing
law. At June 17, 1996, each Unit represented a 1/9,870 undivided interest in
the principal and net income of the Trust (see "The Fund" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 5.8% of the Public Offering Price (6.157%
of the amount invested). At June 17, 1996, the Public Offering Price per Unit
was $999.79 plus net interest accrued to date of settlement (three business
days after such date) of $4.40 and $27.44 for the monthly and semi-annual
distribution plans, respectively (see "Market for Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 5.52% per annum on June 17, 1996, and 5.47% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.59% per annum on June 17, 1996, and 5.53% under
the monthly distribution plan. Estimated Current Return is calculated by
dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account a
compounding factor and the expenses and sales charge associated with each Unit
of the Trust. Since the market values and estimated retirements of the Bonds
and the expenses of the Trust will change, there is no assurance that the
present Estimated Current Return and Estimated Long-Term Return indicated
above will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while the Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price. The above figures are based
on estimated per Unit cash flows. Estimated cash flows will vary with changes
in fees and expenses, with changes in current interest rates, and with the
principal prepayment, redemption, maturity, call, exchange or sale of the
underlying Bonds. See "What are Estimated Current Return and Estimated Long-
Term Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 17, 1996
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $9,870,000
Number of Units 9,870
Fractional Undivided Interest in the Trust per Unit 1/9,870
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $9,295,566
Aggregate Value of Bonds per Unit $941.80
Sales Charge 6.157% (5.8% of Public Offering Price) 57.99
Public Offering Price per Unit $999.79*
Redemption Price and Sponsor's Repurchase Price per Unit
($57.99 less than the Public Offering Price per Unit) $941.80*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $1,978,000
</TABLE>
Date Trust Established April 6, 1995
Mandatory Termination Date December 31, 2044
Evaluator's Fee: $2,967 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.35
of the Sponsor per Unit annually
Bookkeeping and administrative expenses Maximum of $.10
payable to the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 17, 1996
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $57.29 $57.29
Less: Estimated Annual Expense $2.62 $2.12
Estimated Net Annual Interest Income $54.67 $55.17
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $54.67 $55.17
Divided by 12 and 2, Respectively $27.34 $4.60
Estimated Daily Rate of Net Interest Accrual $.1519 $.1533
Estimated Current Return Based on Public Offering Price 5.47% 5.52%
Estimated Long-Term Return Based on Public Offering Price 5.53% 5.59%
</TABLE>
Trustee's Annual Fee: $1.43 and $.98 per Unit for those portions of the Trust
under the monthly and semi-annual distribution plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 246, The First Trust of Insured Municipal
Bonds, Series 233
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 246, The First
Trust of Insured Municipal Bonds, Series 233 as of March 31, 1996, and the
related statements of operations and changes in net assets for the period from
the Date of Deposit, April 6, 1995, to March 31, 1996. These financial
statements are the responsibility of the Trust's Sponsor. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 246, The First Trust of Insured Municipal Bonds, Series 233 at March
31, 1996, and the results of its operations and changes in its net assets for
the period from the Date of Deposit, April 6, 1995, to March 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 21, 1996
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $9,284,742)
(Note 1) $9,487,364
Accrued interest 191,398
__________
9,678,762
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 35,445
Cash overdraft 123,289
Unit redemptions payable 11,873
Accrued liabilities 1,919
__________
172,526
__________
Net assets, applicable to 9,882 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $9,284,742
Net unrealized appreciation (Note 2) 202,622
Distributable funds 18,872
__________
$9,506,236
==========
Net asset value per unit $961.97
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
PORTFOLIO - See notes to portfolio.
March 31, 1996
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(e) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
State Public Works Board of the State of
California, Lease Revenue Refunding
(The Regents of the University of California), 2003 @ 102
1993 Series A (Connie Lee Insured) (c) 5.50% 6/01/2021 2015 @ 100 S.F. AAA $1,000,000 918,430
Hospital Authority of the City of Fort
Wayne, Indiana, Revenue, Series 1992
(Parkview Memorial Hospital, Inc. 2002 @ 102
Project) (MBIA Insured) (c) 6.40 11/15/2022 2014 @ 100 S.F. AAA 500,000 518,020
Illinois Development Finance Authority,
Pollution Control Revenue Refunding
(Central Illinois Public Service Company),
1993 Series B-2 (MBIA Insured) (c) 5.90 6/01/2028 2003 @ 102 AAA 1,000,000 971,860
Illinois Development Finance Authority,
Health Facilities Revenue (Catholic Health 2005 @ 102
Corporation), Series 1995A (MBIA Insured) (c) 6.00 11/15/2017 2010 @ 100 S.F. AAA 1,000,000 1,005,730
Illinois Health Facilities Authority,
Revenue, Series 1993 (Rush-Presbyterian-
St. Luke's Medical Center Obligated 2003 @ 102
Group) (MBIA Insured) (c) 5.50 11/15/2025 2021 @ 100 S.F. AAA 1,000,000 918,150
Indiana State Educational Facilities, Valparaiso 2005 @ 101
University Project (Connie Lee Insured) (c) 6.00 10/01/2014 2011 @ 100 S.F. AAA 1,000,000 1,004,940
City of Michigan City, Indiana, Waterworks 2005 @ 102
Revenue of 1995 (MBIA Insured) (c) 6.00 3/01/2017 2014 @ 100 S.F. AAA 1,000,000 1,013,520
New York State Thruway Authority, General 2004 @ 102
Revenue, Series B (MBIA Insured) (c) 5.00 1/01/2020 2015 @ 100 S.F. AAA 500,000 444,025
Palomar Pomerado Health System (California)
Insured Revenue, Series 1993 2003 @ 100
(MBIA Insured) (c) 4.75 11/01/2023 2014 @ 100 S.F. AAA 1,000,000 832,420
Municipality of Metropolitan Seattle (Seattle,
Washington), Sewer Refunding Revenue, 2002 @ 102
Series V (MBIA Insured) (c) 6.20 1/01/2032 2017 @ 100 S.F. AAA 1,000,000 1,014,600
West Virginia Water Development Authority,
Water Development Revenue Refunding
(Loan Program II), 1993 Series A-II 2003 @ 102
(FSA Insured) (c) (d) 5.75 11/01/2029 2024 @ 100 S.F. AAA 890,000 845,669
______________________
$9,890,000 9,487,364
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
NOTES TO PORTFOLIO
March 31, 1996
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at March 31, 1996.
(c) Insurance has been obtained by the Bond issuer.
(d) These Bonds were issued at an original issue discount on March 15, 1993
at a price of 94.889% of their original principal amount.
(e) The Trust consists of eleven obligations of issuers located in six
states. Three, three and two Bond issues aggregating approximately 30%,
25% and 20% of the aggregate principal amount of Bonds in the Trust are
obligations of issuers located in Illinois, Indiana and California,
respectively. None of the Bonds in the Trust are general obligations of
a governmental entity. All issues are revenue bonds payable from the
income of a specific project or authority and are divided by purpose of
issue as follows: Electric, 1; University and School, 2; Sewer, 1;
Transportation, 1: Water, 2; and Health Care, 4. Approximately 35% and
20% of the aggregate principal amount of the Bonds consist of health
care revenue bonds and university and school revenue bonds,
respectively. Each of eight Bond issues represents approximately 10% of
the aggregate principal amount of the Bonds in the Trust or a total of
approximately 81%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
April 6, 1995, to March 31, 1996
<TABLE>
<S> <C>
Interest income $558,805
Expenses:
Trustee's fees and related expenses (14,071)
Evaluator's fees (2,567)
Supervisory fees (3,404)
Administrative fees (975)
________
Investment income - net 537,788
Net gain (loss) on investments:
Net realized gain (loss) -
Change in net unrealized appreciation or depreciation 202,622
________
202,622
________
Net increase (decrease) in net assets resulting from
operations $740,410
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
April 6, 1995, to March 31, 1996
<TABLE>
<S> <C>
Net increase (decrease) in net assets resulting
from operations:
Investment income - net $537,788
Net realized gain (loss) on investments -
Change in net unrealized appreciation
or depreciation on investments 202,622
__________
740,410
Distributions to unit holders:
Investment income - net (511,083)
Principal from investment transactions -
__________
(511,083)
Unit redemptions (8):
Principal portion (7,773)
Net interest accrued (60)
__________
(7,833)
__________
Total increase (decrease) in net assets 221,494
Net assets:
At the beginning of the period 9,284,742
__________
At the end of the period (including
distributable funds applicable to
Trust units of $18,872) $9,506,236
==========
Trust units outstanding at the end of the period 9,882
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of the
Sponsor. The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds, (3)
appraisal or (4) any combination of the above.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, April 6, 1995. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services which is based on $1.43 and $.98 per
unit for those portions of the Trust under the monthly and semi-annual
distribution plans, respectively. Prior to September 1, 1995, the Trustee was
United States Trust Company of New York; effective September 1, 1995, The
Chase Manhattan Bank succeeded United States Trust Company of New York as
Trustee. Additionally, a fee of $2,967 annually is payable to the Evaluator
and the Trust pays all related expenses of the Trustee, recurring financial
reporting costs, an annual supervisory fee payable to an affiliate of the
Sponsor and an annual administrative fee payable to the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at March 31, 1996 follows:
<TABLE>
<S> <C>
Unrealized appreciation $202,622
Unrealized depreciation -
________
$202,622
========
</TABLE>
<PAGE>
3. Insurance
The issuers of all of the bond issues in the Trust have acquired insurance
coverage which provides for the scheduled payments of principal and interest
on those bonds (see Note (c) to portfolio). Such insurance coverage continues
in force so long as the bonds are outstanding and the insurer remains in
business.
4. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 4.9% of the public offering price which is equivalent to
approximately 5.152% of the net amount invested.
Distributions of net interest income -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period from the
Type of Date of Deposit,
distribution April 6, 1995, to
plan March 31, 1996
<S> <C>
Monthly $50.46*
Semi-annual 50.89
</TABLE>
[FN]
*Excludes $1.11 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $151,935, plus interest
accruing to the first settlement date, April 13, 1995, totaling $11,019, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $4.86 and $4.90 per unit for those portions of the
Trust under the monthly and semi-annual distribution plans, respectively, was
paid on May 31, 1995 to all unit holders of record on May 15, 1995.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
April 6, 1995, to
March 31, 1996
<S> <C>
Interest income $56.52
Expenses (2.13)
_______
Investment income - net 54.39
Distributions to unit holders:
Investment income - net (51.70)
Principal from investment transactions -
Net gain (loss) on investments 20.48
_______
Total increase (decrease) in net assets 23.17
Net assets:
Beginning of the period 938.80
_______
End of the period $961.97
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS, SERIES 233
PART ONE
Must be Accompanied by Part Two and Part Three
______________________
P R O S P E C T U S
______________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
2,840 UNITS
PROSPECTUS
Part One
Dated July 25, 1996
Note: Part One of this Prospectus may not be distributed unless accompanied by
Part Two and Part Three.
In the opinion of Counsel, interest income to the Trust and to Unit holders,
with certain exceptions, is exempt under existing law from all Federal income
taxes. In addition, the interest income is, in the opinion of Special
Counsel, exempt to the extent indicated from Pennsylvania State and local
income taxes. Capital gains, if any, are subject to tax.
The Trust
The First Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust,
Series 65 (the "Trust") is an insured and fixed portfolio of interest-bearing
obligations issued by or on behalf of municipalities and other governmental
authorities within the State of Pennsylvania, counties, municipalities,
authorities and political subdivisions thereof, the interest on which is, in
the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income taxes and from Pennsylvania State
and local income taxes under existing law. At June 17, 1996, each Unit
represented a 1/2,840 undivided interest in the principal and net income of
the Trust (see "The Fund" in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
Public Offering Price
The Public Offering Price of the Units is equal to the aggregate value of the
Bonds in the Portfolio of the Trust divided by the number of Units
outstanding, plus a sales charge of 5.8% of the Public Offering Price (6.157%
of the amount invested). At June 17, 1996, the Public Offering Price per Unit
was $993.13 plus net interest accrued to date of settlement (three business
days after such date) of $4.26 and $26.53 for the monthly and semi-annual
distribution plans, respectively (see "Market for Units" in Part Two).
Please retain all parts of this Prospectus for future reference.
______________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________________________________________________________
NIKE SECURITIES L.P.
Sponsor
<PAGE>
Estimated Current Return and Estimated Long-Term Return
Estimated Current Return to Unit holders under the semi-annual distribution
plan was 5.38% per annum on June 17, 1996, and 5.33% under the monthly
distribution plan. Estimated Long-Term Return to Unit holders under the semi-
annual distribution plan was 5.45% per annum on June 17, 1996, and 5.39% under
the monthly distribution plan. Estimated Current Return is calculated by
dividing the Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration and determines and factors in the relative
weightings of the market values, yields (which take into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account a
compounding factor and the expenses and sales charge associated with each Unit
of the Trust. Since the market values and estimated retirements of the Bonds
and the expenses of the Trust will change, there is no assurance that the
present Estimated Current Return and Estimated Long-Term Return indicated
above will be realized in the future. Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while the Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price. The above figures are based
on estimated per Unit cash flows. Estimated cash flows will vary with changes
in fees and expenses, with changes in current interest rates, and with the
principal prepayment, redemption, maturity, call, exchange or sale of the
underlying Bonds. See "What are Estimated Current Return and Long-Term
Return?" in Part Two.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 17, 1996
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Principal Amount of Bonds in the Trust $2,855,000
Number of Units 2,840
Fractional Undivided Interest in the Trust per Unit 1/2,840
Public Offering Price:
Aggregate Value of Bonds in the Portfolio $2,656,896
Aggregate Value of Bonds per Unit $935.53
Sales Charge 6.157% (5.8% of Public Offering Price) $57.60
Public Offering Price per Unit $993.13*
Redemption Price and Sponsor's Repurchase Price per Unit
($57.60 less than the Public Offering Price per Unit) $935.53*
Discretionary Liquidation Amount of the Trust (20% of the
original principal amount of Bonds in the Trust) $608,000
</TABLE>
Date Trust Established April 6, 1995
Mandatory Termination Date December 31, 2044
Evaluator's Fee: $912 annually. Evaluations for purposes of sale, purchase
or redemption of Units are made as of the close of trading (4:00 p.m. Eastern
time) on the New York Stock Exchange on each day on which it is open.
Supervisory fee payable to an affiliate Maximum of $.35
of the Sponsor per Unit annually
Bookkeeping and administrative expenses Maximum of $.10
payable to the Sponsor per Unit annually
[FN]
*Plus net interest accrued to date of settlement (three business days after
purchase) (see "Public Offering Price" herein and "Redemption of Units" and
"Purchase of Units by Sponsor" in Part Two).
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
SUMMARY OF ESSENTIAL INFORMATION AS OF JUNE 17, 1996
Sponsor: Nike Securities L.P.
Evaluator: Securities Evaluation Service, Inc.
Trustee: The Chase Manhattan Bank
<TABLE>
<CAPTION>
PER UNIT INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Income:
Estimated Annual Interest Income $55.50 $55.50
Less: Estimated Annual Expense $2.61 $2.11
Estimated Net Annual Interest Income $52.89 $53.39
Calculation of Interest Distribution:
Estimated Net Annual Interest Income $52.89 $53.39
Divided by 12 and 2, Respectively $26.45 $4.45
Estimated Daily Rate of Net Interest Accrual $.1469 $.1483
Estimated Current Return Based on Public Offering
Price 5.33% 5.38%
Estimated Long-Term Return Based on Public Offering
Price 5.39% 5.45%
</TABLE>
Trustee's Annual Fee: $1.42 and $.97 per Unit for those portions of the Trust
under the monthly and semi-annual distribution plans, respectively.
Computation Dates: Fifteenth day of the month as follows: monthly--each
month; semi-annual--June and December.
Distribution Dates: Last day of the month as follows: monthly--each month;
semi-annual--June and December.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Unit Holders of The First Trust Combined
Series 246, The First Trust of Insured Municipal
Bonds - Multi-State, Pennsylvania Trust, Series 65
We have audited the accompanying statement of assets and liabilities,
including the portfolio, of The First Trust Combined Series 246, The First
Trust of Insured Municipal Bonds - Multi-State, Pennsylvania Trust, Series 65
as of March 31, 1996, and the related statements of operations and changes in
net assets for the period from the Date of Deposit, April 6, 1995, to March
31, 1996. These financial statements are the responsibility of the Trust's
Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Trust Combined
Series 246, The First Trust of Insured Municipal Bonds - Multi-State,
Pennsylvania Trust, Series 65 at March 31, 1996, and the results of its
operations and changes in its net assets for the period from the Date of
Deposit, April 6, 1995, to March 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 21, 1996
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Municipal bonds, at market value (cost $2,664,186)
(Note 1) $2,704,382
Accrued interest 32,766
__________
2,737,148
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C>
Liabilities:
Distributions payable and accrued to unit holders 17,495
Cash overdraft 7,174
Accrued liabilities 191
__________
24,860
__________
Net assets, applicable to 2,841 outstanding units of
fractional undivided interest:
Cost of Trust assets (Note 1) $2,664,186
Net unrealized appreciation (Note 2) 40,196
Distributable funds 7,906
__________
$2,712,288
==========
Net asset value per unit $954.69
==========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
PORTFOLIO - See notes to portfolio.
