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
Van Kampen American Capital Emerging Markets Income Trust, Series 2
(Exact Name of Trust)
Van Kampen American Capital Distributors, Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
Van Kampen American Capital Distributors, Inc. Chapman and Cutler
Attention: Don G. Powell Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective
on April 24, 1996 pursuant to paragraph (b) of Rule 485.
April 17, 1996
Van Kampen American Capital
Van Kampen American Capital Emerging Markets Income Trust, Series 2
The Trust. The Trust initially consists of a portfolio comprised of debt
obligations issued by emerging market countries that have restructured
sovereign debt pursuant to the framework of the Brady Plan (the "Brady
Bonds" or "Bonds" ).
Attention Foreign Investors. If you are not a United States citizen or
resident, your interest income from this Trust may not be subject to Federal
withholding taxes if certain conditions are met. See "Tax Status" .
Investment Objectives of the Trust. The primary investment objective of the
Trust is to provide a high level of current income consistent with
preservation of capital through a diversified investment in a fixed portfolio
consisting of Brady Bonds, all of which are U.S. dollar-denominated, fully
collateralized as to principal by U.S. Treasury zero coupon bonds and certain
of which are partially collateralized as to income payments. A secondary
investment objective is capital appreciation. See "Investment Objectives
and Portfolio Selection" and "Trust Portfolio" . Investors should
be aware that as of the Initial Date of Deposit only four issues (representing
approximately 67% based on principal amount) of the Brady Bonds deposited in
the Trust were rated (in each case such rating was at least "B" by
Moody's Investors Service, Inc. or "BB-" by Standard & Poor's) while
the remaining Bonds were unrated. Bonds with such ratings are commonly
referred to as "junk bonds" and are considered speculative by the
major rating agencies. See "Risk Factors" for information relating to
special risks of the Brady Bonds. There is no assurance that the Trust will
achieve its objectives or that the Bonds will maintain the ratings described
herein. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers and/or obligors
of the securities in the Trust.
Special Brady Bond Risks. High yield sovereign debt securities such as the
Brady Bonds are subject to certain risks including among other factors, the
inability of the issuer to pay the principal or interest on a bond when due,
the lack of immediate availability of collateral securing principal payments
if not paid by the issuer, high and volatile interest rates in the issuing
countries, high rates of inflation in the issuing countries and political
instability. See "Risk Factors" . Units of the Trust are not insured by
the FDIC, are not deposits or other obligations of, or guaranteed by, any
depository institution or any government agency and are subject to investment
risk, including possible loss of the principal amount invested.
Public Offering Price. The Public Offering Price of the Units of each Trust
during the secondary market will include the aggregate bid price of the
Securities in such Trust, an applicable sales charge, cash, if any, in the
Principal Account held or owned by such Trust, and accrued interest, if any.
See "Summary of Essential Financial Information" in this Part One.
Estimated Current Return and Estimated Long-Term Return. The Estimated Current
Return and Estimated Long-Term Return to Unitholders were as set forth under
"Summary of Essential Financial Information" as of the date thereof.
The methods of calculating Estimated Current Return and Estimated Long-Term
Return are set forth in the footnotes to the "Summary of Essential
Financial Information" and under "Estimated Current Return and
Estimated Long Term Return" .
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. THESE ARE SPECULATIVE SECURITIES.
Distribution Options. Purchasers of Units who desire to receive distributions
on a monthly or semi-annual basis may elect to do so at the time of settlement
during the initial public offering period. See "Rights of
Unitholders--Change of Distribution Option" . The plan of distribution
selected by such purchasers will remain in effect until changed. Those
indicating no choice will be deemed to have chosen the monthly distribution
plan. Record dates for monthly distributions will be the tenth day of each
month and record dates for semi-annual distributions will be the tenth day of
the months indicated under "Per Unit Information" . Distributions will
be made on the twenty-fifth day of the month subsequent to the respective
record dates. Distributions of funds from the Principal Account will be made
on a semi-annual basis, except under certain special circumstances (see "
Rights of Unitholders--Distributions of Interest and Principal" ). While it
is not entirely clear, Unitholders should be aware that they may be required
to include in ordinary income, for Federal income tax purposes, income with
respect to the accrual of original issue discount on the Brady Bonds even
though such income will not be distributed currently. The Trust will furnish
to the Internal Revenue Service information relating to the original issue
discount accruing during the calendar year. Unitholders should consult their
own tax advisers regarding the Federal income tax consequences and accretion
of original issue discount in their personal circumstances. See "Tax
Status" .
Market for Units. Although not obligated to do so, the Sponsor, Van Kampen
American Capital Distributors Inc., intends to maintain a secondary market for
the Units at prices based upon the aggregate bid price of the Securities in
the portfolio of the Trust plus interest accrued to the date of settlement;
however, during the initial offering period such prices will be based upon the
aggregate offering price of the Securities. If such a market is not maintained
and no other over-the-counter market is available, a Unitholder will be able
to dispose of his Units only through redemption at prices based upon the bid
prices of the underlying Securities (see "Rights of
Unitholders--Redemption of Units" ).
Reinvestment Option. Unitholders of any Van Kampen American Capital-sponsored
unit investment trust may utilize their redemption or termination proceeds to
purchase units of any other Van Kampen American Capital trust in the initial
offering period accepting rollover investments subject to a reduced sales
charge to the extent stated in the related prospectus (which may be deferred
in certain cases).
Unitholders have the opportunity to have their distributions reinvested into
an open-end, management investment company as described herein. Foreign
investors should note, however, that any interest distributions resulting from
such a reinvestment program will be subject to U.S. Federal income taxes,
including withholding taxes. See "Rights of Unitholders--Reinvestment
Option" .
<TABLE>
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
Summary of Essential Financial Information
As of March 1, 1996
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: Interactive Data Corporation
Supervisor: Van Kampen American Capital Investment Advisory Corp.
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
<S> <C>
General Information......................................................................
Principal Amount (Par Value) of Securities <F1>.......................................... $ 48,000,000
Number of Units ......................................................................... 48,000
Fractional Undivided Interest in the Trust per Unit...................................... 1/48,000
Principal Amount (Par Value) of Securities per Unit...................................... $ 1,000.00
Public Offering Price: ..................................................................
Aggregate Offering Price of Securities in Portfolio..................................... $ 28,710,000
Aggregate Offering Price of Securities per Unit......................................... $ 598.13
Sales Charge 4.9% (5.152% of the Aggregate Offering Price of the Securities) per Unit... $ 30.81
Public Offering Price per Unit <F2>..................................................... $ 628.94
Redemption Price per Unit................................................................ $ 598.13
Secondary Market Repurchase Price per Unit............................................... $ 598.13
Excess of Public Offering Price per Unit Over Redemption Price per Unit.................. $ 30.81
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit..... $ 30.81
Minimum Value of the Trust under which the Trust Agreement may be terminated............. $ 1,200,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution... $1.00 per Unit
Initial Date of Deposit.......... August 15, 1995
First Settlement Date............ August 18, 1995
Evaluator's Evaluation Fee....... $10 per evaluation (approximately $2,520 annually)
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made as of
4:00 P.M. Eastern time on days of trading on the New York Stock Exchange next
following receipt of an order for a sale or purchase of Units or receipt by The
Bank of New York of Units tendered for redemption.
<TABLE>
<CAPTION>
Per Unit Information Semi-
Monthly Annual
<S> <C> <C>
Calculation of Estimated Net
Annual Unit Income:
Estimated Annual Interest Income per Unit.................... $ 57.92 $ 57.92
Less: Estimated Annual Expense per Unit...................... $ 1.24 $ 1.08
Estimated Net Annual Interest Income per Unit................ $ 56.68 $ 56.84
Calculation of Estimated Interest
Earnings Per Unit:
Estimated Net Annual Interest Income per Unit................ $ 56.68 $ 56.84
Divided by 12 and 2, respectively............................ $ 4.72 $ 28.42
Estimated Daily Rate of Net Interest Accrual per Unit......... $ .15742 $ .15787
Estimated Current Return Based on Public Offering
Price <F3><F4>.............................................. 9.01% 9.04%
Estimated Long-Term Return<F3><F4>............................ 10.41% 10.44%
Estimated Normal Distribution per Unit <F6>................... $ 4.72 $ 28.42
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
$.91 and $.51 per $1,000 principal amount of Securities,
respectively, for those portions of the Trust under the
Trustee's Annual Fee.............monthly and semi-annual distribution plans
TENTH day of the month as follows: monthly--each month;
Record and Computation Dates.....semi-annual--June and December
TWENTY-FIFTH day of the month as follows: monthly--each
Distribution Dates...............month; semi-annual--June and December
</TABLE>
Because certain of the Securities may from time to time under certain
circumstances be sold or redeemed or will be called or mature in accordance
with their terms (including the call or sale of Securities at prices less than
par value), there is no guarantee that the value of each Unit at the Trust's
termination will be equal to the Principal Amount (Par Value) of Securities
per Unit stated above.
Anyone ordering Units for settlement after the First Settlement Date will pay
accrued interest from such date to the date of settlement (normally three
business days after order) less distributions from the Interest Account
subsequent to the First Settlement Date.
The Estimated Current Return and Estimated Long-Term Return are increased for
transactions entitled to a reduced sales charge (see "Public
Offering--General" ).
The Estimated Current Return is calculated by dividing the estimated net
annual interest income per Unit by the Public Offering Price. The estimated
net annual interest income per Unit will vary with any scheduled changes in
the interest rates on the Securities, with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Securities while the Public Offering Price will
vary with changes in the offering price of the underlying Securities;
therefore, there is no assurance that the present Estimated Current Return
indicated above will be realized in the future. The Estimated Long-Term Return
is calculated using a formula which (1) takes into consideration, and
determines and factors in the relative weightings of, the market values,
yields (which takes into account the amortization of premiums, the accretion
of discounts and any scheduled changes in the interest rates) and estimated
retirements of all of the Securities in the Trust and (2) takes into account
the expenses and sales charge associated with each Trust Unit. Since the
market values and estimated retirements of the Securities and the expenses of
the Trust will change, there is no assurance that the present Estimated
Long-Term Return as indicated above will be realized in the future. The
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 calculation includes only net annual interest income and Public
Offering Price. Several of the Securities in the Trust will have increased
coupon interest rates on the date or dates as set forth in "Portfolio."
These increased rates are, as of the Initial Date of Deposit, reflected in
the calculation of the Estimated Long-Term Returns but not in the Estimated
Current Returns.
These figures are based on per Unit cash flows. Cash flows will vary with
changes in fees and expenses of the Trust, with changes in the coupon rates of
the Securities, with changes in current interest rates and with the principal
prepayment, redemption, maturity, call, exchange or sale of the underlying
Securities.
Certain of the Securities in the Trust will have increased coupon interest
rates at predetermined times as indicated in "Portfolio" . Assuming no
other changes, the estimated normal distribution per Unit will increase with
such coupon interest rate changes.
