Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
September 29, 1999
Nike Securities L.P.
1001 Warrenville Road
Lisle, Illinois 60532
The Chase Manhattan Bank
Unit Investment Trust Division
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Re: The First Trust Combined Series 272
Gentlemen:
We have acted as counsel for Nike Securities L.P., Depositor
The First Trust Combined Series 272 (the "Fund"), in connection
with the issuance of Units of fractional undivided interest in
the several Trusts of said Fund under a Trust Agreement dated
September 29, 1999 (the "Indenture") between Nike Securities
L.P., as Depositor, Securities Evaluation Services, Inc., as
Evaluator, and The Chase Manhattan Bank, as Trustee.
In this connection, we have examined the Registration
Statement, the form of Prospectus proposed to be filed with the
Securities and Exchange Commission, the Indenture and such other
instruments and documents as we have deemed pertinent. For
purposes of the following opinions, it is assumed that each asset
of the Trust is debt, the interest on which is excluded from
gross income for federal income tax purposes.
Based upon the foregoing and upon an investigation of such
matters of law as we consider to be applicable, we are of the
opinion that, under existing federal income tax law:
(i) The Trust is not an association taxable as a
corporation but will be governed by the provisions of
subchapter J (relating to trusts) of Chapter 1, Internal
Revenue Code of 1986 (the "Code").
(ii) Each Unit holder will be considered as owning a
pro rata share of each asset of the respective Trust in the
proportion that the number of Units of such Trust held by
him bears to the total number of Units outstanding of such
Trust. Under Subpart E, Subchapter J of Chapter 1 of the
Code, income of each Trust will be treated as income of each
Unit holder of the respective Trust in the proportion
described, and an item of Trust income will have the same
character in the hands of a Unit holder as it would have in
the hands of the Trustee. Accordingly, to the extent that
the income of a Trust consists of interest and original
issue discount excludable from gross income under Section
103 of the Code, such income will be excludable from Federal
gross income of the Unit holders, except in the case of a
Unit holder who is a substantial user (or a person related
to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity
bonds held by the Trust. In the case of such Unit holder
who is a substantial user (and no other) interest received
with respect to his Units attributable to such industrial
development bonds or such private activity bonds is
includable in his gross income. In the case of certain
corporations, interest on the Bonds is included in computing
the alternative minimum tax pursuant to Section 56(c) of the
Code and the branch profits tax imposed by Section 884 of
the Code with respect to U.S. branches of foreign
corporations.
(iii) Gain or loss will be recognized to a Unit holder
upon redemption or sale of his Units. Such gain or loss is
measured by comparing the proceeds of such redemption or
sale with the adjusted basis of the Units. If a Bond is
acquired with accrued interest, that portion of the price
paid for the accrued interest is added to the tax basis of
the Bond. When this accrued interest is received, it is
treated as a return of capital and reduces the tax basis of
the Bond. If a Bond is purchased for a premium, the amount
of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by
the amount of the premium amortized in that tax year.
Accordingly, 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 Unit holders pay
for their Units to the extent that such interest accrued on
such Bonds before the date the Trust acquired ownership of
the Bonds (and the amount of this reduction may exceed the
amount of accrued interest paid to the seller) and,
consequently, such Unit holders may have an increase in
taxable gain or reduction in capital loss upon the
disposition of such Units. In addition, such basis will be
increased by the Unit holders aliquot share of the accrued
original issue discount (and market discount, if the Unit
holder elects to include market discount in income as it
accrues) with respect to each Bond held by the Trust with
respect to which there was original issue discount at the
time the Bond was issued (or which was purchased with market
discount) and reduced by the annual amortization of bond
premium, if any, on Bonds held by the Trust.
(iv) If the Trustee disposes of a Trust asset (whether
by sale, payment on maturity, liquidation, redemption or
otherwise) gain or loss is recognized to the Unit holder and
the amount thereof is measured by comparing the Unit
holders aliquot share of the total proceeds from the
transaction with his basis for his fractional interest in
the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units among each of the
Trust assets (as of the date on which his Units were
acquired) ratably according to their values as of the
valuation date nearest the date on which he purchased such
Units. A Unit holders basis in his Units and of his
fractional interest in each Trust asset must be reduced by
the amount of his aliquot share of accrued interest received
by the Trust, if any, on Bonds delivered after the Unit
holders pay for their Units to the extent that such interest
accrued on the Bonds before the date the Trust acquired
ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller),
must be reduced by the annual amortization of bond premium,
if any, on Bonds held by the Trust and must be increased by
the Unit holders share of the accrued original issue
discount (and market discount, if the Unit holder elects to
include market discount in income as it accrues) with
respect to each Bond which, at the time the Bond was issued,
had original issue discount (or which was purchased with
market discount).
(v) In the case of any Bond held by the Trust where
the "stated redemption price at maturity" exceeds the "issue
price", such excess shall be original issue discount. With
respect to each Unit holder, upon the purchase of his Units
subsequent to the original issuance of Bonds held by the
Trust, Section 1272(a)(7) of the Code provides for a
reduction in the accrued "daily portion" of such original
issue discount upon the purchase of a Bond subsequent to the
Bonds original issue, under certain circumstances. In the
case of any Bond held by the Trust the interest on which is
excludable from gross income under Section 103 of the Code,
any original issue discount which accrues with respect
thereto will be treated as interest which is excludable from
gross income under Section 103 of the Code.