March 31, 1996
<TABLE>
<CAPTION>
Coupon Standard
interest Date of Redemption & Poor's Principal Market
Name of issuer and title of bond(e) rate maturity provisions(a) rating(b) amount value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Albert Gallatin Area School District (Fayette
County, Pennsylvania), General Obligation, 2004 @ 100
Series A of 1994 (MBIA Insured) (c) (d) 6.30% 9/01/2024 2017 @ 100 S.F. AAA $415,000 424,197
Butler County Hospital Authority (Pennsylvania),
Hospital Revenue (Butler Memorial Hospital), 2003 @ 102
Series A of 1993 (FSA Insured) (c) 5.25 7/01/2016 2013 @ 100 S.F. AAA 540,000 497,588
Delaware County Authority, Health Facilities
Revenue, Series 1993A (Mercy Health
Corporation of Southeastern Pennsylvania 2003 @ 102
Obligated Group) (Connie Lee Insured)(c) (d) 5.125 11/15/2012 2008 @ 100 S.F. AAA 500,000 459,280
Pennsylvania Intergovernmental Cooperation
Authority, Special Tax Revenue Refunding
(City of Philadelphia Funding Program), 2003 @ 100
Series of 1993A (MBIA Insured) (c) (d) 5.00 6/15/2022 2014 @ 100 S.F. AAA 500,000 440,305
Pennsylvania Higher Educational Facilities
Authority (Commonwealth of Pennsylvania),
University Revenue and Refunding (Duquesne
University Project), Series A of 1993 2003 @ 102
(MBIA Insured) (c) 5.50 9/01/2020 2013 @ 100 S.F. AAA 500,000 472,420
Ringgold School District (Washington County,
Pennsylvania), General Obligation, Series 2005 @ 100
of 1995 (FSA Insured) (c) 6.25 2/01/2022 2020 @ 100 S.F. AAA 400,000 410,592
______________________
$2,855,000 2,704,382
======================
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
NOTES TO PORTFOLIO
March 31, 1996
(a) Shown under this heading are the year in which each issue of Bonds is
initially redeemable and the redemption price in that year. Unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter (but not below par value). "S.F." indicates a sinking
fund is established with respect to an issue of bonds. In addition,
certain bonds are sometimes redeemable in whole or in part other than by
operation of the stated redemption or sinking fund provisions under
specified unusual or extraordinary circumstances. None of the Bonds in
the Trust are subject to call within five years.
(b) The ratings shown are those effective at March 31, 1996.
(c) Insurance has been obtained by the Bond issuer.
(d) These bonds were issued at an original issue discount on the following
dates and at the following percentages of their original principal
amount:
<TABLE>
<CAPTION>
Date %
<S> <C> <C>
Albert Gallatin Area School District,
General Obligation, Series A 1/15/95 92.459
Delaware County Authority, Health
Facilities Revenue, Series 1993A 12/15/93 93.941
Pennsylvania Intergovernmental
Authority, Special Tax Revenue
Refunding 8/15/93 92.126
</TABLE>
(e) The Trust consists of six obligations of issuers located in
Pennsylvania. Two of the Bonds in the Trust, representing approximately
29% of the aggregate principal amount of Bonds in the Trust, are general
obligations of a governmental entity. The remaining issues are revenue
bonds payable from the income of a specific project or authority and are
divided by purpose of issue as follows: Health Care, 2; University and
School, 1; and Miscellaneous, 1. Approximately 36% of the aggregate
principal amount of the Bonds consists of health care revenue bonds.
Each Bond issue represents 10% or more of the aggregate principal amount
of the Bonds in the Trust. The largest such issue represents
approximately 19%.
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
STATEMENT OF OPERATIONS
Period from the Date of Deposit,
April 6, 1995, to March 31, 1996
<TABLE>
<S> <C>
Interest income $161,841
Expenses:
Trustee's fees and related expenses (1,200)
Evaluator's fees (760)
Supervisory fees (982)
Administrative fees (294)
________
Investment income - net 158,605
Net gain (loss) on investments:
Net realized gain (loss) 2,565
Change in net unrealized appreciation or
depreciation 40,196
________
42,761
________
Net increase (decrease) in net assets resulting
from operations $201,366
========
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
STATEMENT OF CHANGES IN NET ASSETS
Period from the Date of Deposit,
April 6, 1995, to March 31, 1996
<TABLE>
<S> <C>
Net increase (decrease) in net assets resulting from
operations:
Investment income - net $158,605
Net realized gain (loss) on investments 2,565
Change in net unrealized appreciation or
depreciation on investments 40,196
__________
201,366
Distributions to unit holders:
Investment income - net (148,002)
Principal from investment transactions -
__________
(148,002)
Unit redemptions (199):
Principal portion (192,602)
Net interest accrued (257)
__________
(192,859)
__________
Total increase (decrease) in net assets (139,495)
Net assets:
At the beginning of the period 2,851,783
__________
At the end of the period (including
distributable funds applicable to
Trust units of $7,906) $2,712,288
==========
Trust units outstanding at the end of the
period 2,841
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
NOTES TO FINANCIAL STATEMENTS
1. Significant accounting policies
Security valuation -
Bonds are stated at values as determined by Securities Evaluation Service,
Inc. (the Evaluator), certain shareholders of which are officers of the
Sponsor. The bond values are based on (1) current bid prices for the bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) current bid prices for comparable bonds, (3)
appraisal or (4) any combination of the above.
Security cost -
The Trust's cost of its portfolio is based on the offering prices of the bonds
on the Date of Deposit, April 6, 1995. The premium or discount (including
original issue discount) existing at the Date of Deposit is not being
amortized. Realized gain (loss) from bond transactions is reported on an
identified cost basis. Sales and redemptions of bonds are recorded on the
trade date.
Federal income taxes -
The Trust is not taxable for Federal income tax purposes. Each unit holder is
considered to be the owner of a pro rata portion of the Trust and,
accordingly, no provision has been made for Federal income taxes.
Expenses of the Trust -
The Trust pays a fee for Trustee services which is based on $1.42 and $.97 per
unit for those portions of the Trust under the monthly and semi-annual
distribution plans, respectively. Prior to September 1, 1995, the Trustee was
United States Trust Company of New York; effective September 1, 1995, The
Chase Manhattan Bank succeeded United States Trust Company of New York as
Trustee. Additionally, a fee of $912 annually is payable to the Evaluator and
the Trust pays all related expenses of the Trustee, recurring financial
reporting costs, an annual supervisory fee payable to an affiliate of the
Sponsor and an annual administrative fee payable to the Sponsor.
2. Unrealized appreciation and depreciation
An analysis of net unrealized appreciation at March 31, 1996 follows:
<TABLE>
<S> <C>
Unrealized appreciation $40,196
Unrealized depreciation -
_______
$40,196
=======
</TABLE>
<PAGE>
3. Insurance
All issues of bonds in the portfolio are insured under insurance obtained by
the issuer of the bonds (see Note (c) to portfolio). Such insurance coverage
continues in force so long as the bonds are outstanding and the insurer
remains in business.
4. Other information
Cost to investors -
The cost to initial investors of units of the Trust was based on the aggregate
offering price of the bonds on the date of an investor's purchase, plus a
sales charge of 4.9% of the public offering price which is equivalent to
approximately 5.152% of the net amount invested.
Distributions to unit holders -
Distributions of net interest income to unit holders are made monthly or semi-
annually. Such income distributions per unit, on an accrual basis, were as
follows:
<TABLE>
<CAPTION>
Period from the
Type of Date of Deposit,
distribution April 6, 1995, to
plan March 31, 1996
<S> <C>
Monthly $48.88*
Semi-annual 49.36
</TABLE>
[FN]
*Excludes $1.08 per unit distributed to the Sponsor as discussed below.
Accrued interest to the Date of Deposit, totaling $31,922, plus interest
accruing to the first settlement date, April 13, 1995, totaling $3,291, were
distributed to the Sponsor as the unit holder of record. The initial
subsequent distribution, $4.72 and $4.76 per unit for those portions of the
Trust under the monthly and semi-annual distribution plans, respectively, was
paid on May 31, 1995 to all unit holders of record on May 15, 1995.
<PAGE>
Selected data for a unit of the Trust
outstanding throughout the period -
<TABLE>
<CAPTION>
Period from the
Date of Deposit,
April 6, 1995, to
March 31, 1996
<S> <C>
Interest income $54.98
Expenses (1.10)
_______
Investment income - net 53.88
Distributions to unit holders:
Investment income - net (50.25)
Principal from investment transactions -
Net gain (loss) on investments 12.97
_______
Total increase (decrease) in net assets 16.60
Net assets:
Beginning of the period 938.09
_______
End of the period $954.69
=======
</TABLE>
<PAGE>
THE FIRST TRUST COMBINED SERIES 246
THE FIRST TRUST OF INSURED MUNICIPAL BONDS - MULTI-STATE
PENNSYLVANIA TRUST, SERIES 65
PART ONE
Must be Accompanied by Part Two and Part Three
______________________
P R O S P E C T U S
______________________
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
The First Trust (registered trademark) Combined Series
PROSPECTUS NOTE: THIS PART TWO PROSPECTUS MAY
Part Two ONLY BE USED WITH PART ONE
Dated May 30, 1996 AND PART THREE
IN THE OPINION OF COUNSEL, INTEREST INCOME TO THE TRUSTS AND TO THE UNIT
HOLDERS, WITH CERTAIN EXCEPTIONS, IS EXEMPT UNDER EXISTING LAW FROM ALL
FEDERAL INCOME TAXES. IN ADDITION, THE INTEREST INCOME TO THE TRUSTS IS,
IN THE OPINION OF SPECIAL COUNSEL, EXEMPT TO THE EXTENT INDICATED FROM
STATE AND LOCAL TAXES WHEN HELD BY RESIDENTS OF THE STATE IN WHICH THE
ISSUERS OF THE BONDS IN SUCH TRUSTS ARE LOCATED. CAPITAL GAINS, IF ANY,
ARE SUBJECT TO TAX.
THE FIRST TRUST COMBINED SERIES (the "Fund") consists of underlying
separate unit investment trusts (the "Trusts"). The various trusts are
collectively referred to herein as the "Trusts" while all Trusts that
are not designated as "The First Trust Advantage" are sometimes
collectively referred to herein as the "Insured Trusts" and a Trust with
the name designation of "The First Trust of Insured Municipal Bonds,
Discount Trust" or "The First Trust Advantage: Discount Trust" is
sometimes referred to herein as a "Discount Trust." Each Trust consists
of a portfolio of interest-bearing obligations, issued by or on behalf
of states and territories of the United States, and political
subdivisions and authorities thereof, the interest on which is, in the
opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income taxes under existing law
although interest on certain Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be a preference item for
purposes of the Alternative Minimum Tax. In addition, the interest
income of each Trust is, in the opinion of Special Counsel, exempt to
the extent indicated from state and local income taxes when held by
residents of the state in which the issuers of the Bonds in such Trust
are located. The securities in a Discount Trust are acquired at prices
which result in a Discount Trust portfolio, as a whole, being purchased
at a deep discount from the aggregate par value of such Securities
although a substantial portion of the Securities in a Discount Trust
portfolio may be acquired at a premium over the par value of such
Securities. All of the Bonds in an Intermediate Trust mature within 8 to
12 years of the Initial Date of Deposit. All of the Bonds in a Short
Intermediate Trust mature within 3 to 6 years of the Initial Date of
Deposit. All of the Bonds in a Long Intermediate Trust mature within 10
to 15 years of the Initial Date of Deposit. The portfolio for each
Trust, essential information based thereon and financial statements,
including a report of independent auditors relating to the series of the
Fund offered hereby, are contained in Part One to which reference should
be made for such information.
INSURANCE GUARANTEEING THE SCHEDULED PAYMENTS OF PRINCIPAL AND INTEREST
ON ALL BONDS IN THE PORTFOLIO OF EACH INSURED TRUST HAS BEEN OBTAINED
FROM FINANCIAL GUARANTY INSURANCE COMPANY AND/OR AMBAC INDEMNITY
CORPORATION BY THE INSURED TRUSTS OR WAS DIRECTLY OBTAINED BY THE BOND
ISSUER, THE UNDERWRITERS, THE SPONSOR OR OTHERS PRIOR TO THE INITIAL
DATE OF DEPOSIT FROM FINANCIAL GUARANTY INSURANCE COMPANY, AMBAC
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 RATINGS GROUP, A DIVISION OF MCGRAW-HILL,
INC. ("STANDARD & POOR'S"). SEE "WHY AND HOW ARE THE INSURED TRUSTS
INSURED?" ON PAGE 12. NO REPRESENTATION IS MADE AS TO ANY INSURER'S
ABILITY TO MEET ITS COMMITMENTS.
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
For convenience the Prospectus is divided into sections which give
general information about the Fund and specific information such as the
public offering price, distributions and tax status for each Trust.
The Objectives of the Fund are conservation of capital through
investment in portfolios of tax-exempt bonds and income exempt from
Federal and applicable state and local income taxes although interest on
certain Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the Federal
Alternative Minimum Tax. ACCORDINGLY, CERTAIN ARKANSAS, IDAHO, KANSAS,
MAINE, MISSISSIPPI AND NEBRASKA TRUSTS MAY BE APPROPRIATE ONLY FOR
INVESTORS WHO ARE NOT SUBJECT TO THE ALTERNATIVE MINIMUM TAX. CERTAIN
BONDS IN THE OKLAHOMA TRUSTS ARE SUBJECT TO OKLAHOMA STATE INCOME TAXES.
The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers, obligors
and/or insurers to meet their respective obligations.
Distributions to Unit holders may be reinvested as described herein. See
"How Can Distributions to Unit Holders be Reinvested?"
The Sponsor, although not obligated to do so, intends to maintain a
market for the Units at prices based upon the aggregate bid price of the
Bonds in the portfolio of each Trust. In the absence of such a market, a
Unit holder will nonetheless be able to dispose of the Units through
redemption at prices based upon the bid prices of the underlying Bonds.
See "How May Units be Redeemed?" With respect to each Insured Trust,
neither the bid nor offering prices of the underlying Bonds or of the
Units, absent situations in which Bonds are in default in payment of
principal or interest or in significant risk of such default, include
value attributable to the portfolio insurance obtained by such Trust.
See "Why and How are the Insured Trusts Insured?"
Page 2
THE FIRST TRUST COMBINED SERIES
What is The First Trust Combined Series?
The First Trust Combined Series (the "Fund") is one of a series of
investment companies created by the Sponsor under the name of The First
Trust Combined Series, all of which are generally similar but each of
which is separate and is designated by a different series number. This
Series consists of underlying separate unit investment trusts (such
Trusts being collectively referred to herein as the "Fund"). Each Series
was created under the laws of the State of New York pursuant to a Trust
Agreement (the "Indenture"), dated the Initial Date of Deposit, with
Nike Securities L.P., as Sponsor, The Chase Manhattan Bank (National
Association), as Trustee, Securities Evaluation Service, Inc., as
Evaluator and First Trust Advisors L.P., as Portfolio Supervisor. Only
Units of a National Trust may be offered for sale to residents of the
State of Illinois. Only Units of an Indiana Trust and/or a National
Trust may be offered for sale to residents of the State of Indiana. Only
Units of a Virginia Trust and/or a National Trust may be offered for
sale to residents of the State of Virginia. Only Units of a Washington
Trust and/or a National Trust may be offered for sale to residents of
Washington. On the Initial Date of Deposit, the Sponsor deposited with
the Trustee interest-bearing obligations, including delivery statements
relating to contracts for the purchase of certain such obligations and
irrevocable letters of credit issued by a financial institution in the
amounts required for such purchases (the "Bonds"). The Trustee
thereafter credited the account of the Sponsor for Units of each Trust
representing the entire ownership of the Fund which Units are being
offered hereby.
The objectives of the Fund are Federal tax-exempt income and state and
local tax-exempt income and conservation of capital through investment
in portfolios of interest-bearing obligations issued by or on behalf of
the state for which such Trust is named (collectively, the "State
Trusts"), and counties, municipalities, authorities and political
subdivisions thereof, the Commonwealth of Puerto Rico and other
territories or municipalities of the United States, or authorities or
political subdivisions thereof, the interest on which obligations is, in
the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from all Federal income tax and, where applicable,
state and local taxes under existing law although interest on certain
Bonds in certain Arkansas, Idaho, Kansas, Maine, Mississippi and
Nebraska Trusts will be a preference item for purposes of the
Alternative Minimum Tax and certain Bonds in the Oklahoma Trusts are
subject to Oklahoma State Income Taxes. The current market value of
certain of the obligations in a Discount Trust were significantly below
face value when the obligations were acquired by such Trust. The prices
at which the obligations are acquired result in a Discount Trust's
portfolio, as a whole, being purchased at a deep discount from the
aggregate par value of such Securities although a substantial portion of
the Securities in a Discount Trust portfolio may be acquired at a
premium over the par value of such Securities. Insurance guaranteeing
the scheduled payment of all principal and interest on Bonds in the
Trusts with the name designation of "The First Trust of Insured
Municipal Bonds," "The First Trust of Insured Municipal Bonds-
Intermediate" or "The First Trust of Insured Municipal Bonds-Multi-
State" (the "Insured Trusts") has been obtained by such Trusts from
Financial Guaranty Insurance Company ("Financial Guaranty") and/or AMBAC
Indemnity Corporation ("AMBAC Indemnity") or was obtained directly by
the Bond issuer, the underwriters, the Sponsor or others prior to the
Initial Date of Deposit from Financial Guaranty, AMBAC 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
Page 3
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
noncancelable policy for the scheduled payment of interest and principal
on the Bonds is issued by the insurer. A single premium is paid by the
Bond issuer, the underwriters, the Sponsor or others for Preinsured
Bonds and a monthly premium is paid by each Insured Trust for the
insurance obtained by such Trust except for Bonds in such Trust which
are insured by the Bond issuer, the underwriters, the Sponsor or others
in which case no premiums for insurance are paid by such Trust. Upon the
sale of a Bond insured under the insurance policy obtained by an Insured
Trust, the Trustee has the right to obtain permanent insurance from
Financial Guaranty and/or AMBAC Indemnity with respect to such Bond upon
the payment of a single predetermined insurance premium from the
proceeds of the sale of such Bond. Accordingly, any Bond in an Insured
Trust of the Fund is eligible to be sold on an insured basis. Standard &
Poor's 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 rating or Fitch Investors Service, Inc.'s
rating of the Bonds was in no case less than "BBB" in the case of an
Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and "A-"
in the case of other Advantage Trusts, or the Moody's Investors Service,
Inc. rating of the Bonds was in no case less than "Baa" in the case of
an Insured Trust (or an Arkansas, Kansas or Maine Advantage Trust) and
"A" in the case of other Advantage Trusts, including provisional or
conditional ratings, respectively, or, if not rated, the Bonds had, in
the opinion of the Sponsor, credit characteristics sufficiently similar
to the credit characteristics of interest-bearing tax-exempt obligations
that were so rated as to be acceptable for acquisition by the Fund (see
"Description of Bond Ratings"); (ii) the prices of the Bonds relative to
other bonds of comparable quality and maturity; (iii) with respect to
the Insured Trusts, the availability and cost of insurance of the
principal and interest on the Bonds and (iv) the diversification of
Bonds as to purpose of issue and location of issuer. Subsequent to the
Initial Date of Deposit, a Bond may cease to be rated or its rating may
be reduced below the minimum required as of the Initial Date of Deposit.