THE TRUST
Van Kampen American Capital Emerging Markets Income Trust, Series 2 (the "
Trust" ) was created under the laws of the State of New York pursuant to a
Trust Agreement (the "Trust Agreement" ), dated the Initial Date of
Deposit, between Van Kampen American Capital Distributors Inc., as Sponsor and
The Bank of New York, as Trustee.
The Trust may be an appropriate medium for investors who desire to participate
in a portfolio primarily consisting of Brady Bonds with greater
diversification than they might be able to acquire individually.
Diversification of the Trust's assets will not eliminate the risk of loss
always inherent in the ownership of securities. For a breakdown of the
portfolio, see "Trust Portfolio" . In addition, securities of the type
initially deposited in the portfolio of the Trust are often not available in
small amounts and may be available only to institutional investors.
On the Initial Date of Deposit, the Sponsor deposited with the Trustee the
Securities indicated under "Portfolio" herein, including delivery
statements relating to contracts for the purchase of certain such securities
and an irrevocable letter of credit issued by a financial institution in the
amount required for such purchases (the "Securities" ). Thereafter, the
Trustee, in exchange for the Securities (and contracts) so deposited,
delivered to the Sponsor the certificates evidencing the ownership of those
Units of the Trust indicated under "Summary of Essential Financial
Information" . Unless otherwise terminated as provided therein, the Trust
Agreement will terminate at the end of the calendar year prior to the fiftieth
anniversary of its execution. All of the Securities in the Trust are long term
debt instruments with maturities ranging from 2017 to 2024. As of the Initial
Date of Deposit, the dollar weighted average life of the Securities in the
Trust is 25 years.
Additional Units of the Trust may be issued at any time by depositing in the
Trust additional Securities or contracts to purchase Securities together with
irrevocable letters of credit or cash. As additional Units are issued by the
Trust as a result of the deposit of additional Securities by the Sponsor, the
aggregate value of the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each Unit will be
decreased. The Sponsor may continue to make additional deposits of Securities
into the Trust for a period of up to one year following the Initial Date of
Deposit, provided that such additional deposits will be in amounts which will
maintain the same percentage relationship among the principal amounts of each
Security in the Trust that existed immediately prior to such subsequent
deposit. Thus, although additional Units will be issued, each Unit will
continue to represent the same principal amount of each Security, and the
percentage relationship among the principal amounts of each Security in the
Trust will remain the same.
Each Unit initially offered represents that fractional undivided interest in
the Trust indicated under "Summary of Essential Financial Information."
To the extent that any Units are redeemed by the Trustee or additional Units
are issued as a result of additional Securities being deposited by the
Sponsor, the fractional undivided interest in the Trust represented by each
unredeemed Unit will increase or decrease accordingly, although the actual
interest in the Trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the Trustee by
Unitholders, which may include the Sponsor or the Underwriters, or until the
termination of the Trust Agreement. For a discussion of the tax consequences
of the Trust's issuing additional Units or redeeming Units, see "Tax
Status" .
INVESTMENT OBJECTIVES AND PORTFOLIO SELECTION
The primary investment objective of the Trust is to provide a high level of
current income consistent with preservation of capital through a diversified
investment in a fixed portfolio consisting of Brady Bonds, all of which are
U.S. dollar-denominated, fully collateralized as to principal by U.S. Treasury
zero coupon bonds and certain of which are partially collateralized as to
interest payments. A secondary investment objective is capital appreciation.
For a brief description of the interest collateralization of each Brady Bond,
see "Notes to Portfolio" .
In selecting Securities for the Trust, the following factors, among others,
were considered by the Sponsor: (a) whether the Securities were issued by
countries that have participated in the Brady Plan debt restructuring process,
(b) the prices of the Securities relative to other obligations of comparable
quality and maturity, (c) the diversification of Securities as to the
countries involved, (d) the extent to which the Securities are collateralized
as to interest payments, (e) whether the Securities are U.S.
dollar-denominated securities and (f) the creditworthiness of the issuing
countries.
Political, social and economic changes worldwide have made international
investing an important option. From emerging economies in Eastern Europe
to treaties likes the North American Free Trade Agreement (NAFTA), investors
are finding reasons to look for opportunities outside U.S. borders. The
Trust offers an opportunity for investors who seek potential high returns on
fixed-income investments in emerging markets. These markets typically have
a relatively small capitalization and a low per capita income level.
Emerging markets represent nearly 78% of the world's population but only
about 22% of the global gross domestic product. Reforms such as
privatization and trade agreements could improve prospects for significant
future economic growth. Furthermore, international investing may also
provide an important degree of diversification. By investing a portion of an
investment portfolio in global investments, an investor may be better
protected from negative movements in a single market.
The only Brady Bonds which were rated as of the Initial Date of Deposit are
the Argentina, Mexico, Philippines and Venezuela Bonds. Moody's rated the
Mexico and Venezuela Bonds "Ba" and the Argentina Bonds "B" ,
while Standard & Poor's rated the Argentina Bonds "BB-" and the
Philippines Bonds "BB." The remaining Bonds were not rated as of the
Initial Date of Deposit. Moody's states that "fixed-income securities
which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class." Moody's states that fixed-income
securities "which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small." Standard & Poor's states that fixed-income securities "rated
BB have less near-term vulnerability to default than other speculative grade
debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments." Securities so
rated are commonly referred to as "junk bonds."
TRUST PORTFOLIO
Portfolio. The Trust consists of the following six issues, each of which
initially represented approximately 16.6% of the aggregate principal amount of
the Securities in the Trust and each of which has been issued or guaranteed by
the indicated country: (1) Republic of Argentina; (2) Republic of Brazil;
(3) United Mexican States; (4) Republic of Nigeria; (5) Republic of the
Philippines and (6) Republic of Venezuela.
Brady Bonds. All of the Securities in the Trust are Brady Bonds. In view of
this an investment in the Trust should be made with an understanding of the
characteristics of and the risks associated with such an investment. Brady
Bonds are debt securities issued under the framework of the Brady Plan, an
initiative announced by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness (commercial bank debt). In restructuring its external debt under
the Brady Plan framework, a debtor nation negotiates with its existing bank
lenders as well as multilateral institutions such as the International Bank
for Reconstruction and Development (the "World Bank" ) and the
International Monetary Fund (the "IMF" ). The Brady Plan framework, as
it has developed, contemplates the exchange of commercial bank debt for newly
issued bonds (Brady Bonds). The World Bank and/or the IMF support the
restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and
fiscal reforms. Such reforms have included the liberalization of trade and
foreign investment, the privatization of state-owned enterprises and the
setting of targets for public spending and borrowing. These policies and
programs seek to promote the debtor country's ability to service its external
obligations and promote its economic growth and development. Investors should
recognize that the Brady Plan only sets forth general guiding principles for
economic reform and debt reduction, emphasizing that solutions must be
negotiated on a case-by-case basis between debtor nations and their creditors.
To date, Argentina, Brazil, Ecuador, Jordan, Mexico, Nigeria, Philippines,
Poland, Uruguay and Venezuela have issued Brady Bonds. Investors should
recognize that Brady Bonds have been issued only in recent years, and
accordingly do not have a long payment history. Agreements implemented under
the Brady Plan to date are designed to achieve debt and debt-service reduction
through specific options negotiated by a debtor nation with its creditors. As
a result, the financial packages offered to each country differ. The Brady
Bonds in the portfolio have been collateralized as to principal due at
maturity by U.S. Treasury zero coupon bonds with a maturity equal to the final
maturity of such Brady Bonds, although the collateral is not available to
investors until the stated maturity date of the Brady Bonds. Collateral
purchases are financed by the IMF, the World Bank and the debtor nations'
reserves. In addition, certain of the Brady Bonds in the Trust are
collateralized by cash and certain high quality permitted investments held in
an account maintained at the Federal Reserve Bank of New York sufficient to
cover at least 12 months of interest payments in the event of a missed
interest payment.
Replacement Securities. Because certain of the Securities in the Trust 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 Unitholders and will not be reinvested, no
assurance can be given that the 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 Security. In the
event of a failure to deliver any Security that has been purchased for the
Trust under a contract, including those securities purchased on a "when,
as and if issued" basis ("Failed Securities" ), the Sponsor is
authorized under the Trust Agreement to direct the Trustee to acquire other
securities ("Replacement Securities" ) to make up the original corpus
of the Trust.
The Replacement Securities must be purchased within 20 days after delivery of
the notice of the failed contract and the purchase price (exclusive of accrued
interest) may not exceed the amount of funds reserved for the purchase of the
Failed Securities. The Replacement Securities shall (i) be Brady Bonds of
emerging market countries, with fixed maturity dates substantially the same as
those of the Failed Securities; (ii) be payable in United States currency;
(iii) not be when, as and if issued obligations; (iv) not cause the percentage
of the aggregate principal amount of the obligations in the Trust issued or
guaranteed by any one country to exceed 25%; and (v) be purchased at a price
that results in a yield to maturity and in a current return, in each case as
of the Initial Date of Deposit, at least equal to that of the Failed
Securities. Whenever a Replacement Security has been acquired for the Trust,
the Trustee shall, within five days thereafter, notify all Unitholders of the
Trust of the acquisition of the Replacement Security and shall, on the next
monthly distribution date which is more than 30 days thereafter, make a pro
rata distribution of the amount, if any, by which the cost to the Trust of the
Failed Security exceeded the cost of the Replacement Security plus accrued
interest. Once the original corpus of the Trust is acquired, the Trustee will
have no power to vary the investment of the Trust; i.e., the Trust will have
no managerial power to take advantage of market variations to improve a
Unitholder's investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Securities in the event of a
failed contract, the Sponsor will refund the sales charge attributable to such
Failed Securities to all Unitholders of the Trust and distribute the principal
and accrued interest (at the coupon rate of such Failed Securities to the date
the Failed Securities are removed from the Trust) attributable to such Failed
Securities not more than 30 days after such removal or such earlier time as
the Trustee in its sole discretion deems to be in the interest of the
Unitholders. In the event a Replacement Security should not be acquired by the
Trust, the estimated net annual interest income per Unit for the Trust would
be reduced and the Estimated Current Return and the Estimated Long-Term Return
thereon might be lowered. In addition, Unitholders should be aware that they
may not be able at the time of receipt of such principal to reinvest such
proceeds in other securities at a yield equal to or in excess of the yield
which such proceeds were earning to Unitholders in the Trust.
RISK FACTORS
Special Brady Bond Risks. All of the Brady Bonds in the Trust have been issued
in minimum denominations of $250,000 and all having maturities ranging from 24
to 30 years. All of the Brady Bonds are U.S. dollar-denominated with respect
to interest and principal payments and all payments are to be made free and
clear of any withholding taxes or other deductions by the issuing country.