(vi) We have examined the municipal bond unit
investment trust insurance policies, if any, issued to the
Trust on the Date of Deposit by AMBAC Assurance Corporation,
Financial Guaranty Insurance Corporation or a combination
thereof. Each such policy, or a combination of such
policies, insures all bonds held by the Trustee for that
particular Trust (other than bonds described in paragraph
(vii)) against default in the prompt payment of principal
and interest. In our opinion, any amount paid under each
said policy, or a combination of said policies, which
represents maturing interest on defaulted Bonds held by the
Trustee will be excludable from Federal gross income if, and
to the same extent as, such interest would have been so
excludable if paid in normal course by the Issuer of the
defaulted Bonds provided that, at the time such policies are
purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable
expectation that the Issuer of the Bonds, rather than the
insurer, will pay debt service on the Bonds. Paragraph (ii)
of this opinion is accordingly applicable to insurance
proceeds representing maturing interest.
(vii) Certain bonds in the portfolio of the Trust have
been insured by the issuers thereof against default in the
prompt payment of principal and interest (the "Insured
Bonds"). Insurance has been obtained for such Insured
Bonds, or, in the case of a commitment, the Bonds will be
ultimately insured under the terms of such an insurance
policy, which are designated as issuer Insured Bonds on the
portfolio pages of the respective Trusts in the prospectus
for the Fund, by the issuer of such Insured Bonds.
Insurance on Insured Bonds is effective so long as such
Insured Bonds remain outstanding. For each of these Insured
Bonds, we have been advised that the aggregate principal
amount of such Insured Bonds listed on the portfolio page
for the respective Trust was acquired by the applicable
Trust and are part of the series of such Insured Bonds
listed in the aggregate principal amount. Based upon the
assumption that the Insured Bonds of the Trust are part of
the series covered by an insurance policy or, in the case of
a commitment, will be ultimately insured under the terms of
such an insurance policy, it is our opinion that any amounts
received by the applicable Trust representing maturing
interest on such Insured Bonds will be excludable from
federal gross income if, and to the same extent as, such
interest would have been so excludable if paid in normal
course by the Issuer 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 Insured Bonds, rather
than the insurer, will pay debt service on the Insured
Bonds. Paragraph (ii) of this opinion is accordingly
applicable to such payment.
Sections 1288 and 1272 of the Code provide a complex set of
rules governing the accrual of original issue discount. These
rules provide that original issue discount accrues either on the
basis of a constant compound interest rate or ratably over the
term of the Bond, depending on the date the Bond was issued. In
addition, special rules apply if the purchase price of a Bond
exceeds the original issue price plus the amount of original
issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). The application of
these rules will also vary depending on the value of the Bond on
the date a Unit holder acquires his Units, and the price the Unit
holder pays for his Units.
Because the Trust does not include any "private activity"
bonds within the meaning of Section 141 of the Code issued on or
after August 8, 1986, none of the Trust Fund's interest income
shall be treated as an item of tax preference when computing the
alternative minimum tax. In the case of corporations, for
taxable years beginning after December 31, 1986, the alternative
minimum tax depends upon the corporations alternative minimum
taxable income ("AMTI") which is the corporations taxable income
with certain adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment
items used in computing AMTI of a corporation (other than an S
corporation, Regulated Investment Company, Real Estate Investment
Trust, REMIC or FASIT) for taxable years beginning after 1989, is
an amount equal to 75% of the excess of such corporations
"adjusted current earnings" over an amount equal to its AMTI
(before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes
all tax-exempt interest, including interest on all Bonds in the
Trust, and tax-exempt original issue discount.
Effective for tax returns filed after December 31, 1987, all
taxpayers are required to disclose to the Internal Revenue
Service the amount of tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each
taxable year of 100 percent of the otherwise deductible interest
on indebtedness incurred or continued by financial institutions,
to which either Section 585 or Section 593 of the Code applies,
to purchase or carry obligations acquired after August 7, 1986,
the interest on which is exempt from Federal income taxes for
such taxable year. Under rules prescribed by Section 265, the
amount of interest otherwise deductible by such financial
institutions in any taxable year which is deemed to be
attributable to tax-exempt obligations acquired after August 7,
1986, will generally be the amount that bears the same ratio to
the interest deduction otherwise allowable (determined without
regard to Section 265) to the taxpayer for the taxable year as
the taxpayers average adjusted basis (within the meaning of
Section 1016) of tax-exempt obligations acquired after August 7,
1986, bears to such average adjusted basis for all assets of the
taxpayer. Legislative proposals have been made that would extend
the financial institution rules to all corporations.
We also call attention to the fact that, under Section 265
of the Code, interest on indebtedness incurred or continued to
purchase or carry Units is not deductible for Federal income tax
purposes. Under rules used by the Internal Revenue Service for
determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase
of Units may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of Units. However, these rules generally do not apply
to interest paid on indebtedness incurred for expenditures of a
personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
subjects tax-exempt bonds to the market discount rules of the
Code effective for bonds purchased after April 30, 1993. In
general, market discount is the amount (if any) by which the
stated redemption price at maturity exceeds an investors
purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued)
subject to a statutory de minimis rule. Market discount can
arise based on the price a Trust pays for Bonds or the price a
Unit holder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under
prior law, the accretion had been treated as capital gain.
Market discount that accretes while a Trust holds a Bond would be
recognized as ordinary income by the Unit holders when principal
payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of
his or her Units, unless a Unit holder elects to include market
discount in taxable income as it accrues.
Chapman and Cutler has expressed no opinion with respect to
taxation under any other provisions of Federal law. Ownership of
the Units may result in collateral Federal income tax
consequences to certain taxpayers. Prospective investors should
consult their tax advisors as to the applicability of any such
collateral consequences.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement (File No. 333-22615)
relating to the Units referred to above and to the use of our
name and to the reference of our firm in said Registration
Statement and in the related Prospectus.
Very truly yours,
Chapman and Cutler
EFF/erg