Neither event requires elimination of such Bond from the portfolio, but
may be considered in the Sponsor's determination as to whether or not to
direct the Trustee to dispose of the Bond. See "Rights of Unit Holders-
How May Bonds be Removed from the Fund?" The Portfolio appearing in Part
One contains Bond ratings, when available, for the Bonds listed at the
date shown.
Certain of the Bonds in the Trusts may have been acquired at a market
discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in the
Trust were lower than the current market interest rates for newly issued
bonds of comparable rating and type. If such interest rates for newly
issued comparable bonds increase, the market discount of previously
issued bonds will become greater, and if such interest rates for newly
issued comparable bonds decline, the market discount of previously
issued bonds will be reduced, other things being equal. Investors should
also note that the value of bonds purchased at a market discount will
increase in value faster than bonds purchased at a market premium if
interest rates decrease. Conversely, if interest rates increase, the
value of bonds purchased at a market discount will decrease faster than
bonds purchased at a market premium. In addition, if interest rates
rise, the prepayment risk of higher yielding, premium bonds and the
prepayment benefit for lower yielding, discount bonds will be reduced. A
discount bond held to maturity will have a larger portion of its total
return in the form of taxable income and capital gain and less in the
form of tax-exempt interest income than a comparable bond newly issued
at current market rates. See "What is the Federal Tax Status of Unit
Holders?" appearing in Part Three for each Trust. Market discount
attributable to interest changes does not indicate a lack of market
confidence in the issue. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any of the Bonds.
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
Page 4
purposes. On sale or redemption, any gain realized that is in excess of
the earned portion of original issue discount will be taxable as capital
gain unless the gain is attributable to market discount in which case
the accretion of market discount is taxable as ordinary income. See
"What is the Federal Tax Status of Unit Holders?" appearing in Part
Three for each Trust. The current value of an original discount bond
reflects the present value of its stated redemption price at maturity.
The market value tends to increase in greater increments as the Bonds
approach maturity.
Certain of the original issue discount bonds may be Zero Coupon Bonds
(including bonds known as multiplier bonds, money multiplier bonds,
capital appreciation bonds, capital accumulator bonds, compound interest
bonds and money discount maturity payment bonds). Zero Coupon Bonds do
not provide for the payment of any current interest and generally
provide for payment at maturity at face value unless sooner sold or
redeemed. Zero Coupon Bonds may be subject to more price volatility than
conventional bonds. While some types of Zero Coupon Bonds, such as
multipliers and capital appreciation bonds, define par as the initial
offering price rather than the maturity value, they share the basic Zero
Coupon bond features of (1) not paying interest on a semi-annual basis
and (2) providing for the reinvestment of the bond's semi-annual
earnings at the bond's stated yield to maturity. While Zero Coupon Bonds
are frequently marketed on the basis that their fixed rate of return
minimizes reinvestment risk, this benefit can be negated in large part
by weak call protection, i.e., a bond's provision for redemption at only
a modest premium over the accreted value of the bond.
Certain of the Bonds in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the
premium bonds at the time they were purchased and deposited in the
Trusts were higher than the current market interest rates for newly
issued bonds of comparable rating and type. If such interest rates for
newly issued and otherwise comparable bonds decrease, the market premium
of previously issued bonds will be increased, and if such interest rates
for newly issued comparable bonds increase, the market premium of
previously issued bonds will be reduced, other things being equal. The
current returns of bonds trading at a market premium are initially
higher than the current returns of comparable bonds of a similar type
issued at currently prevailing interest rates because premium bonds tend
to decrease in market value as they approach maturity when the face
amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early
redemption of a premium bond at par or early prepayments of principal
will result in a reduction in yield. Redemption pursuant to call
provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed Bonds have an offering
side valuation which represents a premium over par or for original issue
discount Bonds a premium over the accreted value. To the extent that the
Bonds were deposited in the Fund at a price higher than the price at
which they are redeemed, this will represent a loss of capital when
compared to the original Public Offering Price of the Units. Because
premium bonds generally pay a higher rate of interest than bonds priced
at or below par, the effect of the redemption of premium bonds would be
to reduce Estimated Net Annual Unit Income by a greater percentage than
the par amount of such bonds bears to the total par amount of Bonds in
the Trust. Although the actual impact of any such redemptions that may
occur will depend upon the specific Bonds that are redeemed, it can be
anticipated that the Estimated Net Annual Unit Income will be
significantly reduced after the dates on which such Bonds are eligible
for redemption. The Trust may be required to sell Zero Coupon Bonds
prior to maturity (at their current market price which is likely to be
less than their par value) in the event that all the Bonds in the
portfolio other than the Zero Coupon Bonds are called or redeemed in
order to pay expenses of the Trust or in case the Trust is terminated.
See "Rights of Unit Holders-How May Bonds be Removed from the Fund?" and
"Other Information-How May the Indenture be Amended or Terminated?" See
the "Portfolio" appearing in Part One for each Trust for the earliest
scheduled call date and the initial redemption price for each Bond or,
for the Bonds that are currently redeemable, the next scheduled call
date and the current redemption price.
Certain of the Bonds in the Trusts may be general obligations of a
governmental entity that are backed by the taxing power of such entity.
All other Bonds in the Trusts are revenue bonds payable from the income
of a specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds, on the other hand, are payable
Page 5
only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. There are, of course, variations in
the security of the different Bonds in the Fund, both within a
particular classification and between classifications, depending on
numerous factors.
Certain of the Bonds in the Trusts may be health care revenue bonds.
Ratings of bonds issued for health care facilities are sometimes based
on feasibility studies that contain projections of occupancy levels,
revenues and expenses. A facility's gross receipts and net income
available for debt service may be affected by future events and
conditions including among other things, demand for services, the
ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with
other hospitals, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation, the cost and possible unavailability of
malpractice insurance and the termination or restriction of governmental
financial assistance, including that associated with Medicare, Medicaid
and other similar third party payor programs. Pursuant to recent Federal
legislation, Medicare reimbursements are currently calculated on a
prospective basis utilizing a single nationwide schedule of rates. Prior
to such legislation Medicare reimbursements were based on the actual
costs incurred by the health facility. The current legislation may
adversely affect reimbursements to hospitals and other facilities for
services provided under the Medicare program.
Certain of the Bonds in the Trusts may be single family mortgage revenue
bonds, which are issued for the purpose of acquiring from originating
financial institutions notes secured by mortgages on residences located
within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid
prior to their final maturities as a result of events such as sale of
the mortgaged premises, default, condemnation or casualty loss. Because
these Bonds are subject to extraordinary mandatory redemption in whole
or in part from such prepayments of mortgage loans, a substantial
portion of such Bonds will probably be redeemed prior to their scheduled
maturities or even prior to their ordinary call dates. The redemption
price of such issues may be more or less than the offering price of such
Bonds. Extraordinary mandatory redemption without premium could also
result from the failure of the originating financial institutions to
make mortgage loans in sufficient amounts within a specified time period
or, in some cases, from the sale by the Bond issuer of the mortgage
loans. Failure of the originating financial institutions to make
mortgage loans would be due principally to the interest rates on
mortgage loans funded from other sources becoming competitive with the
interest rates on the mortgage loans funded with the proceeds of the
single family mortgage revenue bonds. Additionally, unusually high rates
of default on the underlying mortgage loans may reduce revenues
available for the payment of principal of or interest on such mortgage
revenue bonds. Single family mortgage revenue bonds issued after
December 31, 1980 were issued under Section 103A of the Internal Revenue
Code, which Section contains certain ongoing requirements relating to
the use of the proceeds of such Bonds in order for the interest on such
Bonds to retain its tax-exempt status. In each case, the issuer of the
Bonds has covenanted to comply with applicable ongoing requirements and
bond counsel to such issuer has issued an opinion that the interest on
the Bonds is exempt from Federal income tax under existing laws and
regulations. There can be no assurances that the ongoing requirements
will be met. The failure to meet these requirements could cause the
interest on the Bonds to become taxable, possibly retroactively from the
date of issuance.
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are primarily derived from mortgage loans to housing projects
for low to moderate income families. The ability of such issuers to make
debt service payments will be affected by events and conditions
affecting financed projects, including, 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
Page 6
have considered various ways to redeem bonds they have issued prior to
the stated first redemption dates for such bonds. In one situation the
New York City Housing Development Corporation, in reliance on its
interpretation of certain language in the indenture under which one of
its bond issues was created, redeemed all of such issue at par in spite
of the fact that such indenture provided that the first optional
redemption was to include a premium over par and could not occur prior
to 1992. In connection with the housing Bonds held by a Trust, the
Sponsor has not had any direct communications with any of the issuers
thereof, but at the date hereof it is not aware that any of the
respective issuers of such Bonds are actively considering the redemption
of such Bonds prior to their respective stated initial call dates.
However, there can be no assurance that an issuer of a Bond in a Trust
will not attempt to so redeem a Bond in a Trust.
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services.
Water and sewerage bonds are generally payable from user fees. Problems
faced by such issuers include the ability to obtain timely and adequate
rate increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering
new supplies of fresh water, the effect of conservation programs and the
impact of "no-growth" zoning ordinances. All of such issuers have been
experiencing certain of these problems in varying degrees.
Certain of the Bonds in the Trusts may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy.
Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be
charged and the appropriate rate of return on an approved asset base.
The problems faced by such issuers include the difficulty in obtaining
approval for timely and adequate rate increases from the governing
public utility commission, the difficulty in financing large
construction programs, the limitations on operations and increased costs
and delays attributable to environmental considerations, increased
competition, recent reductions in estimates of future demand for
electricity in certain areas of the country, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining
fuel at reasonable prices and the effect of energy conservation. All of
such issuers have been experiencing certain of these problems in varying
degrees. In addition, Federal, state and municipal governmental
authorities may from time to time review existing and impose additional
regulations governing the licensing, construction and operation of
nuclear power plants, which may adversely affect the ability of the
issuers of such Bonds to make payments of principal and/or interest on
such Bonds.
Certain of the Bonds in the Trusts may be lease obligations issued for
the most part by governmental authorities that have no taxing power or
other means of directly raising revenues. Rather, the governmental
authorities are financing vehicles created solely for the construction
of buildings (schools, administrative offices, convention centers and
prisons, for example) or the purchase of equipment (police cars and
computer systems, for example) that will be used by a state or local
government (the "lessee"). Thus, these obligations are subject to the
ability and willingness of the lessee government to meet its lease
rental payments which include debt service on the obligations. Lease
obligations are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally obligated
to budget and appropriate for the rental payments beyond the current
fiscal year. These obligations are also subject to construction and
abatement risk in many states-rental obligations cease in the event that
delays in building, damage, destruction or condemnation of the project
prevents its use by the lessee. In these cases, insurance provisions
designed to alleviate this risk become important credit factors. In the
event of default by the lessee government, there may be significant
legal and/or practical difficulties involved in the re-letting or sale
of the project. Some of these issues, particularly those for equipment
purchases, contain the so-called "substitution safeguard," which bars
the lessee government, in the event it defaults on its rental payments,
from the purchase or use of similar equipment for a certain period of
time. This safeguard is designed to insure that the lessee government
will appropriate, even though it is not legally obligated to do so, but
the legality of the safeguard remains untested in most, if not all,
states.
Certain of the Bonds in the Trusts may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are tax-
exempt securities issued by states, municipalities, public authorities
or similar entities to finance the cost of acquiring, constructing or
improving various industrial projects. These projects are usually
Page 7
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.
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
Page 8
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.
Certain Trusts may contain Bonds of issuers located in the Commonwealth
of Puerto Rico or issuers which will be affected by general economic
conditions of Puerto Rico. Puerto Rico's unemployment rate remains
significantly higher than the U.S. unemployment rate. Furthermore, the
economy is largely dependent for its development upon U.S. policies and
programs that are being reviewed and may be eliminated
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar) and tourism. Most of the island's manufacturing output is shipped
to the mainland United States, which is also the chief source of semi-
finished manufactured articles on which further manufacturing operations
are performed in Puerto Rico. Since World War II the economic importance
of agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled
sugar monopoly remains an important economic factor and is largely
dependent upon Federal maintenance of sugar prices, the discontinuation
of which could severely affect Puerto Rico sugar production. The level
of tourism is affected by various factors including the strength of the
U.S. dollar. During periods when the dollar is strong, tourism in
foreign countries becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
Internal Revenue Code provides for a credit against Federal income taxes
for U.S. companies operating on the island if certain requirements are
met. The Omnibus Budget Reconciliation Act of 1993 imposes limits on
such credit, effective for tax years beginning after 1993. In addition,
from time to time proposals are introduced in Congress which, if enacted
into law, would eliminate some or all of the benefits of Section 936.
Although no assessment can be made at this time of the precise effect of
such limitation, it is expected that the limitation of Section 936
credits would have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on
Federal programs, and current Federal budgetary policies suggest that an
expansion of aid to Puerto Rico is unlikely. An adverse effect on the
Puerto Rican economy could result from other U.S. policies, including a
reduction of tax benefits for distilled products, further reduction in
transfer payment programs such as food stamps, curtailment of military
spending and policies which could lead to a stronger dollar.
In a plebiscite held in November 1993, the Puerto Rican electorate chose
to continue Puerto Rico's Commonwealth status. Previously proposed
legislation, which was not enacted, would have preserved the federal tax
exempt status of the outstanding debts of Puerto Rico and its public
corporations regardless of the outcome of the referendum, to the extent
that similar obligations issued by the states are so treated and subject
to the provisions of the Internal Revenue Code currently in effect.
There can be no assurance that any pending or future legislation finally
enacted will include the same or a similar protection against loss of
tax exemption. The November 1993 plebiscite can be expected to have both
direct and indirect consequences on such matters as the basic
characteristics of future Puerto Rico debt obligations, the markets for
these obligations, and the types, levels and quality of revenue sources
pledged for the payment of existing and future debt obligations. Such
possible consequences include, without limitation, legislative proposals
seeking restoration of the status of Section 936 benefits otherwise
subject to the limitations discussed above. However, no assessment can
be made at this time of the economic and other effects of a change in
federal laws affecting Puerto Rico as a result of the November 1993
plebiscite.
Interest on certain of the Bonds in certain Arkansas, Idaho, Kansas,
Maine, Mississippi and Nebraska Trusts will be an item of tax preference
for purposes of the Alternative Minimum Tax ("AMT"). The investment by
non-AMT individual taxpayers in AMT municipal bonds generally results in
a higher yield to such bondholders than non-AMT municipal bonds. Since a
portion of the interest from certain Arkansas, Idaho, Kansas, Maine,
Mississippi and Nebraska Trusts is an AMT preference item, certain
Arkansas, Idaho, Kansas, Maine, Mississippi and Nebraska Trusts may be
more appropriate for investors who are not subject to AMT.
Page 9
Investors should be aware that many of the Bonds in the Trusts are
subject to continuing requirements such as the actual use of Bond
proceeds or manner of operation of the project financed from Bond
proceeds that may affect the exemption of interest on such Bonds from
Federal income taxation. Although at the time of issuance of each of the
Bonds in the Trusts an opinion of bond counsel was rendered as to the
exemption of interest on such obligations from Federal income taxation,
there can be no assurance that the respective issuers or other obligors
on such obligations will fulfill the various continuing requirements
established upon issuance of the Bonds. A failure to comply with such
requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from
the date of issuance of such Bonds, thereby reducing the value of the
Bonds and subjecting Unit holders to unanticipated tax liabilities.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds from such events will be
distributed to Unit holders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present
size and composition. Neither the Sponsor nor the Trustee shall be
liable in any way for any default, failure or defect in any Bond.