Some of the Bonds provide for increased coupon interest rates on specified
future dates. See "Portfolio" and "Notes to Portfolio" for
specific interest rate adjustment information. Certain of such Bonds have
detachable, transferable warrants which provide future, potential benefits,
depending on various market conditions relating to specific commodities such
as oil exports. Because of the contingent nature of these benefits, the value,
if any, attributable to such warrants is included in the Bonds to which they
attach. All of the Brady Bonds are collateralized as to principal by zero
coupon U.S. Treasury bonds, payable upon the stated maturity of the related
Bonds. Certain Brady Bonds also have interest payments collateralized by cash
and certain high quality permitted investments for at least 12 months and such
collateralization continues for the life of the related Bonds. Investors,
however, should be aware that in the event of a default, the collateral
supporting the interest payments may not be immediately available to service
the defaulted Bonds (see "Brady Bond Collateral Risks" below). In
addition, in the event of a default on one issue of Brady Bonds there can be
no assurance that the value of other Brady Bonds will not be adversely
impacted.
Sovereign Debt Securities. Investing in debt obligations of governmental
issuers in emerging countries involves certain economic and political risks
not typically associated with U.S. taxable debt investments. The issuers of
the Brady Bonds in the Trust (which are sovereign debt securities) have in the
past experienced substantial difficulties in servicing their external debt
obligations, which have led to defaults on certain obligations and the
restructuring of certain indebtedness. These countries have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability. The value of the Brady Bonds will be affected by
commodity prices, inflation, interest rates, taxation, social instability, and
other political, economic or diplomatic developments in or affecting the
emerging countries which have issued these Bonds. In many cases, governments
of emerging countries continue to exercise a significant degree of control
over the economy, and government actions concerning the economy may adversely
effect issuers within that country. Government actions relative to the
economy, as well as economic developments generally, may also affect a given
country's international foreign currency reserves. Fluctuations in the level
of these reserves affect the amount of foreign exchange readily available for
external debt payments and thus could have a bearing on the capacity of
emerging country issuers to make payments on their debt obligations regardless
of their financial condition. In addition, there is a possibility of
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, or other similar developments which could
affect investments in those countries. The governmental entity that controls
the servicing of obligations of those issuers may not be willing or able to
repay the principal and/or interest when due in accordance with the terms of
the obligations. A governmental entity's willingness or ability to repay
principal and interest when due in a timely manner may be affected by, among
other factors, its cash flow situation, the market value of the debt, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund and the
political constraints to which the governmental entity may be subject. There
can be no assurance that the Brady Bonds in the Trust's portfolio will not be
subject to similar political and economic risks which may adversely affect the
value of such investments.
Unrated and Low-Rated Instruments. Only four of the Securities in the Trust
have been rated while the remaining Bonds are unrated (see "Investment
Objectives and Portfolio Selection" for a description of these ratings).
These lower-rated and unrated securities, which are below investment grade,
involve greater risks than higher-rated securities. Under rating agency
guidelines, lower-rated securities and unrated securities will likely have
some quality and protective characteristics that are outweighed by large
uncertainties or major risk exposures to adverse conditions. Such securities
are considered speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligations.
Although the principal of the Brady Bonds is adequately collateralized at
final maturity, the form of collateral may have adverse consequences to
Unitholders prior to final maturity as indicated under "Brady Bonds
Collateral Risks" below. Accordingly, these types of factors could, in
certain instances, reduce the value and liquidity of securities held by the
Trust with a commensurate effect on the value of the Trust's Units.
The Trust's net asset value will change with changes in the value of its
portfolio securities. Because the Trust will invest in fixed income
securities, the Trust's value can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed income securities can be expected to decline. Net asset value and market
value may be volatile due to the Trust's investment in lower grade and unrated
securities. Volatility may be greater during periods of general economic
uncertainty. Periods of economic uncertainty and changes in interest rates can
be expected to result in increased volatility of the market prices of the
lower grade and unrated securities in the Trust's portfolio and thus in the
value of the Trust.
Brady Bond Collateral Risks. The principal of the Brady Bonds in the Trust is
collateralized by zero coupon U.S. Treasury obligations which mature at the
same time the related Brady Bonds are scheduled to mature. In the event a
Brady Bond should default, the Sponsor anticipates that the value of such
defaulted Bond will reflect the value of the underlying zero coupon U.S.
Treasury obligations. Investors should not expect to receive any accelerated
principal payments prior to the stated maturity of such defaulted Bonds. In
view of this Unitholders should understand certain of the characteristics of
zero coupon U.S. Treasury obligations. These U.S. Treasury obligations
evidence the right to receive a fixed payment at a future date from the U.S.
government and are backed by the full faith and credit of the United States
government. Zero coupon U.S. Treasury obligations are purchased at a deep
discount because the buyer obtains only the right to a fixed payment at a
fixed date in the future and does not receive any periodic interest payments.
The effect of owning deep discount bonds which do not make current interest
payments (such as the Treasury obligations) is that a fixed yield is earned
not only on the original investment, but also, in effect, on all earnings
during the life of the discount obligation. This implicit reinvestment of
earnings at the same time eliminates the risk of being unable to reinvest the
income on such obligations at a rate as high as the implicit yield on the
discount obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, the U.S. Treasury
obligations are subject to substantially greater price fluctuations during
periods of changing interest rates than are securities of comparable quality
which make regular interest payments. In addition to the collateral supporting
the principal amount of the Brady Bonds, interest payments on certain Brady
Bonds are also collateralized for a period of at least 12 months of interest
payments. This collateral protection, which is comprised of cash and certain
high quality permitted short term investments, continues for the life of the
related Bond. Unitholders should realize, however, that once such collateral
has been exhausted through the payment of defaulted interest, no further
interest payments will be assured. Unitholders should also be aware that in
the event an issuer defaults in the payment of interest, with the exception of
the Philippines Bonds, investors holding at least 25% (50% in the case of
Nigeria Bonds) of the aggregate outstanding principal amount of the defaulting
Bond must act in concert to declare a default and thereby force a release of
such collateral. While it is the intention of the Trustee of the Trust to seek
the support of other investors in order to obtain the minimum number of
holders needed to force the liquidation of such collateral, there is no
assurance that Unitholders will be able to realize on such collateral. Only
with respect to the Philippines Bonds can the Trustee, acting alone, declare a
default and demand liquidation of the interest collateral. In the event a
default occurs with respect to an interest payment, as long as the market
continues to reflect interest accruals in the value of such Bonds, the Trust
will continue to accrue interest on such Bonds. If the market ceases to
recognize accruing interest, the Trust Units will cease to accrue interest on
such Bonds and accruals will not commence until the Trust is notified that
interest payments are again accruing on such Bonds or actual payments with
respect to such Bonds have been received by the Trust. In this latter case the
Trustee will not apply such payments to any period prior to such notice or
receipt of payments, as the case may be, unless it has received written notice
that such payments relate to some earlier period. Therefore, Unitholders
should be aware that they may be able to realize the benefits of the
collateral relating to defaulted interest payments only if they are
Unitholders at the time of receipt by the Trust of the proceeds from the
disposition of such collateral.
Liquidity. The Sponsor believes that all the Securities in the Trust are
liquid. The Brady Bonds are issued in various currencies (primarily the U.S.
dollar) and are actively traded in the over-the-counter secondary market for
debt of emerging markets issuers. Because of the large size of most Brady Bond
issues, the Brady Bonds are also generally liquid instruments. Brady Bonds
are, however, issued in minimum denominations of $250,000. Although the
Sponsor intends to maintain a secondary market for the Trust Units which
thereby would minimize redemption requests and while it is anticipated that
Trust revenues will be sufficient to cover Trust expenses, it is possible that
since the Trust from time to time may still be required to sell Securities to
meet redemption requests or sell Securities to meet Trust expenses, it is
possible that a Brady Bond would need to be sold to meet a fairly small
redemption request. If Brady Bonds were to be sold to meet a redemption of a
small number of Units or a series of such small redemptions, there could be a
significant return of principal to the non-redeeming Unitholders. As a
consequence, such non-redeeming Unitholders might be unable at the time of
receipt of such principal to reinvest such proceeds in other securities at a
yield equal to or in excess of the yield which such proceeds were earning to
Unitholders in the Trust. Further, if such sales were required in such
quantities so that the size of the Trust were to be reduced below the minimum
amount for which the Trust could be terminated, the Trust might be terminated
and a Unitholder's investment objectives might be adversely affected. See "
Trust Administration" and "Rights of Unitholders--Redemption of
Units" .
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the date of the "Summary of Essential Financial Information,"
the Estimated Current Returns and the Estimated Long-Term Returns each under
the monthly and semi-annual distribution plans were those indicated in the
"Summary of Essential Financial Information" . The Estimated Current
Returns are calculated by dividing the estimated net annual interest income
per Unit by the Public Offering Price. The estimated net annual interest
income per Unit will vary with any scheduled changes in the interest rates on
the Securities, with changes in fees and expenses of the Trustee and the
Evaluator and with the principal prepayment, redemption, maturity, exchange or
sale of Securities while the Public Offering Price will vary with changes in
the offering price of the underlying Securities; therefore, there is no
assurance that the present Estimated Current Return will be realized in the
future. Estimated Long-Term Returns are 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, the accretion of discounts and any scheduled changes
in the interest rates) and estimated retirements of all the Securities in the
Trust and (2) takes into account the expenses and sales charge associated with
each Trust Unit. Since the market values and estimated retirements of the
Securities and the expenses of the Trust will change, there is no assurance
that the present Estimated Long-Term Returns will be realized in the future.
Estimated Current Returns and Estimated Long-Term Returns are expected to
differ because the calculation of Estimated Long-Term Returns reflects the
estimated date and amount of principal returned while Estimated Current
Returns calculations include only net annual interest income and Public
Offering Price.
In order to acquire certain of the Securities contracted for by the Sponsor
for deposit in the Trust, it may be necessary for the Sponsor or Trustee to
pay on the settlement dates for delivery of such Securities amounts covering
accrued interest on such Securities which exceed the amounts which will be
made available through cash furnished by the Sponsor on the Initial Date of
Deposit, which amount of cash may exceed the interest which would accrue to
the First Settlement Date. The Trustee has agreed to pay for any amounts
necessary to cover any such excess and will be reimbursed therefor, without
interest, when funds become available from interest payments on the particular
Securities with respect to which such payments may have been made.
TRUST OPERATING EXPENSES
Initial Costs. All costs and expenses incurred in creating and establishing
the Trust, including the cost of the initial preparation, printing and
execution of the Trust Agreement and the certificates, legal and accounting
expenses, advertising and selling expenses, expenses of the Trustee, initial
fees of an evaluator and other out-of-pocket expenses, including brokerage
fees incurred in acquiring Securities for the Trust, have been borne by the
Sponsor at no cost to the Trust.
Compensation of Sponsor. The Sponsor will not receive any fees in connection
with its activities relating to the Trust. The Sponsor will receive sales
commissions and may realize other profits (or losses) in connection with the
sale of Units and the deposit of the Securities as described under "Public
Offering-Sponsor and Other Compensation" .
Compensation of Evaluator. The Evaluator shall receive the evaluation fee set
forth under "Summary of Essential Financial Information" for regularly
evaluating the Trust's portfolio. Such fees may be increased without approval
of the Unitholders 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 or, if such category
is no longer published, in a comparable category.
Trustee's Fee. For its services, the Trustee will receive a fee based on the
aggregate outstanding principal amount of Securities as of the opening of
business on January 2 and July 2 of each year as set forth under "Per Unit
Information" except during the initial offering period in which event the
calculation is based on the largest aggregate amount of Securities in the
Trust each month for which the calculation relates. Such fee will be computed
at $0.51 and $0.91 per $1,000 principal amount, respectively, for those
portions of the Trust representing semi-annual and monthly distribution plans.
Based on the size of the Trust on the Initial Date of Deposit and assuming all
Unitholders had chosen the semi-annual distribution plan, the Trustee's
estimated annual fee for ordinary recurring services would initially amount to
$3,060. Assuming in the alternative that all Unitholders were in the monthly
distribution plan, such fee would initially amount to $5,460. The Trustee's
fees are payable monthly on or before the twenty-fifth day of each month from
the Interest Account to the extent funds are available and then from the
Principal Account. Such fees may be increased without approval of the
Unitholders 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 or, if such category
is no longer published, in a comparable category. 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 Unitholders, the Trustee benefits thereby. Part of the
Trustee's compensation for its services to the Trust is expected to result
from the use of these funds. For a discussion of the services rendered by the
Trustee pursuant to its obligations under the Trust Agreement, see "Rights
of Unitholders-Reports Provided" and "Trust Administration" .
Miscellaneous Expenses. The following additional charges are or may be
incurred by the Trust: (a) fees of the Trustee for extraordinary services, (b)
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsor, (c) various governmental charges, (d) expenses and
costs of any action taken by the Trustee to protect the Trust and the rights
and interests of Unitholders, (e) indemnification of the Trustee for any loss,
liability or expenses incurred by it in the administration of the Trust
without negligence, bad faith or willful misconduct on its part, (f)
expenditures incurred in contacting Unitholders upon termination of the Trust
and (g) costs incurred to reimburse the Trustee for advancing funds to the
Trust to meet scheduled distributions (which costs may be adjusted
periodically in response to fluctuations in short-term interest rates).
The fees and expenses set forth herein are payable out of the Trust. When such
fees and expenses are paid by or owing to the Trustee, they are secured by a
lien on the portfolio of the Trust. If the balances in the Interest and
Principal Accounts are insufficient to provide for amounts payable by the
Trust, the Trustee has the power to sell Securities to pay such amounts.
TAX STATUS
In the opinion of Chapman and Cutler, special counsel for the Sponsor, under
existing law:
The Trust is not an association taxable as a corporation for United States
Federal income tax purposes.
Each Unitholder will be considered the owner of a pro rata portion of each of
the Trust assets for Federal income tax purposes under Subpart E, Subchapter J
of Chapter 1 of the Internal Revenue Code of 1986 (the "Code" ). Each
Unitholder will be considered to have received his pro rata share of interest
derived from each Trust asset when such interest is received by the Trust.
Each Unitholder will be required to include in taxable income for Federal
income tax purposes, income and original issue discount, if any, with respect
to his interest in any Securities held by the Trust at the same time and in
the same manner as though the Unitholder were the direct owner of such
interest.
Each Unitholder will have a taxable event when a Security is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when a
Unitholder redeems or sells his Units. The cost of the Units to a Unitholder
on the date such Units are purchased is allocated among the Securities held in
the Trust (in accordance with the proportion of the fair market values of such
Securities) in order to determine his tax basis for his pro rata portion in
each Security. Unitholders must reduce the tax basis of their Units for their
share of accrued interest received, if any, on Securities delivered after the
date the Unitholders pay for their Units and, consequently, such Unitholders
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 Securities, gain or
loss is recognized to the Unitholder. The amount of any such gain or loss is
measured by comparing the Unitholder's pro rata share of the total proceeds
from such disposition with his basis for his fractional interest in the asset
disposed of. The basis of each Unit and of any Security which was issued with
original issue discount must be increased by the amount of accrued original
issue discount and the basis of each Unit and of any Security which was
purchased by the Trust at a premium must be reduced by the annual amortization
of bond premium which the Unitholder has properly elected to amortize under
Section 171 of the Code. The tax cost reduction requirements of the Code
relating to amortization of bond premium may, under some circumstances, result
in the Unitholder realizing a taxable gain when his Units are sold or redeemed
for an amount equal to or less than his original cost. Original issue
discount, if any, is effectively treated as interest for Federal income tax
purposes, and the amount of original issue discount in this case is generally
the difference between the bond's purchase price and its stated redemption
price at maturity. In general, original issue discount accrues daily under a
constant interest rate method which takes into account the semi-annual
compounding of accrued interest. Because certain of the Securities provide for
increased coupon interest rates in the future and certain of the Securities
have warrants associated with them, the likelihood that they will be treated
as having been issued with original issue discount, which could be
substantial, is increased. To the extent that original issue discount exists,
Unitholders will be deemed to have received taxable income although they may
not receive cash payments until a later point in time. Unitholders should
consult their tax advisers regarding the Federal income and other tax
consequences and accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him, subject to the following limitation. It should be noted that as a
result of the Tax Reform Act of 1986 (the "Act" ), certain
miscellaneous itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses will be deductible by an
individual only to the extent they exceed 2% of such individual's adjusted
gross income. Regulations have been issued which require Unitholders to treat
certain expenses of the Trust as miscellaneous itemized deductions subject to
this limitation.
Acquisition Premium. If a Unitholder's tax basis of his pro rata portion in
any Securities held by the Trust exceeds the amount payable by the issuer of
the Security with respect to such pro rata interest upon the maturity of the
Security, such excess would be considered "acquisition premium" (i.e.,
"bond premium" ) which may be amortized by the Unitholder at the
Unitholder's election as provided in Section 171 of the Code. Unitholders
should consult their tax advisers regarding whether such election should be
made and the manner of amortizing acquisition premium.
Original Issue Discount. Each of the Securities of the Trust may have been
acquired with "original issue discount." In the case of any Securities
of the Trust acquired with "original issue discount" that exceeds a
"de minimis" amount as specified in the Code such discount is
includable in taxable income of the Unitholders on an accrual basis computed
daily, without regard to when payments of interest on such Securities are
received. The Code provides a complex set of rules regarding the accrual of
original issue discount. These rules provide that original issue discount
generally accrues on the basis of a constant compound interest rate over the
term of the Securities. Unitholders should consult their tax advisers as to
the amount of original issue discount which accrues.
Special original issue discount rules apply if the purchase price of the
Security by the Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price" ). Unitholders should also
consult their tax advisers regarding these special rules. Similarly, these
special rules would apply to a Unitholder if the tax basis on his pro rata
portion of a Security issued with original issue discount exceeds his pro rata
portion of its adjusted issue price.
Market Discount. If a Unitholder's tax basis in his pro rata portion of
Securities is less than the allocable portion of such Security's stated
redemption price at maturity (or, if issued with original issue discount, the
allocable portion of its "revised issue price" ), such difference will
constitute market discount unless the amount of market discount is "de
minimis" as specified in the Code. Market discount accrues daily computed
on a straight line basis, unless the Unitholder elects to calculate accrued
market discount under a constant yield method. Unitholders should consult
their tax advisers as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Securities, on the sale, maturity or
disposition of such Securities by the Trust, and on the sale by a Unitholder
of Units, unless a Unitholder elects to include the accrued market discount in
taxable income as such discount accrues. If a Unitholder does not elect to
annually include accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unitholder which is
incurred to purchase or carry his Units will be reduced by such accrued market
discount. In general, the portion of any interest expense which was not
currently deductible would ultimately be deductible when the accrued market
discount is included in income. Unitholders should consult their tax advisers
regarding whether an election should be made to include market discount in
income as it accrues and as to the amount of interest expense which may not be
currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in a Security is increased by the amount of original
issue discount (and market discount, if the Unitholder elects to include
market discount, if any, on the Securities held by the Trust in income as it
accrues) thereon properly included in the Unitholder's gross income as
determined for Federal income tax purposes and reduced by the amount of any
amortized acquisition premium which the Unitholder has properly elected to
amortize under Section 171 of the Code. A Unitholder's tax basis in his Units
will equal his tax basis in his pro rata portion of all of the assets of the
Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Securities by the
Trust or Disposition of Units. A Unitholder will recognize taxable gain (or
loss) when all or part of his pro rata interest in a Security is disposed of
in a taxable transaction for an amount greater (or less) than his tax basis
therefor. Any gain recognized on a sale or exchange and not constituting a
realization of accrued "market discount," and any loss will, under
current law, generally be capital gain or loss except in the case of a dealer
or financial institution. As previously discussed, gain realized on the
disposition of the interest of a Unitholder in any Security deemed to have
been acquired with market discount will be treated as ordinary income to the
extent the gain does not exceed the amount of accrued market discount not
previously taken into income. Any capital gain or loss arising from the
disposition of a Security by the Trust or the disposition of Units by a
Unitholder will be short-term capital gain or loss unless the Unitholder has
held his Units for more than one year in which case such capital gain or loss
will be long-term. For taxpayers other than corporations, net capital gains
are subject to a maximum marginal stated tax rate of 28 percent. However, it
should be noted that legislative proposals are introduced from time to time
that affect tax rates and could affect relative differences at which ordinary
income and capital gains are taxed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act" )
raised tax rates on ordinary income while capital gains remain subject to a 28
percent maximum stated rate. Because some or all capital gains would be taxed
at a comparatively lower rate under the Tax Act, the Tax Act includes a
provision that recharacterizes capital gains as ordinary income in the case of
certain financial transactions that are "conversion transactions"
effective for transactions entered into after April 30, 1993. Unitholders and
prospective investors should consult with their tax advisers regarding the
potential effect of this provision on their investment in Units.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Securities represented by the Unit. This may result in a
portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed. The tax cost reduction requirements of the Code relating to
amortization of bond premium may, under some circumstances, result in the
Unitholder realizing taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States Federal income taxes,
including withholding taxes, on interest income (including any original issue
discount) on, or any gain from the sale or other disposition of, his pro rata
interest in any Security or the sale of his Units provided that all of the
following conditions are met: (i) the interest income or gain is not
effectively connected with the conduct by the foreign investor of a trade or
business within the United States, (ii) (a) the interest income is not from
sources within the United States or (b) the interest is United States source
income (which is the case for most securities issued by United States
issuers), the Security is issued after July 18, 1984 (which is the case for
each Security held by the Trust), the foreign investor does not own, directly
or indirectly, 10% or more of the total combined voting power of all classes
of voting stock of the issuer of the Security and the foreign investor is not
a controlled foreign corporation related (within the meaning of Section
864(d)(4) of the Code) to the issuer of the Security, (iii) with respect to
any gain, the foreign investor (if an individual) is not present in the United
States for 183 days or more during his or her taxable year and (iv) the
foreign investor provides all certification which may be required of his
status. Foreign investors should consult their tax advisers with respect to
United States tax consequences of ownership of Units.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest
received after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described in the preceding paragraph) will be
requested to provide the Unitholder's taxpayer identification number to the
Trustee and to certify that the Unitholder has not been notified that payments
to the Unitholder are subject to back-up withholding. If the proper taxpayer
identification number and appropriate certification are not provided when
requested, distributions by the Trust to such Unitholder will be subject to
back-up withholding.