Certain of the Bonds contained in the Trusts may be subject to being
called or redeemed in whole or in part prior to their stated maturities
pursuant to optional redemption provisions and sinking fund provisions
described in the section in Part One for each Trust entitled "Portfolio"
or pursuant to special or extraordinary redemption provisions. A bond
subject to optional call is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is
a method by which a bond issue is redeemed, at or before maturity, by
the proceeds of a new bond issue. A bond subject to sinking fund
redemption is one which is subject to partial call from time to time at
par or, in the case of a zero coupon bond, at the accreted value from a
fund accumulated for the scheduled retirement of a portion of an issue
prior to maturity. Special or extraordinary redemption provisions may
provide for redemption at par (or for original issue discount bonds at
issue price plus the amount of original issue discount accreted to
redemption date plus, if applicable, some premium) of all or a portion
of an issue upon the occurrence of certain circumstances. Generally,
events that may permit the extraordinary optional redemption of Bonds or
may require mandatory redemption of Bonds include, among others: a final
determination that the interest on the Bonds is taxable; the substantial
damage or destruction by fire or other casualty of the project for which
the proceeds of the Bonds were used; an exercise by a local, state or
Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the Bonds
were used; changes in the economic availability of raw materials,
operating supplies or facilities or technological or other changes which
render the operation of the project, for which the proceeds of the Bonds
were used, uneconomic; changes in law or an administrative or judicial
decree which renders the performance of the agreement under which the
proceeds of the Bonds were made available to finance the project
impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the Bonds
are issued on the issuer of the Bonds or the user of the proceeds of the
Bonds; an administrative or judicial decree which requires the cessation
of a substantial part of the operations of the project financed with the
proceeds of the Bonds; an overestimate of the costs of the project to be
financed with the proceeds of the Bonds resulting in excess proceeds of
the Bonds which may be applied to redeem Bonds; or an underestimate of a
source of funds securing the Bonds resulting in excess funds which may
be applied to redeem Bonds. See also the discussion of single family
mortgage and multi-family mortgage revenue bonds above for more
information on the call provisions of such bonds. The exercise of
redemption or call provisions will (except to the extent the proceeds of
the called Bonds are used to pay for Unit redemptions) result in the
distribution of principal and may result in a reduction in the amount of
subsequent interest distributions; it may also affect the long-term
return and the current return on Units of each Trust. Redemption
pursuant to call provisions is more likely to occur, and redemption
pursuant to sinking fund provisions may occur, when the Bonds have an
offering side valuation which represents a premium over par or for
original issue discount bonds a premium over the accreted value. Unit
holders may recognize capital gain or loss upon any redemption or call.
To the best knowledge of the Sponsor, there is no litigation pending as
of the date hereof in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Trusts. At any time
Page 10
after the date hereof, litigation may be initiated on a variety of
grounds with respect to Bonds in a Trust. Such litigation, as for
example suits challenging the issuance of pollution control revenue
bonds under recently-enacted environmental protection statutes, may
affect the validity of such Bonds or the tax-free nature of the interest
thereon. While the outcome of litigation of such nature can never be
entirely predicted, the Fund has received opinions of bond counsel to
the issuing authority of each Bond on the date of issuance to the effect
that such Bonds have been validly issued and that the interest thereon
is exempt from Federal income taxes and state and local taxes. In
addition, other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken with
respect to the Bonds.
To the extent that any Units of a Trust are redeemed by the Trustee, the
fractional undivided interest in such Trust represented by each
unredeemed Unit will increase, although the actual interest in such
Trust represented by such fraction will remain substantially unchanged.
Units will remain outstanding until redeemed upon tender to the Trustee
by any Unit holder, which may include the Sponsor, or until the
termination of the Trust Agreement.
What are Estimated Long-Term Return and Estimated Current Return?
At the date of this Prospectus, the Estimated Current Return and the
Estimated Long-Term Return, under the monthly, quarterly (if applicable)
and semi-annual (if applicable) distribution plans, are as set forth in
Part One attached hereto for each Trust. Estimated Current Return is
computed by dividing the Estimated Net Annual Interest Income per Unit
by the Public Offering Price. Any change in either the Estimated Net
Annual Interest Income per Unit or the Public Offering Price will result
in a change in the Estimated Current Return. For each Trust, the Public
Offering Price will vary in accordance with fluctuations in the prices
of the underlying Bonds and the Net Annual Interest Income per Unit will
change as Bonds are redeemed, paid, sold or exchanged in certain
refundings or as the expenses of each Trust change. Therefore, there is
no assurance that the Estimated Current Return indicated in Part One for
each Trust will be realized in the future. Estimated Long-Term Return is
calculated using a formula which (1) takes into consideration and
determines and factors in the relative weightings of the market values,
yields (which takes into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all of the Bonds in
the Trust; (2) takes into account the expenses and sales charge
associated with each Unit of a Trust; and (3) takes into effect the tax-
adjusted yield from potential capital gains at the Initial Date of
Deposit. Since the market values and estimated retirements of the Bonds
and the expenses of the Trust will change, there is no assurance that
the Estimated Long-Term Return indicated in Part One for each Trust will
be realized in the future. Estimated Current Return and Estimated Long-
Term Return are expected to differ because the calculation of Estimated
Long-Term Return reflects the estimated date and amount of principal
returned while Estimated Current Return calculations include only Net
Annual Interest Income and Public Offering Price. Neither rate reflects
the true return to Unit holders, which is lower, because neither
includes the effect of certain delays in distributions to Unit holders.
Record Dates for the distribution of interest under the semi-annual
distribution plan (if applicable) are the fifteenth day of June and
December, and the Distribution Dates are as set forth in Part One. It is
anticipated that an amount equal to approximately one-half of the amount
of net annual interest income per Unit will be distributed on or shortly
after each Distribution Date to Unit holders of record on the preceding
Record Date. See Part One for each Trust.
Record Dates for monthly distributions are the fifteenth day of each
month. Record Dates for quarterly distributions (if applicable) are the
fifteenth day of March, June, September and December. The Distribution
Dates for distributions of interest under the monthly and quarterly
distribution plans are as indicated in Part One. All Unit holders will
receive the first distribution of interest regardless of the plan of
distribution chosen and all Unit holders will receive such
distributions, if any, from the Principal Account as are made as of the
Record Dates for monthly distributions. See Part One for each Trust.
How are Purchased Interest and Accrued Interest Treated?
Purchased Interest. For The First Trust Combined Series 198-208, each
Trust contains an amount of Purchased Interest. Purchased Interest is a
portion of the unpaid interest that has accrued on the Bonds from the
later of the last payment date on the Bonds or the date of issuance
thereof through the First Settlement Date and is included in the
calculation of the Public Offering Price. Purchased Interest will be
Page 11
distributed to Unit holders as Units are redeemed or Securities are
sold, mature or are called. See "Summary of Essential Information"
appearing in Part One for each Trust for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of
the determination of the price Unit holders will receive in connection
with the sale or redemption of Units prior to the termination of the
Trust.
Accrued Interest. Accrued interest is the accumulation of unpaid
interest on a bond from the last day on which interest thereon was paid.
Interest on Bonds generally is paid semi-annually, although each Trust
accrues such interest daily. Because of this, a Trust always has an
amount of interest earned but not yet collected by the Trustee. For this
reason, with respect to sales settling subsequent to the First
Settlement Date, the Public Offering Price of Units will have added to
it the proportionate share of accrued interest to the date of
settlement. Unit holders will receive on the next distribution date of
the Trust the amount, if any, of accrued interest paid on their Units.
For The First Trust Combined Series 1-197, except through an advancement
of its own funds, the Trustee has no cash for distribution to Unit
holders until it receives interest payments on the Bonds in a Trust. The
Trustee will recover its advancements without interest or other costs to
such Trust from interest received on the Bonds in the Trust. When these
advancements have been recovered, regular distributions of interest to
Unit holders will commence. See "Rights of Unit Holders-How are Interest
and Principal Distributed?" Interest account balances are established
with generally positive cash balances so that it will not be necessary
on a regular basis for the Trustee to advance its own funds in
connection with interest distributions.
For The First Trust Combined Series 198-208, in an effort to reduce the
amount of Purchased Interest which would otherwise have to be paid by
Unit holders, the Trustee may advance a portion of the accrued interest
to the Sponsor as the Unit holder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the
Public Offering Price of Units will include only accrued interest from
the First Settlement Date to the date of settlement (other than the
Purchased Interest already included therein), less any distributions
from the Interest Account subsequent to the First Settlement Date. See
"Rights of Unit Holders-How are Interest and Principal Distributed?"
For The First Trust Combined Series 209 and subsequent Series, in an
effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of
Units to the public, the Trustee will advance the amount of accrued
interest as of the First Settlement Date and the same will be
distributed to the Sponsor as the Unit holder of record as of the First
Settlement Date. Consequently, the amount of accrued interest to be
added to the Public Offering Price of Units will include only accrued
interest from the First Settlement Date to the date of settlement, less
any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unit Holders-How are Interest and
Principal Distributed?"
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of
interest actually received by a Trust and distributed to Unit holders.
If a Unit holder sells or redeems all or a portion of his Units, he will
be entitled to receive his proportionate share of the Purchased Interest
(if any) and accrued interest from the purchaser of his Units. Since the
Trustee has the use of the funds (including Purchased Interest, if any)
held in the Interest Account for distributions to Unit holders and since
such Account is non-interest-bearing to Unit holders, the Trustee
benefits thereby.
Why and How are the Insured Trusts Insured?
THE FOLLOWING DISCUSSION IS APPLICABLE ONLY TO THE INSURED TRUSTS. THE
BONDS IN THE PORTFOLIO OF AN ADVANTAGE TRUST ARE NOT INSURED BY
INSURANCE OBTAINED BY THE FUND.
All Bonds in the portfolio of an Insured Trust are insured as to the
scheduled payment of interest and principal by policies obtained by each
Insured Trust from Financial Guaranty Insurance Company ("Financial
Guaranty" or "FGIC"), a New York stock insurance company, or AMBAC
Indemnity Corporation ("AMBAC Indemnity" or "AMBAC"), a Wisconsin-
domiciled stock insurance company, or obtained by the Bond issuer, the
underwriters, the Sponsor or others prior to the Initial Date of Deposit
directly from Financial Guaranty, AMBAC Indemnity or other insurers (the
"Preinsured Bonds"). The insurance policy obtained by each Insured Trust
is noncancellable and will continue in force for such Trust so long as
such Trust is in existence and the Bonds described in the policy
continue to be held by the Trust (see Part One for each Insured Trust).
Page 12
Nonpayment of premiums on the policy obtained by each Insured Trust will
not result in the cancellation of insurance, but will permit Financial
Guaranty and/or AMBAC Indemnity to take action against the Trustee to
recover premium payments due it. Premium rates for each issue of Bonds
protected by the policy obtained by each Insured Trust are fixed for the
life of such Trust. The premium for any Preinsured Bonds has been paid
in advance by the Bond issuer, the underwriters, the Sponsor or others
and any such policy or policies are noncancellable and will continue in
force so long as the Bonds so insured are outstanding and the insurer
and/or insurers thereof remain in business. If the provider of an
original issuance insurance policy is unable to meet its obligations
under such policy, or if the rating assigned to the claims-paying
ability of such insurer deteriorates, Financial Guaranty and/or AMBAC
Indemnity has no obligation to insure any issue adversely affected by
either of the above described events. A monthly premium is paid by each
Insured Trust for the insurance obtained by such Trust, which is payable
from the interest income received by such Trust. In the case of
Preinsured Bonds, beginning with Series 25 and subsequent Series, no
premiums for insurance are paid by the Insured Trust.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC").
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 the
principal of the Bond or the interest on a Bond, any acceleration of
payment, unless such acceleration is at the sole option of Financial
Guaranty.
Financial Guaranty will make such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the
business day next following the day on which Financial Guaranty shall
have received notice of nonpayment, whichever is later. The Fiscal Agent
will disburse to the Trustee the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by
the issuer but only upon receipt by the Fiscal Agent of (i) evidence of
the Trustee's right to receive payment of the principal or interest due
for payment and (ii) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or
interest due for payment shall thereupon vest in Financial Guaranty.
Upon such disbursement, Financial Guaranty shall become the owner of the
Bond, appurtenant coupon or right to payment of principal or interest on
such Bond and shall be fully subrogated to all of the Trustee's rights
thereunder, including the right to payment thereof.
Pursuant to an irrevocable commitment of Financial Guaranty, the
Trustee, upon the sale of a Bond covered under a policy obtained by an
Insured Trust has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to maturity of the Bonds regardless of the
identity of the holder thereof) (the "Permanent Insurance") upon the
payment of a single predetermined insurance premium from the proceeds of
the sale of such Bond. Accordingly, any Bond in an Insured Trust is
eligible to be sold on an insured basis. It is expected that the Trustee
will exercise the right to obtain Permanent Insurance only if upon such
exercise the Insured Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent
Insurance ) from such sale in excess of the sale proceeds if such Bonds
were sold on an uninsured basis. The insurance premium with respect to
each Bond eligible for Permanent Insurance is determined based upon the
insurability of each Bond as of the Initial Date of Deposit and will not
be increased or decreased for any change in the creditworthiness of such
Bond.
Page 13
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation
("Corporation"), a Delaware holding company. The Corporation is a wholly
owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in
the State of New York and is subject to regulation by the State of New
York Insurance Department. As of December 31, 1995, the total capital
and surplus of Financial Guaranty was approximately $1,000,520,000.
Copies of Financial Guaranty's financial statements, prepared on the
basis of statutory accounting principles, and the Corporation's
financial statements, prepared on the basis of generally accepted
accounting principles, may be obtained by writing to Financial Guaranty
at 115 Broadway, New York, New York 10006, Attention: Communications
Department (telephone number is (212) 312-3000) or to the New York State
Insurance Department at 160 West Broadway, 18th Floor, New York, New
York 10013, Attention: Properties Companies Bureau (telephone number is
(212) 621-0389).
In addition, Financial Guaranty is currently authorized to write
insurance in all fifty states and in the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained
herein with respect to such corporation is unaudited but appears in
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 14
AMBAC Indemnity is a Wisconsin-domiciled stock insurance company,
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin, and licensed to do business in fifty states, the District of
Columbia and the Commonwealth of Puerto Rico, with admitted assets of
approximately $2,145,000,000 (unaudited) and statutory capital of
approximately $782,000,000 (unaudited) as of December 31, 1994.
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 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 AMBAC
Indemnity have applied their own standards which are not necessarily the
same as the criteria used in regard to the selection of bonds by the
Sponsor. This decision is made prior to the Initial Date of Deposit, as
bonds not covered by such insurance are not deposited in an Insured
Trust, unless such bonds are Preinsured Bonds. The insurance obtained by
an Insured Trust covers Bonds deposited in such Trust and physically
delivered to the Trustee in the case of bearer bonds or registered in
the name of the Trustee or its nominee or delivered along with an
assignment in the case of registered bonds or registered in the name of
the Trustee or its nominee in the case of Bonds held in book-entry form.
Contracts to purchase Bonds are not covered by the insurance obtained by
an Insured Trust although Bonds underlying such contracts are covered by
insurance upon physical delivery to the Trustee.
Insurance obtained by each Insured Trust or by the Bond issuer, the
underwriters, the Sponsor or others does not guarantee the market value
of the Bonds or the value of the Units of such Trust. The insurance
obtained by an Insured Trust is effective only as to Bonds owned by and
held in such Trust. In the event of a sale of any such Bond by the
Trustee, the insurance terminates as to such Bond on the date of sale.
In the event of a sale of a Bond insured by an Insured Trust, the
Trustee has the right to obtain Permanent Insurance upon the payment of
an insurance premium from the proceeds of the sale of such Bond. Except
as indicated below, insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value to such insurance obtained by an
Insured Trust (including the right to obtain Permanent Insurance) for
the purpose of computing the price or redemption value of Units only if
the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsor's opinion, in significant risk
of such default. The value of the insurance will be equal to the
difference between (i) the market value of a Bond which is in default in
payment of principal or interest or in significant risk of such default
assuming the exercise of the right to obtain Permanent Insurance (less
the insurance premium attributable to the purchase of Permanent
Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering-How is the Public Offering
Price Determined?" herein for a more complete description of the
Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance on a Preinsured Bond is effective
as long as such Bond is outstanding. Therefore, any such insurance may
be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
A contract of insurance obtained by an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and/or AMBAC Indemnity and the Fund. Otherwise
neither Financial Guaranty nor its parent, FGIC Corporation, or any
affiliate thereof, nor AMBAC Indemnity nor its parent, AMBAC, Inc., or
any affiliate thereof has any significant relationship, direct or
indirect, with the Fund or the Sponsor, except that the Sponsor has in
the past and may from time to time in the future, in the normal course
of its business, participate as sole underwriter or as manager or as a
Page 15
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 September 30, 1995 MBIA had admitted assets of $3.7 billion
(audited), total liabilities of $2.5 billion (audited), and total
capital and surplus of $1.2 billion (audited) determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of December 30, 1994, MBIA had admitted
assets of $3.4 billion (audited), total liabilities of $2.3 billion
(audited), and total capital and surplus of $1.1 billion (audited)
determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities. Copies of MBIA's
financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA Corporation is
113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty
Insurance Company (BIG), now know as MBIA Insurance Corp. of Illinois.
Through a reinsurance agreement, BIG has ceded all of its net insured
risks, as well as its unearned premium and contingency reserves, to MBIA
and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA
"Aaa" and short-term loans "MIG 1," both designated to be of the highest
quality. Standard & Poor's 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 all 50 states,
the District of Columbia, the Commonwealth of Puerto Rico, Guam and the
U.S. Virgin Islands. 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.