As discussed elsewhere herein, it was believed at the time the Securities were
issued that payments of interest and principal to the Trust would not be
subject to foreign withholding taxes. However, it is impossible to predict
whether changes in foreign laws or regulations could cause payments on the
Securities which are made to the Trust to be subject to taxes, including
withholding taxes.
In the opinion of Tanner Propp, LLP, special counsel to the Trust for New York
tax matters, the Trust is not an association taxable as a corporation and the
income of the Trust will be treated as the income of the Unitholders under the
existing income tax laws of the State and City of New York.
The foregoing discussion relates only to United States Federal and New York
State and City income taxes; Unitholders may be subject to state and local
taxation in other jurisdictions (including a foreign investor's country of
residence). Unitholders should consult their tax advisers regarding potential
state, local, or foreign taxation with respect to the Units.
PUBLIC OFFERING
General. Units are offered at the Public Offering Price. During the initial
offering period the Public Offering Price is based on the offering prices of
the Securities in the Trust and includes a sales charge of 4.9% of the Public
Offering Price (5.152% of the aggregate offering price of the Securities plus
accrued interest, if any). After the initial public offering period, the
secondary market Public Offering Price is based on the bid prices of the
Securities in the Trust and includes a sales charge determined in accordance
with the table set forth below, which is based upon the dollar weighted
average maturity of each Trust plus accrued interest, if any. For purposes of
computation, Securities will be deemed to mature on their expressed maturity
dates unless: (a) the Securities have been called for redemption or are
subject to redemption 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 Securities
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 charges rates will be applied to the Trust based upon the dollar
weighted average maturity of the Trust's portfolio, in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years To Maturity Sales Charge Years To Maturity Sales Charge
<S> <C> <C> <C>
1 1.010 % 12 4.712 %
2 1.523 13 4.822
3 2.041 14 4.932
4 2.302 15 5.042
5 2.564 16 5.152
6 2.828 17 5.263
7 3.093 18 5.374
8 3.627 19 5.485
9 4.167 20 5.597
10 4.384 21 to 30 5.708
11 4.603
</TABLE>
The sales charges in the above table are expressed as a percentage of the net
amount invested. Expressed as a percent of the Public Offering Price, the
sales charge on the Trust consisting entirely of a portfolio of Securities
with 15 years to maturity would be 4.80%.
The sales charge applicable to quantity purchases is, during the initial
offering period, reduced on a graduated basis to any person acquiring 100 or
more Units as follows:
<TABLE>
<CAPTION>
Aggregate Number Dollar Amount of Sales Charge
of Units Purchased Reduction Per Unit
<S> <C>
100-249 Units $2.00
250-499 Units $4.00
500-999 Units $6.00
1,000-1,499 Units $8.00
1,500 or more Units $10.00
</TABLE>
Any such reduced sales charge shall be the responsibility of the selling
broker, dealer or agent. See "Public Offering--Unit Distribution" .
This reduced sales charge structure will apply on all purchases by the same
person from any one broker or dealer of units of Van Kampen American
Capital-sponsored unit investment trusts which are being offered in the
initial offering period (a) on any one day (the "Initial Purchase Date"
) or (b) on any day subsequent to the Initial Purchase Date if (1) the units
purchased are of a unit investment trust purchased on the Initial Purchase
Date, and (2) the person purchasing the units purchased a sufficient amount of
units on the Initial Purchase Date to qualify for a reduced sales charge on
such date. In the event units of more than one trust are purchased on the
Initial Purchase Date, the aggregate dollar amount of such purchases will be
used to determine whether purchasers are eligible for a reduced sales charge.
Such aggregate dollar amount will be divided by the public offering price per
unit (on the day preceding the date of purchase) of each respective trust
purchased to determine the total number of units which such amount could have
purchased of each individual trust. Purchasers must then consult the
applicable trust's prospectus to determine whether the total number of units
which could have been purchased of a specific trust would have qualified for a
reduced sales charge and, if so qualified, the amount of such reduction.
Assuming a purchaser qualifies for a sales charge reduction or reductions to
determine the applicable sales charge for units purchased in accordance with
(b) above, it is necessary to accumulate all purchases made on the Initial
Purchase Date and all purchases made in accordance with (b) above. Units
purchased in the name of the spouse of a purchaser or in the name of a child
of such purchaser under 21 years of age will be deemed for the purposes 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 one or more trust estate or
fiduciary accounts.
Employees of Van Kampen American Capital Distributors Inc. and its
subsidiaries may purchase Units of the Trust at the current Public Offering
Price less the underwriting commission or less the dealer's concession in the
absence of an underwriting commission. Registered representatives of selling
brokers, dealers, or agents may purchase Units of the Trust at the current
Public Offering Price less the dealer's concession during the initial offering
period and for secondary market transactions.
Units may be purchased in the primary or secondary market at the Public
Offering Price (for purchases which do not qualify for a sales charge
reduction for quantity purchases) less the concession the Sponsor typically
allows to brokers and dealers for purchases (see "Public Offering--Unit
Distribution" ) by (1) investors who purchase Units through registered
investment advisers, certified financial planners and registered
broker-dealers who in each case either charge periodic fees for financial
planning, investment advisory or asset management services, or provide such
services in connection with the establishment of an investment account for
which a comprehensive "wrap fee" charge is imposed, (2) bank trust
departments investing funds over which they exercise exclusive discretionary
investment authority and that are held in a fiduciary, agency, custodial or
similar capacity, (3) any person who for at least 90 days, has been an
officer, director or bona fide employee of any firm offering Units for sale to
investors or their immediate family members (as described above) and (4)
officers and directors of bank holding companies that make Units available
directly or through subsidiaries or bank affiliates. Notwithstanding anything
to the contrary in this Prospectus, such investors, bank trust departments,
firm employees and bank holding company officers and directors who purchase
Units through this program will not receive sales charge reductions for
quantity purchases.
Accrued Interest. Accrued interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although the Trust accrues
such interest daily. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the Trust the amount, if any, of accrued interest
paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee will advance the amount of accrued
interest to the Sponsor as the Unitholder 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
Unitholders--Distributions of Interest and Principal" .
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholders
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest Account
for distributions to Unitholders and since such Account is
non-interest-bearing to Unitholders, the Trustee benefits thereby.
Offering Price. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in
accordance with fluctuations in the prices of the underlying Securities in the
Trust.
As indicated above, the price of the Units as of the opening of business on
the date the Securities were deposited in the Trust was determined by adding
to the determination of the aggregate offering price of the Securities an
amount equal to 5.152% of such value and dividing the sum so obtained by the
number of Units outstanding. This computation produced a gross underwriting
profit equal to 4.9% of the Public Offering Price. Such price determination as
of the opening of business on the Initial Date of Deposit was made on the
basis of an evaluation of the Securities in the Trust prepared by the
Evaluator. Except on the Initial Date of Deposit, during the period of initial
offering the Evaluator will appraise or cause to be appraised daily the value
of the underlying Securities as of 4:00 P.M. Eastern time on days the New York
Stock Exchange is open and will adjust the Public Offering Price of the Units
commensurate with such appraisal. Such Public Offering Price will be effective
for all orders received at or prior to 4:00 P.M. Eastern time on each such
day. Orders received by the Trustee or Sponsor for purchases, sales or
redemptions after that time, or on a day when the New York Stock Exchange is
closed, will be held until the next determination of price. For secondary
market sales the Public Offering Price per Unit will be equal to the aggregate
bid price of the Securities in the Trust plus an amount equal to the
applicable secondary market sales charge expressed as a percentage of the
aggregate bid price of such value and dividing the sum so attained by the
number of Units then outstanding. This computation produces a gross
underwriting profit equal to such sales charge expressed as a percentage of
the Public Offering Price. For secondary market purposes such appraisal and
adjustment will be made by the Evaluator as of 4:00 P.M. Eastern time on days
on which the New York Stock Exchange is open for each day on which any Unit of
the Trust is tendered for redemption, and it shall determine the aggregate
value of the Trust as of 4:00 P.M. Eastern time on such other days as may be
necessary.
The aggregate price of the Securities in the Trust has been and will be
determined on the basis of bid prices or offering prices, as appropriate, (a)
on the basis of current market prices for the Securities obtained from dealers
or brokers who customarily deal in bonds comparable to those held by the
Trust; (b) if such prices are not available for any particular Securities, on
the basis of current market prices for comparable bonds; (c) by causing the
value of the Securities to be determined by others engaged in the practice of
evaluation, quoting or appraising comparable bonds; or (d) by any combination
of the above.
The initial or primary Public Offering Price of the Units and the Sponsor's
initial repurchase price per Unit are based on the offering price per Unit of
the underlying Securities plus the applicable sales charge and interest
accrued but unpaid from the First Settlement Date to the date of settlement.
The secondary market Public Offering Price and the Redemption Price per Unit
are based on the bid price per Unit of the Securities in the Trust plus the
applicable sales charge plus accrued interest. The offering price of
Securities in the Trust may be expected to range from .25% to 1% more than the
bid price of such Securities. On the Initial Date of Deposit, the offering
side evaluation of the Securities in the Trust was higher than the bid side
evaluation of such Obligations by the amount indicated in Note (5) to "
Notes to Portfolio" .
Although payment is normally made three business days following the order for
purchase, payment may be made prior thereto. However, delivery of certificates
representing Units so ordered will be made three business days following such
order or shortly thereafter. A person will become the owner of 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.
Unit Distribution. During the initial offering period, Units will be
distributed to the public by the Sponsor, broker-dealers and others at the
Public Offering Price, plus interest accrued but unpaid from the First
Settlement Date to the date of settlement as described under "Public
Offering--Accrued Interest" . Upon the completion of the initial offering,
Units repurchased in the secondary market, if any, may be offered by this
prospectus at the secondary Public Offering Price plus interest accrued to the
date of settlement in the manner described.
The Sponsor intends to qualify the Units for sale in a number of states.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period
of 3.70% per Unit. Any quantity discount provided to investors will be borne
by the selling dealer or agent as indicated under "Public
Offering--General" above. For secondary market transactions, such
concession or agency commission will amount to 70% of the sales charge
applicable to the transaction. See "Public Offering--General" . Certain
commercial banks are making Units of the Trust available to their customers on
an agency basis. A portion of the sales charge (equal to the agency commission
referred to above) is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust 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 addition, state securities
laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
Except as stated hereinafter, to facilitate the handling of transactions
during the initial offering period, sales of Units shall normally be limited
to transactions involving a minimum of one Unit. The minimum purchase in the
secondary market will be one Unit. In connection with fully disclosed
transactions with the Sponsor, the minimum purchase requirement shall be that
number of Units set forth in the contract between the Sponsor and the related
broker or agents.
The Sponsor reserves the right to reject, in whole or in part, any order for
the purchase of Units and to change the amount of the concession or agency
commission to dealers and others from time to time.
Sponsor and Other Compensation. The Sponsor will receive the gross sales
commission equal to 4.9% of the Public Offering Price (excluding any
transaction fees) of the Units (equivalent to 5.152% of the net amount
invested), less any reduced sales charge for quantity purchases (as described
under "Public Offering--General" above). In addition, the Sponsor will
realize a profit or will sustain a loss, as the case may be, as a result of
the difference between the price paid for the Securities by the Sponsor and
the cost of such Securities to the Trust (which is based on the determination
of the aggregate offering price of the Securities in the Trust on the Initial
Date of Deposit as prepared by Interactive Data Corporation). See "
Portfolio" . The Sponsor has not participated as sole underwriter or as
manager or as a member of any underwriting syndicates from which any of the
Securities in the portfolio of the Trust were acquired. Broker, dealers or
others ("Distributors" ) who distribute 5,000 or more Units during the
initial offering period will receive additional compensation from the Sponsor,
after the close of the initial offering period, of $.50 for each Unit they
distribute. Each Distributor who distributes 10,000 or more Units during the
initial offering period will receive additional compensation from the Sponsor,
after the close of the initial offering period, of $.75 for each Unit it
distributes. Each Distributor who distributes 15,000 or more Units during the
initial offering period will receive additional compensation from the Sponsor,
after the close of the initial offering period, of $1.00 for each Unit it
distributes.
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.
As stated under "Public Market" below, the Sponsor intends to maintain
a secondary market for the Units of the Trust. In so maintaining a market, the
Sponsor will also realize profits or sustain losses in the amount of any
difference between the price at which Units are purchased and the price at
which Units are resold (which price is based on the bid prices of the
Securities in the Trust and includes a sales charge). In addition, the Sponsor
will also realize profits or sustain losses resulting from a redemption of
such repurchased Units at a price above or below the purchase price for such
Units, respectively.
Public Market. During the initial public offering period, the Sponsor intends
to offer to purchase Units at a price based on the aggregate offering price
per Unit of the Securities in the Trust (plus interest accrued to the date of
settlement) less the related sales commission. Afterward, although they are
not obligated to do so, the Sponsor intends to maintain a market for the Units
offered hereby and to offer continuously to purchase such Units at prices,
subject to change at any time, based upon the aggregate bid price of the
Securities in the portfolio plus interest accrued to the date of settlement
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. If the supply of Units exceeds demand or if some other business
reason warrants it, the Sponsor may either discontinue all purchases of Units
or discontinue purchases of Units at such prices. In the event that a market
is not maintained for the Units and the Unitholder cannot find another
purchaser, a Unitholder desiring to dispose of his Units may be able to
dispose of such Units only by tendering them to the Trustee for redemption at
the Redemption Price, which is based upon the aggregate bid price of the
Securities in the portfolio plus any accrued interest. The aggregate bid
prices of the underlying Securities in the Trust are expected to be less than
the related aggregate offering prices. See "Rights of
Unitholders--Redemption of Units" . A Unitholder who wishes to dispose of
his Units should inquire of his broker as to current market prices in order to
determine whether there is in existence any price in excess of the Redemption
Price and, if so, the amount thereof.
RIGHTS OF UNITHOLDERS
Certificates. 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 of the Trust is evidenced by certificates unless a
Unitholder or the Unitholder's registered broker-dealer makes a written
request to the Trustee that ownership be in book entry form. Units are
transferable by making a written request to the Trustee and, in the case of
Units evidenced as a certificate, by presentation and surrender of such
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. A Unitholder must sign such written
request, and such certificate or transfer instrument, exactly as his name
appears on the records of the Trustee and on the face of the certificate
representing the Units to be transferred with the signature guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("
STAMP" ), or in such other signature guaranty program in addition to, or in
substitution for, STAMP as may be acceptable to 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. Certificates will be
issued in denominations of one Unit or any whole multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require a
Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. Destroyed, stolen,
mutilated or lost certificates will be replaced upon delivery to the Trustee
of satisfactory indemnity, evidence of ownership and payment of expenses
incurred. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distributions of Interest and Principal. Interest received by the Trust,
including that part of the proceeds of any disposition of Securities which
represents accrued interest (other than original issue discount), is credited
by the Trustee to the Interest Account. Other receipts are credited to the
Principal Account. Interest received by the Trust after deduction of amounts
sufficient to reimburse the Trustee, without interest, for any amounts
advanced and paid to the Sponsor as the Unitholder of record as of the First
Settlement Date (see "Public Offering--Offering Price" ) will be
distributed on or shortly after the fifteenth day of each month on a pro rata
basis to Unitholders of record as of the preceding record date (which will be
the first day of the month) who are entitled to distributions at that time
under the plan of distribution chosen. All distributions will be net of
applicable expenses. The pro rata share of cash in the Principal Account will
be computed on the date indicated under "Distribution Options" on page
2, and thereafter as of the semi-annual record date, and distributions to the
Unitholders as of such record date will be made on or shortly after the
fifteenth day of such month. Proceeds received from the disposition of any of
the Securities after such record date and prior to the following distribution
date will be held in the Principal Account and not distributed until the next
distribution date. The Trustee is not required to pay interest on funds held
in the Principal or Interest Accounts (but may itself earn interest thereon
and therefore benefits from the use of such funds) nor to make a distribution
from the Principal Account unless the amount available for distribution shall
equal at least $1.00 per Unit. However, should the amount available for
distribution in the Principal Account equal or exceed $10.00 per Unit, to the
extent permissible under the Investment Company Act of 1940, the Trustee will
make a special distribution from the Principal Account on the next succeeding
monthly distribution date to holders of record on the related monthly record
date.
The distribution to the Unitholders as of each record date after the First
Settlement 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 Unitholders' pro rata share of the estimated net annual unit income in
the Interest Account after deducting estimated expenses attributable as is
consistent with the distribution plan chosen. In connection with the
calculation of estimated net annual interest income, Unitholders should be
aware that in the event a Brady Bond should default in the payment of
interest, estimated net annual interest might only include interest accruing
from the time the issuer of the defaulting Brady Bond either gives notice to
the Trustee of the Trust that it intends to recommence accruing interest on
such defaulted Bonds or actually commences payments from funds derived from
the realization of the related collateral unless such entity shall have
designated in writing that such payments relate to accrued interest for some
earlier period. See "Risk Factors--Special Brady Bond Risks" . Because
interest payments are not received by the Trust at a constant rate throughout
the year, such interest distribution may be more or less than the amount
credited to the Interest Account as of the record date. For the purpose of
minimizing fluctuation in the distributions from the Interest Account, 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 on the ensuing record date. Persons who purchase Units will commence
receiving distributions only after such person becomes a record owner.
Notification to the Trustee of the transfer of Units is the responsibility of
the purchaser, but in the normal course of business such notice is provided by
the selling broker-dealer.
As of the first day of each month, the Trustee will deduct from the Interest
Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (as
determined on the basis set forth under "Trust Operating Expenses" ).
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any governmental charges payable
out of the Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate accounts. In addition, the Trustee may
withdraw from the Interest and Principal Accounts such amounts as may be
necessary to cover purchases of Replacement Securities and redemption of Units
by the Trustee.
Change of Distribution Option. The plan of distribution selected by a
Unitholder will remain in effect until changed. Those indicating no choice
will be deemed to have chosen the monthly distribution plan. Unitholders
purchasing Units in the secondary market will initially receive distributions
in accordance with the election of the prior owner. Unitholders may change the
plan of distribution in which they are participating. For the convenience of
Unitholders, the Trustee will furnish a card for this purpose; cards may also
be obtained upon request from the Trustee. Unitholders desiring to change
their plan of distribution may so indicate on the card and return it, together
with their certificate and such other documentation that the Trustee may then
require, to the Trustee. Certificates should only be sent by registered or
certified mail to minimize the possibility of their being lost or stolen. If
the card and certificate are properly presented to the Trustee, the change
will become effective as of the opening of business on the first day after the
next succeeding semi-annual record date and will be effective, unless further
changed, for all subsequent distributions.
Reinvestment Option. Unitholders of all unit investment trusts sponsored by
Van Kampen American Capital Distributors, Inc., may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of any Van Kampen American Capital mutual
funds (except for B shares) which are registered in the Unitholder's state of
residence. Such mutual funds are hereinafter collectively referred to as the
"Reinvestment Funds" .
By reinvesting distributions investors have the power to increase earning
potential by compounding. If Trust distributions are reinvested into
another investment, the return would be higher than if distrbutions were
taken merely out of the investment as a source of income.
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trusts. The prospectus relating to each
Reinvestment Fund describes the investment policies of such fund and sets
forth the procedures to follow to commence reinvestment. A Unitholder may
obtain a prospectus for the respective Reinvestment Funds from Van Kampen
American Capital Distributors, Inc. at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181. Texas residents who desire to reinvest may request that a
broker-dealer registered in Texas send the prospectus relating to the
respective fund.
After becoming a participant in a reinvestment plan, each distribution of
interest income, capital gains and/or principal on the participant's Units
will, on the applicable distribution date, automatically be applied, as
directed by such person, as of such distribution date by the Trustee to
purchase shares (or fractions thereof) of the applicable Reinvestment Fund at
a net asset value as computed as of the close of trading on the New York Stock
Exchange on such date. Unitholders with an existing Guaranteed Reinvestment
Option (GRO) Program account (whereby a sales charge is imposed on
distribution reinvestments) may transfer their existing account into a new GRO
account which allows purchases of Reinvestment Fund shares at net asset value
as described above.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund. A participant may
at any time prior to five days preceding the next succeeding distribution
date, by so notifying the Trustee in writing, elect to terminate his or her
reinvestment plan and receive future distributions of his or her Units in
cash. There will be no charge or other penalty for such termination. Each
Reinvestment Fund, its sponsor and investment adviser shall have the right to
terminate at any time the reinvestment plan relating to such fund.
Reports Provided. The Trustee shall furnish Unitholders in connection with
each distribution a statement of the amount of interest and, if any, the
amount of other receipts (received since the preceding distribution) being
distributed expressed in each case as a dollar amount representing the pro
rata share of each Unit outstanding. For as long as the Trustee deems it to be
in the best interests of the Unitholders, the accounts of the Trust shall be
audited, not less frequently than annually, by independent certified public
accountants and the report of such accountants shall be furnished by the
Trustee to Unitholders upon request. Within a reasonable period of time after
the end of each calendar year, the Trustee shall furnish to each person who at
any time during the calendar year was a registered Unitholder a statement (i)
as to the Interest Account: interest received (including amounts representing
interest received upon any disposition of the Securities), any accretion of
original issue discount, deductions for applicable taxes and for fees and
expenses of the Trust for purchases of Replacement Securities and for
redemptions of Units, if any, and the balance remaining after such
distributions and deductions, expressed in each case 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; (ii) as to the
Principal Account: the dates of disposition of any Securities and the net
proceeds received therefrom, the amount paid for purchases of Replacement
Securities and for redemptions of Units, if any, deductions for payment of
applicable taxes, fees and expenses of the Trust 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; (iii) a list of
the Securities held and the number of Units outstanding on the last business
day of such calendar year; (iv) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (v) amounts
actually distributed during such calendar year from the Interest and Principal
Accounts, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities in the Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in respect of
the other plan of distribution so that Unitholders may be informed regarding
the results of such other plan of distribution.