As of September 30, 1995, Capital Guaranty had more than $19.0 billion
in net exposure outstanding (excluding defeased issues). The total
statutory policyholders' surplus and contingency reserve of Capital
Guaranty was $204,642,000 (audited) and the total admitted assets were
$326,802,226 (audited) as reported to the Insurance Department of the
State of Maryland as of September 30, 1995. 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 50 states in addition to the District
of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also
provide financial guarantee reinsurance for structured asset-backed,
corporate and municipal obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc., "AAA" by Standard & Poor's, "AAA" by Duff & Phelps Credit
Rating Co. and "AAA" by Nippon Investors Service Inc. 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
Page 16
CapMAC's management and employees. 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. Such
insurance laws regulate, among other things, the amount of net exposure
per risk that CapMAC may retain, capital transfers, dividends,
investment of assets, changes in control, transactions with affiliates
and consolidations, and acquisitions. CapMAC is subject to periodic
regulatory examinations by the same regulatory authorities.
CapMAC's obligations under the Policy may be reinsured. Such reinsurance
does not relieve CapMAC of any of its obligations under the Policy.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale, Holdings and CapMAC entered into an
Ownership Policy Agreement (the "Ownership Policy Agreement"), which
sets forth Holdings' intent with respect to its ownership and control of
CapMAC and provides for certain policies and agreements with respect to
Holdings' exercise of its control of CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the term of the Ownership
Policy Agreement, it will not and will not permit any stockholder of
Holdings to enter into any transaction the result of which would be a
change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long-term debt obligations or claims-paying ability
of the person which would control CapMAC after such transaction or its
direct or indirect parent are rated in a high investment grade category,
unless Holdings or CapMAC has confirmed that CapMAC's claims-paying
ability rating by Moody's (the "Rating") in effect immediately prior to
any such change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a result of
a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i) not
to change the "zero-loss" underwriting standards or policies and
procedures of CapMAC in a manner that would materially and adversely
affect the risk profile of CapMAC's book of business, (ii) that CapMAC
will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time to time as
consistent with maintaining CapMAC's Rating and (iii) that until
CapMAC's statutory capital surplus and contingency reserve ("qualified
statutory capital") equal $250 million, CapMAC will maintain a specified
amount of qualified statutory capital in excess of the amount of
qualified statutory capital that CapMAC is required at such time to
maintain under the aggregate leverage limitations set forth in Article
69 of the New York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date
on which a change of control of CapMAC occurs and the date on which
CapMAC and Holdings agree in writing to terminate the Ownership Policy
Agreement; provided that, CapMAC or Holdings has confirmed that CapMAC's
Rating in effect immediately prior to any such termination will not be
downgraded upon such termination.
As of December 31, 1994 and 1993, CapMAC had statutory capital (which
consists of policyholders' surplus and contingency reserve) of
approximately $170 million and $168 million, respectively, and had not
incurred any debt obligations. Article 69 of the New York State
Insurance Law requires that CapMAC establishes and maintains the
contingency reserve.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the
State of New York are available upon request. CapMAC is located at 885
Third Avenue, New York, New York 10022, and its telephone number is
(212) 755-1155.
Financial Security Assurance. Financial Security Assurance ("Financial
Security") is a monoline insurance company incorporated on March 16,
1984 under the laws of the State of New York. The operations of
Financial Security commenced on July 25, 1985, and Financial Security
received its New York State insurance license on September 23, 1985.
Financial Security and its two wholly owned subsidiaries are licensed to
engage in financial guaranty insurance business in 49 states, the
District of Columbia and Puerto Rico.
Page 17
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"). Neither U.S. West, Inc. nor Tokio Marine is obligated to pay
any debts of or the claims against Financial Security. As of March 31,
1993, the total policyholders' surplus and contingency reserves and the
total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with statutory
accounting principles, approximately $479,110,000 (unaudited) and
$220,078,000 (unaudited), and the total shareholders' equity and the
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $628,119,000 (unaudited), and
$202,493,000 (unaudited). Copies of Financial Security's financial
statements may be obtained by writing to Financial Security at 350 Park
Avenue, New York, New York, 10022, Attention Communications Department.
Financial Security's telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security of either of its subsidiaries
are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and
reserves, subject to applicable statutory risk limitations. In addition,
Financial Security reinsures a portion of its liabilities under certain
of its financial guaranty insurance policies with unaffiliated
reinsurers under various quota share treaties and on a transaction-by-
transaction 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, Nippon Investors
Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd. Such
ratings reflect only the views of the respective rating agencies, are
not recommendations to buy, sell or hold securities and are subject to
revision or withdrawal at any time by such rating agencies.
Connie Lee Insurance Company. Connie Lee Insurance Company ("Connie
Lee"), 2445 M Street, N.W., Washington D.C. 20037, is a stock insurance
company incorporated in Wisconsin and a wholly-owned subsidiary of
College Construction Loan Insurance Association ("CCLIA"), a District of
Columbia insurance holding company. As of September 30, 1994, the total
policyholders' surplus of Connie Lee was approximately $106,000,000
(unaudited) and total admitted assets was approximately $193,000,000
(unaudited), as reported to the Commissioner of Insurance of the State
of Wisconsin.
Because the Bonds in each Insured Trust are insured as to the scheduled
payment of principal and interest and on the basis of the financial
condition of the insurance companies referred to above, Standard &
Poor's has assigned to units of each Insured Trust its "AAA" investment
rating. This is the highest rating assigned to securities by Standard &
Poor's. See "Description of Bond Ratings." The obtaining of this rating
by each Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the
market value of each Insured Trust or the Units of such Trust. Standard
& Poor's has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which
expenses of each Trust or sales by each Trust of Bonds for less than the
purchase price paid by such Trust will reduce payment to Unit holders of
the interest and principal required to be paid on such Bonds. There is
no guarantee that the "AAA" investment rating with respect to the Units
of an Insured Trust will be maintained.
An objective of portfolio insurance obtained by such Insured Trust is to
obtain a higher yield on the Bonds in the portfolio of such Trust than
would be available if all the Bonds in such portfolio had the Standard &
Poor's "AAA" and/or Moody's Investors Service, Inc. "Aaa" rating(s) and
at the same time to have the protection of insurance of scheduled
payment of interest and principal on the Bonds. There is, of course, no
certainty that this result will be achieved. Bonds in a Trust for which
insurance has been obtained by the Bond issuer, the underwriters, the
Sponsor or others (all of which were rated "AAA" by Standard & Poor's
and/or "Aaa" by Moody's Investors Service, Inc.) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's or
"Aaa" by Moody's Investors Service, Inc. In selecting Bonds for the
portfolio of each Insured Trust, the Sponsor has applied the criteria
herein before described.
Chapman and Cutler, Counsel for the Sponsor, has given an opinion (with
respect to Insured Bonds) to the effect that the payment of insurance
proceeds representing maturing interest on defaulted municipal
obligations paid by Financial Guaranty or another insurer would be
excludable from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the
defaulted obligations provided that, at the time such policies are
Page 18
purchased, the amounts paid for such policies are reasonable, customary
and consistent with the reasonable expectation that the issuer of the
obligations, rather than the insurer, will pay debt service on the
obligations. See "What is the Federal Tax Status of Unit Holders?"
appearing in Part Three of each Trust.
What is the Federal Tax Status of Unit Holders?
See Part Three for each Trust.
FOR INFORMATION WITH RESPECT TO EXEMPTION FROM STATE OR OTHER LOCAL
TAXES, SEE PART THREE FOR EACH TRUST.
What are the Expenses and Charges?
At no cost to the Trusts, the Sponsor has borne all the expenses of
creating and establishing the Fund, including the cost of the initial
preparation, printing and execution of the Indenture and the
certificates for the Units, legal and accounting expenses, expenses of
the Trustee and other out-of-pocket expenses. With the exception of
bookkeeping and other administrative services provided to certain
Trusts, for which the Sponsor will be reimbursed in amounts as set forth
in Part One for such Trusts, the Sponsor will not receive any fees in
connection with its activities relating to any Trust. Such bookkeeping
and administrative charges 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 fees payable to
the Sponsor for such services may exceed the actual costs of providing
such services for this Fund, but at no time will the total amount
received for such services rendered to unit investment trusts of which
Nike Securities L.P. is the Sponsor in any calendar year exceed the
aggregate cost to the Sponsor of supplying such services in such year.
For Series 49 and all subsequent Series, First Trust Advisors L.P., an
affiliate of the Sponsor, will receive an annual supervisory fee, which
is not to exceed the amount set forth in Part One for each Trust, for
providing portfolio supervisory services for the Trust. Such fee is
based on the number of Units outstanding in each Trust on January 1 of
each year except for Trusts which were established subsequent to the
last January 1, in which case the fee will be based on the number of
Units outstanding in such Trusts as of the respective Initial Dates of
Deposit. The fee may exceed the actual costs of providing such
supervisory services for this Fund, but at no time will the total amount
received for portfolio supervisory services rendered to unit investment
trusts of which Nike Securities L.P. is the Sponsor in any calendar year
exceed the aggregate cost to First Trust Advisors L.P. of supplying such
services in such year.
For each valuation of the Bonds in a Trust, the Evaluator will receive a
fee as indicated in Part One of this Prospectus. The Trustee pays
certain expenses of each Trust for which it is reimbursed by such Trust.
The Trustee will receive for its ordinary recurring services to a Trust
an annual fee computed as indicated in Part One of this Prospectus. For
a discussion of the services performed by the Trustee pursuant to its
obligations under the Indenture, reference is made to the material set
forth under "Rights of Unit Holders." The Trustee's and Evaluator's fees
are payable monthly on or before each Distribution Date from the
Interest Account of each Trust to the extent funds are available and
then from the Principal Account of such Trust. Since the Trustee has the
use of the funds being held in the Principal and Interest Accounts for
future distributions, payment of expenses and redemptions and since such
Accounts are non-interest-bearing to Unit holders, the Trustee benefits
thereby. Part of the Trustee's compensation for its services to the Fund
is expected to result from the use of these funds. Both fees may be
increased without approval of the Unit holders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of
Shelter" in the Consumer Price Index published by the United States
Department of Labor.
Page 19
The annualized cost of the portfolio insurance obtained by the Fund for
each Insured Trust is indicated in Part One for each Trust in a Series
of the Fund. The portfolio insurance continues so long as such Trust
retains the Bonds thus insured. Premiums are payable monthly in advance
by the Trustee on behalf of such Trust. As Bonds in the portfolio are
redeemed by their respective issuers or are sold by the Trustee, the
amount of premium will be reduced in respect of those Bonds no longer
owned by and held in the Trust which were insured by insurance obtained
by such Trust. Preinsured Bonds for which insurance has been obtained
from Financial Guaranty and/or AMBAC Indemnity or, beginning with Series
25 and all subsequent Series, other insurers, are not insured by such
Trust. The premium payable for Permanent Insurance will be paid solely
from the proceeds of the sale of such Bond in the event the Trustee
exercises the right to obtain Permanent Insurance on a Bond. The
premiums for such Permanent Insurance with respect to each Bond will
decline over the life of the Bond. An Advantage Trust is not insured;
accordingly, there are no premiums for insurance payable by such Trust.
The following additional charges are or may be incurred by a Trust: all
expenses (including legal and annual auditing expenses) of the Trustee
incurred in connection with its responsibilities under the Indenture,
except in the event of negligence, bad faith or willful misconduct on
its part; the expenses and costs of any action undertaken by the Trustee
to protect the Trust and the rights and interests of the Unit holders;
fees of the Trustee for any extraordinary services performed under the
Indenture; indemnification of the Trustee for any loss, liability or
expense incurred by it without negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its
acceptance or administration of the Trust; indemnification of the
Sponsor for any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct in acting as Depositor of
the Trust; all taxes and other government charges imposed upon the Bonds
or any part of the Trust (no such taxes or charges are being levied or
made or, to the knowledge of the Sponsor, are contemplated); and
expenditures incurred in contacting Unit holders upon termination of the
Trust. The above expenses and the Trustee's annual fee, when paid or
owing to the Trustee, are secured by a lien on the Trust. In addition,
the Trustee is empowered to sell Bonds of a Trust in order to make funds
available to pay all these amounts if funds are not otherwise available
in the Interest and Principal Accounts of the Trust.
Unless the Sponsor determines that such an audit is not required, the
Indenture requires the accounts of each Trust to be audited on an annual
basis at the expense of the Trust by independent auditors selected by
the Sponsor. So long as the Sponsor is making a secondary market for
Units, the Sponsor shall bear the cost of such annual audits to the
extent such cost exceeds $.50 per Unit. Unit holders of a Trust covered
by an audit may obtain a copy of the audited financial statements from
the Trustee upon request.
PUBLIC OFFERING
How is the Public Offering Price Determined?
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid
price of the Bonds in the portfolio of each Trust plus the amount of
Purchased Interest of a Trust (if any) and interest accrued to the date
of settlement. All expenses incurred in maintaining a market, other than
the fees of the Evaluator and the costs of the Trustee in transferring
and recording the ownership of Units, will be borne by the Sponsor. If
the supply of Units exceeds demand, or for some other business reason,
the Sponsor may discontinue purchases of Units at such prices. IF A UNIT
HOLDER WISHES TO DISPOSE OF HIS UNITS, HE SHOULD INQUIRE OF THE SPONSOR
AS TO CURRENT MARKET PRICES PRIOR TO MAKING A TENDER FOR REDEMPTION TO
THE TURSTEE. Prospectuses relating to certain other bond funds indicate
an intention, subject to change, on the part of the respective sponsors
of such funds to repurchase units of those funds on the basis of a price
higher than the bid prices of the securities in the funds. Consequently,
depending upon the prices actually paid, the repurchase price of other
sponsors for units of their funds may be computed on a somewhat more
favorable basis than the repurchase price offered by the Sponsor for
Units of a Trust in secondary market transactions. As in the First Trust
Combined Series, the purchase price per unit of such bond funds will
depend primarily on the value of the securities in the Portfolio of the
applicable Trust.
Page 20
The Public Offering Price of Units of a Trust will be determined by
adding to the Evaluator's determination of the aggregate bid price of
the Bonds in a Trust plus the amount of Purchased Interest of a Trust
(if any) and the appropriate sales charge determined in accordance with
the schedule set forth below, based upon the number of years remaining
to the maturity of each Bond in the portfolio of the Trust, adjusting
the total to reflect the amount of any cash held in or advanced to the
principal account of the Trust and dividing the result by the number of
Units of such trust then outstanding. The minimum sales charge on Units
will be 3% of the Public Offering Price (equivalent to 3.093% of the net
amount invested). For purposes of computation, Bonds will be deemed to
mature on their expressed maturity dates unless: (a) the Bonds have been
called for redemption or funds or securities have been placed in escrow
to redeem them on an earlier call date, in which case such call date
will be deemed to be the date upon which they mature; or (b) such Bonds
are subject to a "mandatory tender," in which case such mandatory tender
will be deemed to be the date upon which they mature.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each of the various
Bonds in the Trusts based upon the maturities of such bonds, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Offering Period
Sales Charge
------------------------------
Percentage Percentage
of Public of Net
Offering Amount
Years to Maturity Price Invested
- ----------------- ---------- ----------
<S> <C> <C>
0 Months to 1 Year 1.00% 1.010%
1 but less than 2 1.50 1.523
2 but less than 3 2.00 2.041
3 but less than 4 2.50 2.564
4 but less than 5 3.00 3.093
5 but less than 6 3.50 3.627
6 but less than 7 4.00 4.167
7 but less than 8 4.50 4.712
8 but less than 9 5.00 5.263
9 but less than 10 5.50 5.820
10 or more 5.80 6.157
</TABLE>
There will be no reduction of the sales charges for volume purchases. A
dealer will receive from the Sponsor a dealer concession of 70% of the
total sales charges for Units sold by such dealer and dealers will not
be eligible for additional concessions for Units sold pursuant to the
above schedule.
An investor may aggregate purchases of Units of two or more consecutive
series of a particular State, National, Discount, Intermediate, Long
Intermediate or Short Intermediate Trust for purposes of calculating the
discount for volume purchases listed above. Additionally, with respect
to the employees and officers (including their immediate families and
trustees, custodians or a fiduciary for the benefit of such person) of
Nike Securities L.P., the sales charge is reduced by 2% of the Public
Offering Price for purchases of Units during the secondary offering
period.
Any such reduced sales charge shall be the responsibility of the selling
Underwriter or dealer except that with respect to purchases of Units of
$500,000 or more, the Sponsor will reimburse the selling Underwriter or
dealer in an amount equal to $2.50 per Unit (in the case of a Discount
Trust, .25% of the Public Offering Price). The reduced sales charge
structure will apply on all purchases of Units in a Trust by the same
person on any one day from any one Underwriter or dealer and, for
purposes of calculating the applicable sales charge, purchases of Units
in the Fund will be aggregated with concurrent purchases by the same
person from such Underwriter or dealer of units in any series of tax-
exempt unit investment trusts sponsored by Nike Securities L.P.
Additionally, Units purchased in the name of the spouse of a purchaser
or in the name of a child of such purchaser will be deemed, for the
purpose of calculating the applicable sales charge, to be additional
purchases by the purchaser. The reduced sales charges will also be
applicable to a trustee or other fiduciary purchasing securities for a
single trust estate or single fiduciary account.
Page 21
From time to time the Sponsor may implement programs under which
Underwriters and dealers of the Fund may receive nominal awards from the
Sponsor for each of their registered representatives who have sold a
minimum number of UIT Units during a specified time period. In addition,
at various times the Sponsor may implement other programs under which
the sales force of an Underwriter or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor
will allow to any such Underwriter or dealer that sponsors sales
contests or recognition programs conforming to criteria established by
the Sponsor, or participates in sales programs sponsored by the Sponsor,
an amount not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to
qualifying Underwriters or dealers for certain services or activities
which are primarily intended to result in sales of Units of the Trusts.