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee at its Unit Investment Trust Division, 101 Barclay
Street, New York, New York 10286 and, in the case of Units evidenced by a
certificate, by tendering such certificate to the Trustee, duly endorsed or
accompanied by proper instruments of transfer with signature guaranteed (or by
providing satisfactory indemnity, as in connection with lost, stolen or
destroyed certificates) and by payment of applicable governmental charges, if
any. No redemption fee will be charged. On the third business day following
such tender the Unitholder 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 4:00 P.M. Eastern time on days 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.
Under regulations issued by the Internal Revenue Service, the Trustee will be
required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may be
recovered by the Unitholder only when filing a return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification number
from the selling broker. However, at any time a Unitholder elects to tender
Units for redemption, such Unitholder should provide a tax identification
number to the Trustee in order to avoid this possible "back-up
withholding" in the event the Trustee has not been previously provided
such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal
Account. All other amounts will be withdrawn from the Principal Account. The
Trustee is empowered to sell underlying Securities in order to make funds
available for redemption. Units so redeemed shall be cancelled.
The Redemption Price per Unit (as well as the secondary market Public Offering
Price) will be determined on the basis of the bid price of the Securities in
the Trust, while the initial and primary Public Offering Price of Units will
be determined on the basis of the offering price of the Securities, as of 4:00
P.M. Eastern time on days of trading on the New York Stock Exchange on the
date any such determination is made. On the Initial Date of Deposit, the
Public Offering Price per Unit (which is based on the offering prices of the
Securities and includes the sales charge) exceeded the value at which Units
could have been redeemed (based upon the current bid prices of the Securities
in the Trust) by the amount shown under "Summary of Essential Financial
Information" . While the Trustee has the power to determine the Redemption
Price per Unit when Units are tendered for redemption, such authority has been
delegated to the Evaluator which determines the price per Unit on a daily
basis. The Redemption Price per Unit is the pro rata share of each Unit in the
Trust determined on the basis of (i) the cash on hand in the Trust or monies
in the process of being collected, (ii) the value of the Securities in the
Trust based on the bid prices of the Securities and (iii) interest accrued
thereon, less (a) amounts representing taxes or other governmental charges
payable out of the Trust and (b) the accrued expenses of the Trust. The
Evaluator may determine the value of the Securities in the Trust by employing
any of the methods set forth in "Public Offering--Offering Price" .
The price at which Units may be redeemed could be less than the price paid by
the Unitholder and may be less than the par value of the Securities
represented by the Units so redeemed.
As stated above, the Trustee may sell Securities to cover redemptions. When
Securities are sold, the size and diversity of the Trust will be reduced and
the quality of the Trust may diminish. Such sales may be required at a time
when Securities would not otherwise be sold and might result in lower prices
than might otherwise be realized. In the event Brady Bonds must be sold to
meet a redemption of a small number of Units or a series of such small
redemptions, there could be a significant return of principal to the
non-redeeming Unitholders. As a consequence, such non-redeeming Unitholders
might be unable at the time of receipt of such principal to reinvest such
proceeds in other securities at a yield equal to or in excess of the yield
which such proceeds were earning to Unitholders in the Trust. Further, if such
sales were required in such quantities so that the size of the Trust were to
be reduced below the minimum amount for which the Trust could be terminated,
the Trust might be terminated and a Unitholder's investment objectives might
be adversely affected. See "Trust Administration--Portfolio
Administration" and "Risk Factors" .
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
Securities in the Trust 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 Unitholders to redeem their Units.
TRUST ADMINISTRATION
Sponsor Purchases of Units. The Trustee shall notify the Sponsor of any tender
of Units for redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before the close of business on the second
succeeding business day and by making payment therefor to the Unitholder 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 resulting from the resale of such Units will
belong to the Sponsor which likewise will bear any loss resulting from a lower
offering or redemption price subsequent to its acquisition of such Units.
Portfolio Administration. The Trustee is empowered to sell, for the purpose of
redeeming Units tendered by any Unitholder, and for the payment of expenses
for which funds may not be available, such of the Securities designated by the
Supervisor as the Trustee in its sole discretion may deem necessary. The
Supervisor, in designating such Securities, will consider a variety of
factors, including (a) minimum denominations of the Securities and amount of
funds needed, (b) interest rates, (c) market value and (d) marketability. To
the extent Securities are sold in order to meet redemption requests, the
overall quality of the Securities remaining in the Trust's portfolio may tend
to diminish. See "Risk Factors" . The Sponsor is empowered, but not
obligated, to direct the Trustee to dispose of Securities in the event of an
advanced refunding.
The Sponsor is required to instruct the Trustee to reject any offer made by an
issuer of any of the Securities to issue new obligations in exchange or
substitution for any Security pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept or reject such an
offer or to take any other action with respect thereto as the Sponsor may deem
proper if (1) the issuer is in default with respect to such Security or (2) in
the written opinion of the Sponsor the issuer will probably default with
respect to such Security in the reasonably foreseeable future. Any obligation
so received in exchange or substitution will be held by the Trustee subject to
the terms and conditions of the Trust Agreement to the same extent as
Securities originally deposited thereunder. Within five days after the deposit
of obligations in exchange or substitution for underlying Securities, the
Trustee is required to give notice thereof to each Unitholder, identifying the
Securities eliminated and the Securities substituted therefor. Except as
stated herein and under "Trust Portfolio--Replacement Securities"
regarding the substitution of Replacement Securities for Failed Securities,
the acquisition by the Trust of any obligations other than the Securities
initially deposited is not permitted.
If any default in the payment of principal or interest on any Security occurs
and no provision for payment is made therefor within 30 days, the Trustee is
required to notify the Sponsor thereof. If the Sponsor fails to instruct the
Trustee to sell or to hold such Security within 30 days after notification by
the Trustee to the Sponsor of such default, the Trustee may in its discretion
sell the defaulted Security and not be liable for any depreciation or loss
thereby incurred.
Amendment or Termination. The Sponsor and the Trustee have the power to amend
the Trust Agreement without the consent of any of the Unitholders when such an
amendment is (a) to cure an ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein or (b) to make such other provisions as
shall not adversely affect the interest of the Unitholders (as determined in
good faith by the Sponsor and the Trustee), provided, however, that the Trust
Agreement may not be amended to increase the number of Units (other than as
provided in the Trust Agreement). The Trust Agreement may also be amended in
any respect by the Trustee and Sponsor, or any of the provisions thereof may
be waived, with the consent of the holders of 51% of the Units then
outstanding, provided that no such amendment or waiver will reduce the
interest in the Trust of any Unitholder without the consent of such Unitholder
or reduce the percentage of Units required to consent to any such amendment or
waiver without the consent of all Unitholders. The Trustee shall advise the
Unitholders of any amendment promptly after execution thereof.
The Trust may be terminated at any time by consent of Unitholders representing
51% of the Units of the Trust then outstanding or by the Trustee when the
value of the Trust, as shown by any semi-annual evaluation, is less than that
indicated under "Summary of Essential Financial Information" . The
Trust will be liquidated by the Trustee in the event that a sufficient number
of Units not yet sold are tendered for redemption by the Underwriters,
including the Sponsor, so that the net worth of the Trust would be reduced to
less than 40% of the initial principal amount of the Trust. If the Trust is
liquidated because of the redemption of unsold Units by the Underwriters, the
Sponsor will refund to each purchaser of Units the entire sales charge paid by
such purchaser. The Trust Agreement provides that the Trust shall terminate
upon the redemption, sale or other disposition of the last Security held in
the Trust, but in no event shall it continue beyond the end of the year
preceding the fiftieth anniversary of the Trust Agreement. In the event of
termination of the Trust, written notice thereof will be sent by the Trustee
to each Unitholder thereof at his address appearing on the registration books
of the Trust maintained by the Trustee, such notice specifying the time or
times at which the Unitholders may surrender his certificate or certificates,
if any, for cancellation. Within a reasonable time thereafter the Trustee
shall liquidate any Securities then held in the Trust and shall deduct from
the funds of the Trust any accrued costs, expenses or indemnities provided by
the Trust Agreement, including estimated compensation of the Trustee and costs
of liquidation and any amounts required as a reserve to provide for payment of
any applicable taxes or other governmental charges. The sale of Securities in
the Trust upon termination may result in a lower amount than might otherwise
be realized if such sale were not required at such time. For this reason,
among others, the amount realized by a Unitholder upon termination may be less
than the principal amount of Securities represented by the Units held by such
Unitholder. The Trustee shall then distribute to each Unitholder his share of
the balance of the Interest and Principal Accounts. With such distribution the
Unitholders shall be furnished a final distribution statement of the amount
distributable. At such time as the Trustee in its sole discretion shall
determine that any amounts held in reserve are no longer necessary, it shall
make distribution thereof to Unitholders in the same manner.
Limitation on Liabilities. The Sponsor, the Evaluator and the Trustee shall be
under no liability to Unitholders for taking any action or for refraining from
taking any action in good faith pursuant to the Trust Agreement, or for errors
in judgment, but shall be liable only for their own willful misfeasance, bad
faith or negligence (gross negligence in the case of the Sponsor) in the
performance of their duties or by reason of their reckless disregard of their
obligations and duties hereunder. The Trustee shall not be liable for
depreciation or loss incurred by reason of the sale by the Trustee of any of
the Securities. In the event of the failure of the Sponsor to act under the
Trust Agreement, the Trustee may act thereunder and shall not be liable for
any action taken by it in good faith under the Trust Agreement.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon or
upon it as Trustee under the Trust Agreement or upon or in respect of the
Trust 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 Trust Agreement contains other customary
provisions limiting the liability of the Trustee.
The Trustee, Sponsor and Unitholders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement 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 Unitholders 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.
Sponsor. Van Kampen American Capital Distributors, Inc., a Delaware
corporation, is the Sponsor of the Trust. Van Kampen American Capital
Distributors, Inc. is primarily owned by Clayton, Dubilier & Rice, Inc., a New
York-based private investment firm. Van Kampen American Capital Distributors,
Inc. management owns a significant minority equity position. Van Kampen
American Capital Distributors, Inc. specializes in the underwriting and
distribution of unit investment trusts and mutual funds with roots in money
management dating back to 1926.. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and has offices at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, (708) 684-6000 and 2800 Post Oak Boulevard,
Houston, Texas 77056, (713) 993-0500. It maintains a branch office in
Philadelphia and has regional representatives in Atlanta, Dallas, Los Angeles,
New York, San Francisco, Seattle and Tampa. As of December 31, 1995 the total
stockholders' equity of Van Kampen American Capital Distributors, Inc. was
$123,165,000 (unaudited). (This paragraph relates only to the Sponsor and not
to the Trust. 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.)