Such payments are made by the Sponsor out of its own assets, and not out
of the assets of the Trusts. These programs will not change the price
Unit holders pay for their Units or the amount that the Trusts will
receive from the Units sold.
A comparison of tax-free and equivalent taxable estimated current
returns and estimated long-term returns with the returns on various
taxable investments is one element to consider in making an investment
decision. The Sponsor may from time to time in its advertising and sales
materials compare the then current estimated returns on the Trust and
returns over specified periods on other similar Trusts sponsored by Nike
Securities L.P. with returns on taxable investments such as corporate or
U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may
differ from those of the Trust. U.S. Government bonds, for example, are
backed by the full faith and credit of the U.S. Government and bank CDs
and money market accounts are insured by an agency of the federal
government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the
condition of the short-term debt market. The investment characteristics
of the Trust are described more fully elsewhere in this Prospectus.
The aggregate price of the Bonds in each Trust is determined by whomever
from time to time is acting as evaluator (the "Evaluator"), on the basis
of bid prices or offering prices as is appropriate, (1) on the basis of
current market prices for the Bonds obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Trust; (2) if
such prices are not available for any of the Bonds, on the basis of
current market prices for comparable bonds; (3) by determining the value
of the Bonds by appraisal; or (4) by any combination of the above.
Unless Bonds are in default in payment of principal or interest or, in
the Sponsor's opinion, in significant risk of such default, the
Evaluator will not attribute any value to the insurance obtained by an
Insured Trust. On the other hand, the value of insurance obtained by the
issuer of Bonds in a Trust is reflected and included in the market value
of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted Bonds") and
which are covered by insurance obtained by an Insured Trust, the value
of the insurance guaranteeing interest and principal payments. The value
of the insurance will be equal to the difference between (i) the market
value of Defaulted Bonds assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance) and (ii) the market value of such
Defaulted Bonds not covered by Permanent Insurance. In addition, the
Evaluator will consider the ability of Financial Guaranty and/or AMBAC
Indemnity to meet its commitments under an Insured Trust's insurance
policy, including the commitments to issue Permanent Insurance. It is
the position of the Sponsor that this is a fair method of valuing the
Bonds and the insurance obtained by an Insured Trust and reflects a
proper valuation method in accordance with the provisions of the
Investment Company Act of 1940. For a description of the circumstances
under which a full or partial suspension of the right of Unit holders to
redeem their Units may occur, see "Rights of Unit Holders-How May Units
be Redeemed?"
The Evaluator may be attributing value to insurance for the purpose of
computing the price or redemption value of Units for certain previous
series of the First Trust of Insured Municipal Bonds, an investment
company sponsored by Nike Securities L.P. See Part One for further
information with respect to whether value is being attributed to
insurance in determining the value of Units for that series of the Fund.
The Evaluator will be requested to make a determination of the aggregate
price of the Bonds in each Trust, on a bid price basis, as of the close
of trading on the New York Stock Exchange on each day on which it is
open, effective for all sales, purchases or redemptions made subsequent
to the last preceding determination.
Page 22
The secondary market Public Offering Price of the Units will be equal to
the bid price per Unit of the Bonds in a Trust, plus (less) any balance
(overdraft) in the principal cash account of such Trust, plus the
applicable sales charge and the amount of Purchased Interest (if any).
Although payment is normally made five business days following the order
for purchase, payment may be made prior thereto. A person will become
owner of the Units on the date of settlement provided payment has been
received. Cash, if any, made available to the Sponsor prior to the date
of settlement for the purchase of Units may be used in the Sponsor's
business and may be deemed to be a benefit to the Sponsor, subject to
the limitations of the Securities Exchange Act of 1934. Delivery of
Certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. See "Rights of Unit
Holders-How May Units Be Redeemed?" for information regarding the
ability to redeem Units ordered for purchase.
How are Units Distributed?
It is the intention of the Sponsor to qualify Units of the Fund for sale
in a number of states. Sales will be made to dealers and others at
prices which represent a concession or agency commission of 4.0% of the
Public Offering Price per Unit for each State, Discount or National
Trust, 3.0% of the Public Offering Price for an Intermediate or Long
Intermediate Trust, and 2.5% of the Public Offering Price per Unit for a
Short Intermediate Trust, but the Sponsor reserves the right to change
the amount of the concession or agency commission from time to time.
Certain commercial banks are making Units of the Fund available to their
customers on an agency basis. A portion of the sales charge paid by
these customers is retained by or remitted to the banks in the amounts
indicated in the second preceding sentence. Under the Glass-Steagall
Act, banks are prohibited from underwriting Fund Units; however, the
Glass-Steagall Act does permit certain agency transactions and the
banking regulators have not indicated that these particular agency
transactions are not permitted under such Act. In Texas and in certain
other states, any banks making Units available must be registered as
broker/dealers under state law.
What are the Sponsor's Profits?
The Sponsor and participating dealers will receive a maximum gross sales
commission equal to 5.8% of the Public Offering Price of the Units of
each State Trust (equivalent to 6.157% of the net amount invested), 5.8%
of the Public Offering Price of the Units of a National or Discount
Trust (equivalent to 6.157% of the net amount invested), 4.7% of the
Public Offering Price of the Units of an Intermediate or Long
Intermediate Trust (equivalent to 4.932% of the net amount invested),
and 3.7% of the Public Offering Price of the Units of a Short
Intermediate Trust (equivalent to 3.842% of the net amount invested)
less any reduced sales charge for quantity purchases as described under
"Public Offering-How is the Public Offering Price Determined?"
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the
price at which Units are purchased (based on the bid prices of the Bonds
in each Trust) and the price at which Units are resold (which price is
also based on the bid prices of the Bonds in each Trust and includes a
maximum sales charge of 5.8% for a State Trust, 5.8% for a National or
Discount Trust, 4.7% for an Intermediate or Long Intermediate Trust and
3.7% for a Short Intermediate Trust) or redeemed. The secondary market
public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
RIGHTS OF UNIT HOLDERS
How are Certificates Issued and Transferred?
The Trustee is authorized to treat as the record owner of Units that
person who is registered as such owner on the books of the Trustee.
Ownership of Units is evidenced by registered certificates executed by
the Trustee and the Sponsor. Delivery of certificates representing Units
ordered for purchase is normally made five business days following such
order or shortly thereafter. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or
Page 23
accompanied by a written instrument or instruments of transfer.
Certificates to be redeemed must be properly endorsed or accompanied by
a written instrument or instruments of transfer. A Unit holder must sign
exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates
of death, appointments as executor or administrator or certificates of
corporate authority. Record ownership may occur before settlement.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates
for Units will bear an appropriate notation on their face indicating
which plan of distribution has been selected in respect thereof. When a
change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then currently
effective plan of distribution. There is no charge for this service.
Although no such charge is now made or contemplated, a Unit holder may
be required to pay $2.00 to the Trustee per certificate reissued or
transferred for reasons other than to change the plan of distribution,
and to pay any governmental charge that may be imposed in connection
with each such transfer or exchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder may be
required to furnish indemnity satisfactory to the Trustee and pay such
expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
How are Interest and Principal Distributed?
Interest from each Trust will be distributed on the dates specified in
Part One on a pro rata basis to Unit holders of record as of the
preceding Record Date who are entitled to distributions at that time
under the plan of distribution chosen. All distributions for a Trust
will be net of applicable expenses for such Trust.
The pro rata share of cash in the Principal Account of each Trust will
be computed as of the fifteenth day of each month, and distributions to
the Unit holders of such Trust as of such Record Date will be made on
the dates specified in Part One. Proceeds from the disposition of any of
the Bonds of such Trust (less any premiums due with respect to Bonds for
which the Trustee has exercised the right to obtain Permanent Insurance)
received after such Record Date and prior to the following Distribution
Date will be held in the Principal Account of such Trust and not
distributed until the next Distribution Date. The Trustee is not
required to pay interest on funds held in the Principal or Interest
Account of a Trust (but may itself earn interest thereon and therefore
benefit from the use of such funds) nor to make a distribution from the
Principal Account of a Trust unless the amount available for
distribution shall equal at least $1.00 per Unit.
The Trustee will credit to the Interest Account of each Trust all
interest received by such Trust, including that part of the proceeds
(including insurance proceeds if any, paid to an Insured Trust) of any
disposition of Bonds which represents accrued interest. Other receipts
will be credited to the Principal Account of such Trust. The
distribution to the Unit holders of a Trust as of each Record Date will
be made on the following Distribution Date or shortly thereafter and
shall consist of an amount substantially equal to such portion of the
holder's pro rata share of the estimated annual income of such Trust
after deducting estimated expenses as is consistent with the
distribution plan chosen. Because interest payments are not received by
a Trust at a constant rate throughout the year, such interest
distribution may be more or less than the amount credited to the
Interest Account of such Trust as of the Record Date. For the purpose of
minimizing fluctuations in the distributions from the Interest Account
of a Trust, the Trustee is authorized to advance such amounts as may be
necessary to provide interest distributions of approximately equal
amounts. The Trustee shall be reimbursed, without interest, for any such
advances from funds in the Interest Account of such Trust on the ensuing
Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date after the purchase, under the applicable plan of
distribution. The Trustee is not required to pay interest on funds held
in the Principal or Interest Account of a Trust (but may itself earn
interest thereon and therefore benefit from the use of such funds).
As of the fifteenth day of each month, the Trustee will deduct from the
Interest Account of each Trust and, to the extent funds are not
sufficient therein, from the Principal Account of each Trust, amounts
necessary to pay the expenses of such Trust. The Trustee also may
withdraw from said accounts such amounts, if any, as it deems necessary
Page 24
to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the
Trustee may withdraw from the Interest Account and the Principal Account
of a Trust such amounts as may be necessary to cover redemption of Units
of such Trust by the Trustee.
Record Dates for monthly distributions will be the fifteenth day of each
month, Record Dates for quarterly distributions (if applicable) will be
the fifteenth day of March, June, September and December and Record
Dates for semi-annual distributions (if applicable) will be the
fifteenth day of June and December. Distributions will be made on the
dates specified in Part One.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of
the prior owner. Each year, approximately six weeks prior to the end of
May, the Trustee will furnish each Unit holder a card to be returned to
the Trustee not more than thirty nor less than ten days before the end
of such month. Unit holders desiring to change the plan of distribution
in which they are participating may so indicate on the card (assuming
the Trust has more than one distribution option) and return same,
together with their certificate, to the Trustee. If the card and
certificate are returned to the Trustee, the change will become
effective as of June 16 of that year. If the card and certificate are
not returned to the Trustee, the Unit holder will be deemed to have
elected to continue with the same plan for the following twelve months.
How Can Distributions to Unit Holders be Reinvested?
Universal Distribution Option. Unit holders may elect participation in a
Universal Distribution Option which permits a Unit holder to direct the
Trustee to distribute principal and interest payments to any other
investment vehicle of which the Unit holder has an existing account. For
example, at a Unit holder's direction, the Trustee would distribute
automatically on the applicable distribution date interest income or
principal on the participant's Units to, among other investment
vehicles, a Unit holder's checking, bank savings, money market,
insurance, reinvestment or any other account. All such distributions, of
course, are subject to the minimum investment and sales charges, if any,
of the particular investment vehicle to which distributions are
directed. The Trustee will notify the participant of each distribution
pursuant to the Universal Distribution Option. The Trustee will
distribute directly to the Unit holder any distributions which are not
accepted by the specified investment vehicle. A participant may at any
time, by so notifying the Trustee in writing, elect to terminate his
participation in the Universal Distribution Option and receive directly
future distributions on his Units.
Distribution Reinvestment Option. The Sponsor has entered into an
arrangement with Oppenheimer Management Corporation, which permits any
Unit holder of a Trust to elect to have each distribution of interest
income or principal on his Units automatically reinvested in shares of
either the Oppenheimer Intermediate Tax-Exempt Bond Fund (the
"Intermediate Series") or the Oppenheimer Insured Tax-Exempt Bond Fund
(the "Insured Series"). Oppenheimer Management Corporation is the
investment adviser of each Series which are open-end, diversified
management investment companies. The investment objective of the
Intermediate Series is to provide a high level of current interest
income exempt from Federal income tax through the purchase of investment
grade securities. The investment objective of the Insured Series is to
provide as high a level of current interest income exempt from Federal
income tax as is consistent with the assurance of the scheduled receipt
of interest and principal through insurance and the preservation of
capital (the income of either Series may constitute an item of
preference for determining the Federal alternative minimum tax). The
objectives and policies of each Series are presented in more detail in
the prospectus for each Series.
Each person who purchases Units of a Trust may 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 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
Page 25
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.
Each distribution statement will reflect pertinent information in
respect of each plan of distribution so that Unit holders may be
informed regarding the results of the other plan or plans of
distribution.
How May Units be Redeemed?
A Unit holder may redeem all or a portion of his Units by tender to the
Trustee at its unit investment trust office in the City of New York of
the certificates representing the Units to be redeemed, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed
as explained above (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates), and payment of
applicable governmental charges, if any. No redemption fee will be
charged. On the seventh calendar day following such tender, or if the
seventh calendar day is not a business day, on the first business day
prior thereto, the Unit holder will be entitled to receive in cash an
amount for each Unit equal to the Redemption Price per Unit next
computed after receipt by the Trustee of such tender of Units. The "date
of tender" is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after the close of
trading on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading and such Units will be
deemed to have been tendered to the Trustee on such day for redemption
at the redemption price computed on that day. Units so redeemed shall be
cancelled.
Purchased Interest (if any) and other accrued interest to the settlement
date paid on redemption shall be withdrawn from the Interest Account of
a Trust or, if the balance therein is insufficient, from the Principal
Page 26
Account of such Trust. All other amounts paid on redemption shall be
withdrawn from the Principal Account of the Trust.
The Redemption Price per Unit will be determined on the basis of the bid
price of the Bonds in a Trust and the amount of Purchased Interest of
the Trust (if any), as of the close of trading on the New York Stock
Exchange on the date any such determination is made.The Redemption Price
per Unit is the pro rata share of each Unit determined by the Trustee on
the basis of (1) the cash on hand in the Trust or moneys in the process
of being collected, (2) the value of the Bonds in such Trust based on
the bid prices of the Bonds, except for those cases in which the value
of the insurance, if applicable, has been added, and (3) Purchased
Interest (if any) and any other interest accrued thereon, less (a)
amounts representing taxes or other governmental charges payable out of
such Trust, (b) the accrued expenses of such Trust, and (c) cash held
for distribution to Unit holders of record as of a date prior to the
evaluation then being made. The Evaluator may determine the value of the
Bonds in a Trust (1) on the basis of current bid prices of the Bonds
obtained from dealers or brokers who customarily deal in bonds
comparable to those held by such Trust, (2) on the basis of bid prices
for bonds comparable to any Bonds for which bid prices are not
available, (3) by determining the value of the Bonds by appraisal, or
(4) by any combination of the above. In determining the Redemption Price
per Unit for an Insured Trust, no value will be attributed to the
portfolio insurance covering the Bonds in such Trust unless such Bonds
are in default in payment of principal or interest or in significant
risk of such default. On the other hand, Bonds insured under a policy
obtained by the Bond issuer, the underwriters, the Sponsor or others are
entitled to the benefits of such insurance at all times and such
benefits are reflected and included in the market value of such Bonds.
See "Why and How are the Insured Trusts Insured?" For a description of
the situations in which the evaluator may value the insurance obtained
by an Insured Trust, see "Public Offering-How is the Public Offering
Price Determined?"
The difference between the bid and offering prices of such Bonds may be
expected to average 1-2% of the principal amount. In the case of
actively traded bonds, the difference may be as little as 1/2 of 1% and,
in the case of inactively traded bonds, such difference usually will not
exceed 3%. Therefore, the price at which Units may be redeemed could be
less than the price paid by the Unit holder and may be less than the par
value of the Securities represented by the Units so redeemed.
The Trustee is empowered to sell underlying Bonds in a Trust in order to
make funds available for redemption. To the extent that Bonds are sold,
the size and diversity of such Trust will be reduced. Such sales may be
required at a time when Bonds would not otherwise be sold and might
result in lower prices than might otherwise be realized. The Trustee may
obtain Permanent Insurance on the Bonds in an Insured Trust.
Accordingly, any Bonds so insured must be sold on an insured basis (as
will Bonds on which insurance has been obtained by the Bond issuer, the
underwriters, the Sponsor or others).
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Bonds is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission may by
order permit. Under certain extreme circumstances, the Sponsor may apply
to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units.
How May Units be Purchased by the Sponsor?
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time
equals or exceeds the Redemption Price per Unit, which for certain
Trusts includes Purchased Interest, it may purchase such Units by
notifying the Trustee before 12:00 p.m. Eastern time on the next
succeeding business day and by making payment therefor to the Unit
holder not later than the day on which the Units would otherwise have
been redeemed by the Trustee. Units held by the Sponsor may be tendered
to the Trustee for redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then currently
effective prospectus describing such Units. Any profit or loss resulting
from the resale or redemption of such Units will belong to the Sponsor.
Page 27
How May Bonds be Removed from the Fund?
The Trustee is empowered to sell, for the purpose of redeeming Units
tendered by any Unit holder and for the payment of expenses for which
funds may not be available, such of the Bonds in each Trust on a list
furnished by the Sponsor as the Trustee in its sole discretion may deem
necessary. As described in the following paragraph and in certain other
unusual circumstances for which it is determined by the Depositor to be
in the best interests of the Unit holders or if there is no alternative,
the Trustee is empowered to sell Bonds in a Trust which are in default
in payment of principal or interest or in significant risk of such
default and for which value has been attributed to the insurance, if
any, obtained by the Trust. See "Rights of Unit Holders-How May Units be
Redeemed?" The Sponsor is empowered, but not obligated, to direct the
Trustee to dispose of Bonds in a Trust in the event of advanced
refunding. The Sponsor may from time to time act as agent for a Trust
with respect to selling Bonds out of a Trust. From time to time, the
Trustee may retain and pay compensation to the Sponsor subject to the
restrictions under the Investment Company Act of 1940, as amended.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor, either pursuant to
the portfolio insurance, if any, or otherwise, within thirty days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails
to instruct the Trustee to sell or to hold such Bond within thirty days
after notification by the Trustee to the Sponsor of such default, the
Trustee may, in its discretion, sell the defaulted Bond and not be
liable for any depreciation or loss thereby incurred.
The Sponsor shall instruct the Trustee to reject any offer made by an
issuer of any of the Bonds to issue new obligations in exchange and
substitution for any Bonds pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem
proper if the issuer is in default with respect to such Bonds or in the
written opinion of the Sponsor the issuer will probably default in
respect to such Bonds in the foreseeable future. Any obligations so
received in exchange or substitution will be held by the Trustee subject
to the terms and conditions in the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder of the
affected Trust, identifying the Bonds eliminated and the Bonds
substituted therefor. Except as stated in this paragraph and under "What
is the First Trust Combined Series?" for Failed Bonds, the acquisition
by a Trust of any securities other than the Bonds initially deposited is
prohibited.
INFORMATION AS TO SPONSOR, TRUSTEE AND EVALUATOR
Who is the Sponsor?
Nike Securities L.P., the Sponsor, specializes in the underwriting,
trading and distribution of unit investment trusts and other securities.
Nike Securities L.P., an Illinois limited partnership formed in 1991,
acts as Sponsor for successive series of The First Trust Combined
Series, The First Trust Special Situations Trust, The First Trust
Insured Corporate Trust, The First Trust of Insured Municipal Bonds, The
First Trust GNMA, Templeton Growth and Treasury Trust, Templeton Foreign
Fund & U.S. Treasury Securities Trust and The Advantage Growth and
Treasury Securities Trust. First Trust introduced the first insured unit
investment trust in 1974 and to date more than $9 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, 1995, the total partners' capital of Nike Securities L.P.
was $9,033,760 (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 The Chase Manhattan Bank (National Association) a
national banking association with its principal executive office located
Page 28
at 1 Chase Manhattan Plaza, New York, New York 10081 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, did not participate
in the selection of the portfolio of each series of the Fund. 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-How are Certificates Issued and Transferred?" and
subsequent sections.
The Trustee and any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a
copy of a notice of resignation to all Unit holders. Upon receipt of
such notice, the Sponsor is obligated to appoint a successor trustee
promptly. If the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor as provided in the Indenture.
If upon resignation of a trustee no successor has accepted the
appointment within 30 days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a
successor. The resignation or removal of a trustee becomes effective
only when the successor trustee accepts its appointment as such or when
a court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the
successor Trustee. The Trustee must be a banking corporation organized
under the laws of the United States or any State and having at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to Unit holders
for taking any action or for refraining from taking any action in good
faith pursuant to the Indenture, or for errors in judgment, but shall be
liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the
Trustee of any of the Bonds. In the event of the failure of the Sponsor
to act under the Indenture, the Trustee may act thereunder and shall not
be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest
thereon or upon it as Trustee under the Indenture or upon or in respect
of the Fund which the Trustee may be required to pay under any present
or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee.
If the Sponsor shall fail to perform any of its duties under the
Indenture or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (a)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and
liquidate the Trusts as provided herein, or (c) continue to act as
Trustee without terminating the Indenture.
Who is the Evaluator?
The Evaluator is Securities Evaluation Service, Inc., 531 East Roosevelt
Road, Suite 200, Wheaton, Illinois 60187. The Evaluator may resign or
may be removed by the Sponsor and the Trustee, in which event the
Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor Evaluator.
If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.
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
Page 29
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 the Mandatory
Termination Date as indicated in Part One for each Trust. In the event
of termination, written notice thereof will be sent by the Trustee to
all Unit holders of such Trust. Within a reasonable period after
termination, the Trustee will sell any Bonds remaining in the Trust,
and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder of such Trust (including the Sponsor if
it then holds any Units), upon surrender for cancellation of his
Certificate for Units, his pro rata share of the balances remaining in
the Interest and Principal Accounts of such Trust, all as provided in
the Indenture.
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Booth & Baron, 122 East 42nd Street, Suite 1507, New York, New York
10168, acts as special counsel for the Fund for New York tax matters for
Series 1, 2 and 3 of the Fund. Winston & Strawn (previously named Cole &
Deitz), 175 Water Street, New York, New York 10038 acts as counsel for
the Trustee and as special counsel for the Fund for New York Tax matters
for Series 4-125 of the Fund. Carter, Ledyard & Milburn, 2 Wall Street,
New York, New York 10005, acts as counsel for the Trustee and as special
counsel for the Fund for New York tax matters for Series 126 and
subsequent Series of the Fund. For information with respect to state and
local tax matters, including the State Trust special counsel for such
matters, see Part Three for each Trust.
Experts
The statements of net assets, including the portfolios, of each Trust
contained in Part One of the Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere therein and in the
Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing.
Page 30
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard &
Poor's rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
l. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
ll. Nature of and provisions of the obligation;
lll. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.**
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his/her
own judgment with respect to such likelihood and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends
which place companies and government units under special surveillance by
S&P's 180-member analytical staff. These may include mergers, voter
referendums, actions by regulatory authorities, or developments gleaned
from analytical reviews. Unless otherwise noted, a rating decision will
be made within 90 days. Issues appear on Credit Watch where an event,
situation, or deviation from trends occurred and needs to be evaluated
as to its impact on credit ratings. A listing, however, does not mean a
rating change is inevitable. Since S&P continuously monitors all of its
ratings, Credit Watch is not intended to include all issues under
review. Thus, rating changes will occur without issues appearing on
Credit Watch.
- ---------------------
* As published by the rating companies.
** Bonds insured by Financial Guaranty Insurance Company, AMBAC 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.
Page 31
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat large than in Aaa securities. Their market value is
virtually immune to all but money market influences, with the occasional
exception of oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future. The market value of A-rated bonds may be
influenced to some degree by economic performance during a sustained
period of depressed business conditions, but, during periods of
normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
A 1 and Baa 1-Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible
upgrading in quality, and additionally, afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.
Baa-Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations will move in parallel with Aaa, Aa, and A obligations
during periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at
the high end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Con.(---)-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Fitch Investors Service, Inc. A brief description of the applicable
Fitch Investors Service, Inc. rating symbols and their meanings follow:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
Page 32
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
Page 33
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Page 34
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Page 35
CONTENTS:
The First Trust Combined Series:
What is The First Trust Combined Series? 3
What are Estimated Long-Term Return and
Estimated Current Return? 11
How are Purchased Interest and Accrued
Interest Treated? 11
Why and How are the Insured Trusts Insured? 12
What is the Federal Tax Status of Unit Holders? 19
What are the Expenses and Charges? 19
Public Offering:
How is the Public Offering Price Determined? 20
How are Units Distributed? 23
What are the Sponsor's Profits? 23
Rights of Unit Holders:
How are Certificates Issued and Transferred? 23
How are Interest and Principal Distributed? 24
How can Distributions to Unit Holders be
Reinvested? 25
What Reports will Unit Holders Receive? 26
How May Units be Redeemed? 26
How May Units be Purchased by the Sponsor? 27
How May Bonds be Removed from the Fund? 28
Information as to Sponsor, Trustee and Evaluator:
Who is the Sponsor? 28
Who is the Trustee? 28
Limitations on Liabilities of Sponsor and Trustee 29
Who is the Evaluator? 29
Other Information:
How May the Indenture be Amended or
Terminated? 30
Legal Opinions 30
Experts 30
Description of Bond Ratings 31
__________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE FUND
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
FIRST TRUST (REGISTERED TRADEMARK)
THE FIRST TRUST
COMBINED SERIES
Prospectus
Part Two
May 30, 1996
First Trust (registered trademark)
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
1-708-241-4141
Trustee:
The Chase Manhattan Bank
(National Association)
770 Broadway
New York, New York 10003
1-800-682-7520
THIS PART TWO MUST BE
ACCOMPANIED BY PART ONE
AND PART THREE.
PLEASE RETAIN THIS PROSPECTUS
FOR FUTURE REFERENCE
Page 36
NATIONAL TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 29, 1996 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state 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.)
At the time of the closing for each Trust, Chapman and Cutler, Counsel
for the Sponsor, rendered an opinion under then existing law
substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code for Federal income tax purposes, when received by the Trusts and
when distributed to a Unit holder; however, such interest may be taken
into account in computing the alternative minimum tax, an additional tax
on branches of foreign corporations and the environmental tax (the
"Superfund Tax"). See "Certain Tax Matters Applicable to Corporate Unit
Holders";
(2) 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 by the
Trust, 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
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
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 (before adjustment for earned original issue discount and
amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trust assets ratably according to value
as of the valuation date nearest the date of acquisition of the Units.
The tax basis 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
(3) any insurance proceeds which represent maturing interest on
defaulted obligations held by the Trustee will be excludable from
Federal gross income if, and to the same extent as, such interest would
have been so excludable if paid by the issuer of the defaulted
obligations provided that, at the time such policies are purchased, the
amounts paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the obligations,
rather than the insurer, will pay debt service on the obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based on its issue price (its "adjusted issue price") 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. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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. On December 7, 1995, the
U.S. Treasury Department released proposed legislation that, if adopted,
would generally extend the financial institution rules to all
corporations effective for obligations acquired after the date of
announcement. Investors with questions regarding these issues should
consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
Page 2
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
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.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends 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 and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all Bonds in the Trusts. Under
the provisions of Section 884 of the Code, a branch profits tax is
levied on the "effectively connected earnings and profits" of certain
foreign corporations which include tax-exempt interest such as interest
on the Bonds in the Trust.
Unit holders should consult their tax advisers with respect to the
particular tax consequences to them, including the corporate alternative
minimum tax, the Superfund Tax and the branch profits tax imposed by
Section 884 of the Code. Ownership of the Units may result in collateral
federal income tax consequences to certain taxpayers, including, without
limitation, corporations subject to either the environmental tax or the
branch profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
Page 3
State and City of New York, substantially to the effect that each Trust
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
laws of the State and City of New York, substantially to the effect that
each Trust will not constitute an association taxable as a corporation
under New York law, and accordingly will not be subject to the New York
State franchise tax or the New York City general corporation tax. Under
the income tax laws of the State and City of New York, the income of
each Trust will be considered the income of the holders of the Units.
LeBoeuf, Lamb, Leiby & MacRae has served as Special Counsel to Series 8-
81, inclusive, of The First Trust of Insured Municipal Bonds, Booth &
Baron has served as Special Counsel to Series 82-147 of The First Trust
of Insured Municipal Bonds and Winston & Strawn (previously named Cole &
Deitz) has served as Special Counsel to Series 148 and subsequent Series
of The First Trust Insured Municipal Bonds for New York tax matters. In
the opinion of such Special Counsels, under the existing income tax laws
of the State and City of New York, each Trust is not an association
taxable as a corporation and the income of each such Trust will be
treated as the income of the Unit holder.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Certain Considerations
The foregoing information constitutes only a brief summary of some of
the general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the National Trusts are
subject. Additionally, many factors including national economic, social
and environmental policies and conditions, which are not within the
control of the issuers of the Bonds, could affect or could have an
adverse impact on the financial condition of the issuers. The Sponsor is
unable to predict whether or to what extent such factors or other
factors may affect the issuers of the Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of
the Bonds acquired by the National Trusts to pay interest on or
principal of the Bonds.
Page 4
National Trust Series
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds
The First Trust Advantage
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE
Page 5
PENNSYLVANIA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania Series
The First Trust of Insured Municipal Bonds-Multi-State
PROSPECTUS NOTE: THIS PART THREE PROSPECTUS
Part Three MAY ONLY BE USED WITH
Dated March 29, 1996 PART ONE AND PART TWO
Federal Tax Status of Unit Holders
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from
Federal gross income were rendered by bond counsel to the respective
issuing authorities. Neither the Sponsor, Chapman and Cutler, nor any of
the Special Counsel to the Fund for State tax matters have made any
special review for the Fund of the proceedings relating to the issuance
of the Bonds or of the bases for such opinions. If the interest on a
Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date on
which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unit holder is,
however, includable in gross income for Federal income tax purposes and
may be includable in gross income for state 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.)
At the time of the closing for each Trust, Chapman and Cutler, Counsel
for the Sponsor, rendered an opinion under then existing law
substantially to the effect that:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code for Federal income tax purposes, when received by the Trusts and
when distributed to a Unit holder; however, such interest may be taken
into account in computing the alternative minimum tax, an additional tax
on branches of foreign corporations and the environmental tax (the
"Superfund Tax"). See "Certain Tax Matters Applicable to Corporate Unit
Holders";
(2) 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 by the
Trust, 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
ALL PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1
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 (before adjustment for earned original issue discount and
amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trust assets ratably according to value
as of the valuation date nearest the date of acquisition of the Units.
The tax basis 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
(3) any insurance proceeds which represent maturing interest on
defaulted obligations held by the Trustee will be excludable from
Federal gross income if, and to the same extent as, such interest would
have been so excludable if paid by the issuer of the defaulted
obligations provided that, at the time such policies are purchased, the
amounts paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the obligations,
rather than the insurer, will pay debt service on the obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant
compound interest rate or ratably over the term of the Bond, depending
on the date the Bond was issued. In addition, special rules apply if the
purchase price of a Bond exceeds the original issue price plus the
amount of original issue discount which would have previously accrued
based on its issue price (its "adjusted issue price") 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. Unit holders should consult their tax
advisers regarding these rules and their application. See "Portfolio"
appearing in Part One for each Trust for information relating to Bonds,
if any, issued at an original issue discount.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-
exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds
an investor's purchase price (except to the extent that such difference,
if any, is attributable to original issue discount not yet accrued),
subject to statutory de minimis rule. Market discount can arise based on
the price a Trust pays for Bonds or the price a Unit holder pays for his
or her Units. Under the Tax Act, accretion of market discount is taxable
as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond
would be recognized as ordinary income by the Unit holders when
principal payments are received on the Bond, upon sale or at redemption
(including early redemption) or upon the sale or redemption of 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. On December 7, 1995, the
U.S. Treasury Department released proposed legislation that, if adopted,
would generally extend the financial institution rules to all
corporations effective for obligations acquired after the date of
announcement. Investors with questions regarding these issues should
consult with their tax advisers.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds,
or persons related thereto, for periods while such Bonds are held by
such a user or related person, will not be excludable from Federal gross
income, although interest on such Bonds received by others would be
excludable from Federal gross income. "Substantial user" and "related
person" are defined under the Code and U.S. Treasury Regulations. Any
person who believes he or she may be a substantial user or related
person as so defined should contact his tax adviser.
Page 2
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security
benefits received exceeds the "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted
gross income is adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from gross income
and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31 1993, up to 85% of Social Security benefits are includible
in gross income to the extent that the sum of "modified adjusted gross
income" plus 50% of Social Security benefits received exceeds an
"adjusted base amount." The adjusted base amount is $34,000 for
unmarried taxpayers, $44,000 for married taxpayers filing a joint
return, and zero for married taxpayers who do not live apart at all
times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of
Social Security benefits will be included in gross income, no tax-exempt
interest, including that received from a Trust, will be subject to tax.
A taxpayer whose adjusted gross income already exceeds the base amount
or the adjusted base amount must include 50% or 85%, respectively, of
his Social Security benefits in gross income whether or not he receives
any tax-exempt interest. A taxpayer whose modified adjusted gross income
(after inclusion of tax-exempt interest) does not exceed the base amount
need not include any Social Security benefits in gross income.
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.
In the case of corporations, the alternative tax rate applicable to long-
term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains are subject to a
maximum stated marginal tax rate of 28%. However, it should be noted
that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income
and capital gains are taxed. Under the Code, taxpayers must disclose to
the Internal Revenue Service the amount of tax-exempt interest earned
during the year.
Certain Tax Matters Applicable to Corporate Unit Holders. The
alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depends 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 and the Superfund Tax of a corporation (other
than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of
such corporation's "adjusted current earnings" over an amount equal to
its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-
exempt interest, including interest on all Bonds in the Trusts. Under
the provisions of Section 884 of the Code, a branch profits tax is
levied on the "effectively connected earnings and profits" of certain
foreign corporations which include tax-exempt interest such as interest
on the Bonds in the Trust.
Unit holders should consult their tax advisers with respect to the
particular tax consequences to them, including the corporate alternative
minimum tax, the Superfund Tax and the branch profits tax imposed by
Section 884 of the Code. Ownership of the Units may result in collateral
federal income tax consequences to certain taxpayers, including, without
limitation, corporations subject to either the environmental tax or the
branch profits tax, financial institutions, certain insurance companies,
certain S corporations, individual recipients of Social Security or
Railroad Retirement benefits and taxpayers who may be deemed to have
incurred (or continued) indebtedness to purchase or carry tax-exempt
obligations. Prospective investors should consult their tax advisers as
to the applicability of any such collateral consequences.
At the time of the closing, Winston & Strawn (previously named Cole &
Deitz), Special Counsel to Series 4-125 of the Fund for New York tax
matters, rendered an opinion under then existing income tax laws of the
State and City of New York, substantially to the effect that each Trust
Page 3
in Series 4-125 of the Fund is not an association taxable as a
corporation and the income of each Trust in Series 4-125 of the Fund
will be treated as the income of the Unit holder in the same manner as
for Federal income tax purposes (subject to differences in accounting
for discount and premium to the extent the State and/or City of New York
do not conform to current Federal law).
At the time of the closing, Carter, Ledyard & Milburn, Special Counsel
to the Fund for New York tax matters for Series 126 and subsequent
Series of the Fund, rendered an opinion under then existing income tax
laws of the State and City of New York, substantially to the effect that
each Trust will not constitute an association taxable as a corporation
under New York law, and accordingly will not be subject to the New York
State franchise tax or the New York City general corporation tax. Under
the income tax laws of the State and City of New York, the income of
each Trust will be considered the income of the holders of the Units.
All statements in the Prospectus concerning exemption from Federal,
state or other local taxes are the opinions of Counsel and are to be so
construed.
Pennsylvania Tax Status of Unit Holders
In rendering its opinion, Special Counsel has not, for timing reasons,
made an independent review of proceedings related to the issuance of the
Bonds. It has relied on the Sponsor for assurance that the Bonds have
been issued by the Commonwealth of Pennsylvania or by or on behalf of
municipalities or other governmental agencies within the Commonwealth.
At the time of the closing for each Pennsylvania Trust, Special Counsel
to the Fund for Pennsylvania tax matters rendered an opinion under then
existing Pennsylvania income tax law applicable to taxpayers whose
income is subject to Pennsylvania income taxation substantially to the
effect that:
Units evidencing fractional undivided interests in a Pennsylvania Trust,
which are represented by obligations issued by the Commonwealth of
Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision
of the Commonwealth of Pennsylvania or any public authority created by
any such political subdivision, are not taxable under any of the
personal property taxes presently in effect in Pennsylvania;
Distributions of interest income to Unit holders that would not be
taxable if received directly by a Pennsylvania resident are not subject
to personal income tax under the Pennsylvania Tax Reform Code of 1971;
nor will such interest be taxable under the Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals;
A Unit holder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the
redemption or sale of his Units. Units will be taxable under the
Pennsylvania inheritance and estate taxes;
A Unit holder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its
Units. Interest income distributed to Unit holders which are
corporations is not subject to Pennsylvania Corporate Net Income Tax or
Mutual Thrift Institutions Tax. However, banks, title insurance
companies and trust companies may be required to take the value of the
Units into account in determining the taxable value of their shares
subject to the Shares tax;
Under Act No. 68 of December 3, 1993, gains derived by a Pennsylvania
Trust from the sale, exchange or other disposition of Bonds may be
subject to Pennsylvania personal or corporate income taxes. Those gains
which are distributed by a Pennsylvania Trust to Unit holders who are
individuals may be subject to Pennsylvania Personal Income Tax. For Unit
holders which are corporations, the distributed gains may be subject to
Corporate Net Income Tax or Mutual Thrift Institutions Tax. Gains which
are not distributed by a Pennsylvania Trust may nevertheless be taxable
to Unit holders if derived by a Pennsylvania Trust from the sale,
exchange or other disposition of Bonds issued on or after February 1,
1994. Gains which are not distributed by a Pennsylvania Trust will
remain nontaxable to Unit holders if derived by a Pennsylvania Trust
from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994.
Any proceeds paid under insurance policies issued to the Trustee or
obtained by issuers of the Bonds with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Pennsylvania gross income if, and to the same
extent as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations;
Page 4
A Pennsylvania Trust is not taxable as a corporation under Pennsylvania
tax laws applicable to corporations.
On December 3, 1993, changes to Pennsylvania laws affecting taxation of
income and gains from the sale of Pennsylvania and local obligations
were enacted. Among these changes was the repeal of the exemption from
tax of gains realized upon the sale or other disposition of such
obligations. The Pennsylvania Department of Revenue has issued proposed
regulations concerning these changes. The opinions expressed above are
based on Special Counsel's analysis of the law and proposed regulations,
but are subject to modification upon review of final regulations or
other guidance that may be issued by the Department of Revenue or future
court decisions.
For information with respect to the Federal income tax status and other
tax matters, see "What is the Federal Tax Status of Unit Holders?"
Certain Considerations
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. A more diversified economy was necessary as the
traditionally strong industries in the Commonwealth declined due to a
long-term shift in jobs, investment and workers away from the northeast
part of the nation. The major 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 $3.6 billion in crop and
livestock products annually, while agribusiness and food related
industries support $39 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 three years,
unemployment in the Commonwealth has declined 1.2 percent.
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 1993 level of 81.6 percent of total
Commonwealth employment. Consequently, manufacturing employment
constitutes a diminished share of total employment within the
Commonwealth. Manufacturing, contributing 18.4 percent of 1993 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 1993 the services sector accounted for 29.9 percent of
all non-agricultural employment while the trade sector accounted for
22.4 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. The
resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1 percent in 1993. As of March
1995, the seasonally adjusted unemployment rate for the Commonwealth was
6.0% compared to 5.5% for the United States.
The five-year period from fiscal 1990 through fiscal 1994 was marked by
public health and welfare costs growing at a rate double the growth rate
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 9.4 percent while tax revenues were growing at an
average annual rate of 5.8 percent. Consequently, spending on other
budget programs was restrained to a growth rate below 4.7 percent and
sources of revenues other than taxes became larger components of fund
revenues. Among those sources are transfers from other funds and
hospital and nursing home pooling of contributions to use as federal
matching funds.
Page 5
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. Fiscal 1994 revenues increased 4.1%, but a decline in other
revenues caused by the end of medical assistance pooled financing in
fiscal 1993 held total revenues to a 1.8% gain. Expenditures for fiscal
1994 rose by 4.3%.
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 principal operating funds of the
Commonwealth 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 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 increased to $87.5 million and the unreserved-
undesignated deficit dropped to $138.6 million from its fiscal 1991
level of $1,146.2 million.
Budgetary Basis: Total revenues for the fiscal year were $14,516.8
million, a $2,654.5 million increase over cash revenues during fiscal
1991. 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.
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% to provide a $438 million increase to $4.9 billion for fiscal 1992.
Child welfare appropriations supporting county operated child welfare
programs were increased $67 million, more than 31.5% over fiscal 1991.
Other social service areas such as medical and cash assistance also
received significant funding increases as costs rose 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%. 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
million and the unreserved/undesignated balance totaled $64.4 million.
The increase in the fund balance and a return to a positive
unreserved/undesignated balance provided indication of a continuing
recovery of the Commonwealth's financial condition.
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. Cash revenues were $41.5 million above the budget estimate
and totaled $14.633 billion representing less than a one percent
Page 6
increase over revenues for the 1992 fiscal year. A reduction in the
personal income tax rate in July 1992 and the one-time receipt of
revenues from retroactive corporate tax increases in fiscal 1992 were
responsible, in part, for the low revenue growth in fiscal 1993.
Appropriations less lapses totaled $13.870 billion representing a 1.1
percent increase over expenditures 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 was
$24.2 million. The remaining unappropriated surplus of $218.0 million
was carried forward into the 1994 fiscal year.
Fiscal 1994 Financial Results. GAAP Basis: The fund balance increased
$194.0 million due largely to an increased reserve for encumbrances and
an increase in other designated funds. The unreserved/undesignated
balance increased by $14.8 million to $72.2 million. Revenues and other
sources increased by 1.8% over the prior fiscal year while expenditures
and other uses increased by 4.3%. Consequently, the operating surplus
declined to $179.4 million for fiscal 1994 from $686.3 million for
fiscal 1993.
Budgetary Basis: Commonwealth revenues during the fiscal year totaled
$15,210.7 million, $38.6 million above the fiscal year estimate, and
3.9% over Commonwealth revenues during the previous fiscal year. The
sales tax was an important contributor to the higher than estimated
revenues. Collections from the sales tax were $5.124 billion, a 6.1%
increase from the prior fiscal year and $81.3 million above estimate.
The strength of collections from the sales tax offset the lower than
budgeted performance of the personal income tax which ended the fiscal
year $74.4 million below estimate. The shortfall in the personal income
tax was largely due to shortfalls in income not subject to withholding
such as interest, dividends and other income. Tax refunds in fiscal 1994
were reduced substantially below the $530 million amount provided in
fiscal 1993. The higher fiscal 1993 amount and the reduced fiscal 1994
amount occurred because reserves of approximately $160 million were
added to fiscal 1993 tax refunds to cover potential payments if the
Commonwealth lost litigation known as Philadelphia Suburban Corp. v.
Commonwealth. Those reserves were carried into fiscal 1994 until the
litigation was decided in the Commonwealth's favor in December 1993 and
$147.3 million of reserves for tax refunds were released.
Expenditures, excluding pooled financing expenditures and net of all
fiscal 1994 appropriation lapses, totaled $14,934.4 million representing
a 7.2% increase over fiscal 1993 expenditures. Medical assistance and
corrections spending contributed to the rate of spending growth for the
fiscal year.
The Commonwealth maintained an operating balance on a budgetary basis
for fiscal 1994 producing a fiscal year ending unappropriated surplus of
$335.8 million. By state statute, ten percent ($33.6 million) of that
surplus will be transferred to the Tax Stabilization Reserve Fund and
the remaining balance will be carried over into the fiscal 1995 fiscal
year. The balance in the Tax Stabilization Reserve Fund as of March 31,
1995 was $65.3 million.
Fiscal 1995 Budget. The fiscal 1995 budget provided for $15,652.9
million of appropriations from Commonwealth funds, an increase of 4.0%
over appropriations, including supplemental appropriations, for fiscal
1994. Medical assistance expenditures represent the largest single
increase in the budget ($221 million) representing a nine percent
increase over the prior fiscal year. The budget includes a reform of the
state-funded public assistance program that added certain categories of
eligibility to the program but also limited the availability of such
assistance to other eligible persons. Education subsidies to local
school districts were increased by $132.2 million to continue the
increased funding for the poorest school districts in the state.
The budget also includes tax reductions totaling an estimated $166.4
million. Low income working families will benefit from an increase of
the dependent exemption to $3,000 from $1,500 for the first dependent
and from $1,000 for all additional dependents. A reduction to the
corporate net income tax rate from 12.25% to 9.99% to be phased in over
a period of four years was enacted. A net operating loss provision has
been added to the corporate net income tax and will be phased in over
three years with a $500,000 per firm annual cap on losses used to offset
Page 7
profits. Several other tax changes to the sales tax, the inheritance tax
and the capital stock and franchise tax were also enacted. Estimated
commonwealth revenue reductions from these tax cuts have been raised
from $166.4 million to $173.4 million based on upward revised estimates
of commonwealth revenues for the fiscal year. Estimated fiscal year
revenues, net of the enacted tax cuts, were increased $296.5 million in
the revised projection for fiscal 1994. The increase represents a 1.9
percentage point increase in the rate of growth anticipated for fiscal
1995 to 6.3%, excluding the effect of the fiscal 1995 tax reductions,
and is largely due to actual and anticipated higher collections of the
corporate net income tax, the sales and use tax and miscellaneous
collections.
After a review of the fiscal 1994 budget in January 1995, $64.9 million
of additional appropriation needs were identified for the fiscal year.
Of this amount, the largest are for medical assistance ($21.8 million)
and general assistance cash grants ($10.3 million). The balance of the
additional appropriation needs are for other public welfare programs,
educational subsidies and office relocation costs due to a fire. The
supplemental appropriations requested are proposed to be funded from
appropriation lapses estimated to total $172 million for the fiscal year.
With the revised estimates for revenues, appropriations and lapses for
the 1994 fiscal year, an unappropriated balance prior to transfers to
the Tax Stabilization Reserve Fund of $395.5 million is projected, an
increase from the $335.8 million fiscal year 1993 ending balance (prior
to transfers).
Fiscal 1996 Budget. The fiscal 1996 budget was approved by the Governor
on June 30, 1995. The budget includes spending growth of 2.7%. It
includes a reduction of the Corporate Net Income Tax from 10.99% to
9.99% retroactive to January 1, 1995. The budget includes a
proportionate increase in funds for public safety and education and a
proportionate decrease in funds for welfare.
All outstanding general obligation bonds of the Commonwealth are rated
AA- by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be
revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the
1990 Census. Philadelphia functions both as a city of the first class
and a county for the purpose of administering various governmental
programs.
For the fiscal year ended June 30, 1991, Philadelphia experienced a
cumulative General Fund balance deficit of $153.5 million. The audit
findings for the fiscal year ended June 30, 1992, place the Cumulative
General Fund balance deficit at $224.9 million.
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 7, 1995, under which Philadelphia projects a balanced budget in
each of the five years (fiscal years 1996 through 2000) covered by the
plan.
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. PICA issued $643,430,000 in
July 1993 and $178,675,000 in August 1993 of Special Tax Revenue Bonds
to refund certain general obligation bonds of the City and to fund
additional capital projects. In December 1994, PICA issued $122,020,000
of Special Tax Revenue Bonds 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 general factors which may impact certain issuers of Bonds and does
not purport to be a complete or exhaustive description of all adverse
conditions to which the issuers of Bonds held by the Pennsylvania Trusts
Page 8
are subject. Additionally, many factors including national economic,
social and environmental policies and conditions, which are not within
the control of the issuers of the Bonds, could affect or could have an
adverse impact on the financial condition of the issuers. The Sponsor is
unable to predict whether or to what extent such factors or other
factors may affect the issuers of the Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of
the Bonds acquired by the Pennsylvania Trusts to pay interest on or
principal of the Bonds.
Page 9
PENNSYLVANIA TRUST SERIES
The First Trust (registered trademark) Combined Series
The First Trust of Insured Municipal Bonds-Pennsylvania Series
The First Trust of Insured Municipal Bonds-Multi-State
PART THREE PROSPECTUS
Must be Accompanied by Parts One and Two
SPONSOR: Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
(800) 621-1675
TRUSTEE: The Chase Manhattan Bank
770 Broadway
New York, New York 10003
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR: 111 West Monroe Street
Chicago, Illinois 60603
LEGAL COUNSEL Carter, Ledyard & Milburn
TO TRUSTEE: 2 Wall Street
New York, New York 10005
INDEPENDENT Ernst & Young LLP
AUDITORS: Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENTS AND EXHIBITS RELATING THERETO, WHICH THE TRUST
HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940,
AND TO WHICH REFERENCE IS HEREBY MADE.
PLEASE RETAIN ALL PARTS OF THIS PROSPECTUS FOR FUTURE REFERENCE
Page 10
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Auditors
Financial Data Schedule
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, The First Trust Combined Series 246, certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment of its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the
Village of Lisle and State of Illinois on August 1, 1996.
THE FIRST TRUST COMBINED SERIES 246
(Registrant)
By NIKE SECURITIES L.P.
(Depositor)
By Robert M. Porcellino
Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment of Registration Statement has been
signed below by the following person in the capacity and on the
date indicated:
Signature Title* Date
Robert D. Van Kampen Sole Director of )
Nike Securities )
Corporation, ) August 1, 1996
the General Partner )
of Nike Securities L.P. )
)
) Robert M. Porcellino
) Attorney-in-Fact**
*The title of the person named herein represents his capacity in
and relationship to Nike Securities L.P., Depositor.
**An executed copy of the related power of attorney was filed wi
th the Securities and Exchange Commission in connection with
the Amendment No. 1 to Form S-6 of The First Trust Combined
Series 258 (File No. 33-63483) and the same is hereby
incorporated herein by this reference.
S-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated June 21, 1996 in
this Post-Effective Amendment to the Registration Statement and
related Prospectus of The First Trust Combined Series dated July
25, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
July 24, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to Form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 233
<NAME> NATIONAL TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-6-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 9,284,742
<INVESTMENTS-AT-VALUE> 9,487,364
<RECEIVABLES> 191,398
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,678,762
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172,526
<TOTAL-LIABILITIES> 172,526
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,284,742
<SHARES-COMMON-STOCK> 9,882
<SHARES-COMMON-PRIOR> 9,890
<ACCUMULATED-NII-CURRENT> 18,872
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 202,622
<NET-ASSETS> 9,506,236
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 558,805
<OTHER-INCOME> 0
<EXPENSES-NET> 21,017
<NET-INVESTMENT-INCOME> 537,788
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 202,622
<NET-CHANGE-FROM-OPS> 740,410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 511,083
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 221,494
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Post
Effective Amendment to Form S-6 and is qualified in its entirety by
reference to such Post Effective Amendment to Form S-6.
</LEGEND>
<SERIES>
<NUMBER> 065
<NAME> PENNSYLVANIA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-6-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 2,664,186
<INVESTMENTS-AT-VALUE> 2,704,382
<RECEIVABLES> 32,766
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,737,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,860
<TOTAL-LIABILITIES> 24,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,664,186
<SHARES-COMMON-STOCK> 2,841
<SHARES-COMMON-PRIOR> 3,040
<ACCUMULATED-NII-CURRENT> 7,906
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,186
<NET-ASSETS> 2,712,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 161,841
<OTHER-INCOME> 0
<EXPENSES-NET> 3,236
<NET-INVESTMENT-INCOME> 158,605
<REALIZED-GAINS-CURRENT> 2,565
<APPREC-INCREASE-CURRENT> 40,196
<NET-CHANGE-FROM-OPS> 201,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 148,002
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 199
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (139,495)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