As of December 31, 1995, the Sponsor and its affiliates managed or supervised
approximately $56.0 billion of investment products, of which over $24.8
billion is invested in municipal securities. The Sponsor and its affiliates
managed $44.0 billion of assets, consisting of $22.2 billion for 63 open end
mutual funds (of which 47 are distributed by Van Kampen American Capital
Distributors, Inc.), $11.4 billion for 38 closed-end funds and $5.6 billion
for 84 institutional accounts. The Sponsor has also deposited approximately
$26 billion of unit investment trusts. All of Van Kampen American Capital's
open-end, closed-end and unit investment trusts are professionally distributed
by leading financial firms nationwide. Based on cumulative assets deposited,
the Sponsor believes that it is the largest sponsor of insured municipal unit
investment trusts, primarily through the success of its Insured Municipals
Income Trust(R)or the IM-IT(R)trust. The Sponsor also provides
surveillance and evaluation services at cost for approximately $13 billion of
unit investment trust assets outstanding. Since 1976, the Sponsor has serviced
over two million investor accounts, opened through retail distribution firms.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) 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,
(ii) terminate the Trust Agreement and liquidate the Trust as provided therein
or (iii) continue to act as Trustee without terminating the Trust Agreement.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its offices at 101 Barclay
Street, New York, New York 10286, (800) 221-7668. The Bank of New York is
subject to supervision and examination by the Superintendent of Banks of the
State of New York and the Board of Governors of the Federal Reserve System,
and its deposits are insured by the Federal Deposit Insurance Corporation to
the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Securities for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the number of Units of the
Trust held by every Unitholder of the Trust. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during usual
business hours. The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Rights of Unitholders--Reports Provided" ).
The Trustee is required to keep a certified copy or duplicate original of the
Trust Agreement on file in its office available for inspection at all
reasonable times during the usual business hours by any Unitholder, together
with a current list of the Securities held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign and
be discharged of the trust created by the Trust Agreement by executing an
instrument in writing and filing the same with the Sponsor. The Trustee or
successor trustee must mail a copy of the notice of resignation to all
Unitholders then of record, not less than 60 days before the date specified in
such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor
trustee promptly. If, upon such resignation, no successor trustee has been
appointed and 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 Sponsor may remove the Trustee and appoint a
successor trustee as provided in the Trust Agreement at any time with or
without cause. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original trustee shall vest in the 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.
OTHER MATTERS
Legal Opinions. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Tanner Propp, LLP, 99 Park Avenue, New York, New York
10016 has acted as counsel for the Trustee and as special counsel for the
Trust for New York tax matters.
Independent Certified Public Accountants. The statement of condition and the
related portfolio at the Initial Date of Deposit included in this Prospectus
have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report in the Prospectus, and are included
herein in reliance upon the authority of said firm as experts in accounting
and auditing.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Van Kampen American Captial Emerging Markets Income
Trust, Series 2:
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Van Kampen American
Capital Emerging Markets Income Trust, Series 2 as of December 31, 1995, and
the related statements of operations and changes in net assets for the period
from August 15, 1995 (date of deposit) through December 31, 1995. These
statements are the responsibility of the Trustee and the Sponsor. Our
responsibility is to express an opinion on such 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 at December 31, 1995 by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee and
the Sponsor, as well as evaluating the overall financial statement
presentation. We believe 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 Van Kampen American Capital
Emerging Markets Income Trust, Series 2 as of December 31, 1995, and the
results of operations and changes in net assets for the period from August 15,
1995 (date of deposit) through December 31, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 15, 1995
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST
SERIES 2
Statement of Condition
December 31, 1995
<TABLE>
<CAPTION>
EMIT 2
<S> <C>
Trust property
Cash................................................................................. $ --
Securities at market value, (cost $17,895,837) (note 1).............................. 19,648,750
Accrued Interest..................................................................... 307,771
Receivable for securities sold....................................................... --
$ 19,956,521
Liabilities and interest to Unitholders
Cash overdraft....................................................................... $ 154,976
Redemptions payable.................................................................. --
Interest to Unitholders.............................................................. 19,801,545
$ 19,956,521
Analysis of Net Assets
Interest of Unitholders (33,000 Units of fractional undivided interest outstanding)
Cost to original investors of 33,000 Units (note 1).................................. $ 18,906,406
Less initial underwriting commission (note 3)........................................ 876,896
18,029,510
Less redemption of Units (0 Units)................................................... --
18,029,510
Undistributed net investment income
Net investment income................................................................ 448,886
Less distributions to Unitholders.................................................... 429,764
19,122
Realized gain (loss) on Security sale or redemption.................................. --
Unrealized appreciation (depreciation) of Securities (note 2)........................ 1,752,913
Distributions to Unitholders of Security sale or redemption proceeds................. --
Net asset value to Unitholders....................................................... $ 19,801,545
Net asset value per Unit (33,000 Units outstanding)................................... $ 600.05
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
Statement of Operations
Period from August 15, 1995 (date of deposit) through December 31, 1995
<CAPTION>
1995
<S> <C>
Investment income
Interest income................................................... $ 457,153
Expenses
Trustee fees and expenses......................................... 6,753
Evaluator fees.................................................... 823
Insurance expense................................................. --
Supervisory fees.................................................. 691
Total expenses.................................................... 8,267
Net investment income............................................. 448,886
Realized gain (loss) from Bond sale or redemption
Proceeds.......................................................... --
Cost.............................................................. --
Realized gain (loss).............................................. --
Net change in unrealized appreciation (depreciation) of Bonds...... 1,752,913
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... $ 2,201,799
</TABLE>
<TABLE>
Statement of Changes in Net Assets
Period from August 15, 1995 (date of deposit) through December 31, 1995
<CAPTION>
1995
<S> <C>
Increase (decrease) in net assets
Operations:
Net investment income...................................................... $ 448,886
Realized gain (loss) on Bond sale or redemption............................ --
Net change in unrealized appreciation (depreciation) of Bonds.............. 1,752,913
Net increase (decrease) in net assets resulting from operations............ 2,201,799
Distributions to Unitholders from:
Net investment income...................................................... (429,764)
Bonds sale or redemption proceeds.......................................... --
Redemption of Units --
Total increase (decrease).................................................. 1,772,035
Net asset value to Unitholders..............................................
Beginning of period........................................................ 3,326,173
Additional Securities purchased from proceeds of unit sales................ 14,703,337
End of period (including undistributed net investment income of $19,122)... $ 19,801,545
</TABLE>
The accompanying notes are an integral part of these statements.
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST
SERIES 2
PORTFOLIO as of December 31, 1995
<TABLE>
<CAPTION>
December 31,
Aggregate 1995
Principal Name of Issuer, Title, Interest Rate and Maturity Date Market Value
<S> <C> <C>
5,500,000 Central Bank of Philippines Par Bonds, Series B, Secured by 25 yr. U.S. Treasury Zeros
6.25% Due 12/1/2017
Coupon Steps Effective:
$ 6.50% On 12/1/1997 $ 4,111,250
5,500,000 United Mexican States Par Bonds, Series A, Secured by 30 yr. U.S. Treasury Zeros
6.25% Due 12/31/2019 3,623,125
5,500,000 Republic of Venezuela Par Bonds, Series A, Secured by 30 yr. U.S. Treasury Zeros
6.75% Due 3/31/2020 3,162,500
5,500,000 Central Bank of Nigeria Par Bonds, Series WW, Secured by 30 yr. U.S. Treasury Zeros
6.25% Due 11/15/2020 2,722,500
5,500,000 Republic of Argentina Par Bonds, Series L, Secured by 30 yr. U.S. Treasury Zeros
5.00% Due 3/31/2023
Coupon Steps Effective:
5.25% On 3/31/1996 5.75% On 3/31/1998
5.50% On 3/31/1997 6.00% On 3/31/1999 3,155,625
5,500,000 Republic of Brazil Par Bonds, Series Z-L, Secured by 30 yr. U.S. Treasury Zeros
4.25% Due 4/15/2024
Coupon Steps Effective:
5.00% On 4/15/1996 5.75% On 4/15/1999
5.25% On 4/15/1997 6.00% On 4/15/2000
5.50% On 4/15/1998 2,873,750
$ 33,000,000 $ 19,648,750
</TABLE>
The accompanying notes are an integral part of this statement.
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
Notes to Financial Statements
December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Securities are stated at the value determined by the
Evaluator, Interactive Data Corporation. The Evaluator may determine the value
of the Securities (1) on the basis of current bid prices of the Securities
obtained from dealers or brokers who customarily deal in Securities comparable
to those held by the Trust, (2) on the basis of bid prices for comparable
Securities, (3) by determining the value of the Securities by appraisal or (4)
by any combination of the above.
Security Cost - The original cost to the Trust was based on the determination
by Interactive Data Corporation of the offering prices of the Securities on
the date of deposit (August 15, 1995). Since the valuation is based upon the
bid prices the Trust recognized a downward adjustment of $30,000 on the date
of deposit resulting from the difference between the bid and offering prices.
This downward adjustment was included in the aggregate amount of unrealized
appreciation reported in the financial statements for the period ended
December 31, 1995.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit based upon (1) the cash on hand in the Trust or monies in the process of
being collected, (2) the Securities in the Trust based on the value determined
by the Evaluator and (3) interest accrued thereon, less accrued expenses of
the Trust, if any.
Federal Income Taxes - Each Unitholder 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.
Other - The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2 - PORTFOLIO
Maturity - There is shown under this heading the year in which each issue of
Securities matures. Each Security is currently callable at par. Distributions
will generally be reduced by the amount of the income which would otherwise
have been paid with respect to redeemed Securities and there will be
distributed to Unitholders the principal amount received on such redemption.
The Estimated Current Return and Estimated Long-Term Return in this event may
be affected by such redemptions. For the Federal tax effect on Unitholders of
such redemptions and resultant distributions, see the description under "
Tax Status" .
Collateral - The following indicates for each Security in the Trust the amount
of collateral (all of which are comprised of cash and certain high quality
permitted investments) available to cover defaults in the payment of interest:
(a) Philippines Bonds-14 months interest guaranteed at 6.5% per annum with
U.S. Treasury obligations; (b) Mexico Bonds-18 months interest guaranteed; (c)
Venezuela Bonds-14 months interest guaranteed; (d) Nigeria Bonds-12 months
interest guaranteed and (e) Argentina Bonds-12 months interest at 6% per annum
guaranteed. The Brazil Bonds included in the portfolio as of the Initial Date
of Deposit (the "Series Y Bonds" ) do not provide collateral to cover
defaults in the payment of interest; however, no later than October 15, 1995,
the Series Y Bonds are to be exchanged for another series of the Brazil Bonds
(the "Series Z Bonds" ) which will provide collateral in the form of
cash and certain high quality permitted investments covering defaults in
payments of interest amounting to 12 months of interest payments. The terms of
the Series Z Bonds are identical to the Series Y Bonds with the exception of
the addition of the collateral protecting interest payments. The Brazil Brady
Plan requires that upon such exchange no less than all of the Series Y Bonds
must be exchanged for Series Z Bonds and does not require a vote of Bond
holders (such as the Trust) to be taken to effect the exchange.
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $1,916,975
Unrealized Depreciation (164,062)
$1,752,913
</TABLE>
NOTE 3 - OTHER
Marketability - Although it is not obligated to do so, the Sponsor intends to
maintain a market for Units and to continuously offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid price of
the Securities in the portfolio of the Trust, plus interest accrued to the
date of settlement. If the supply of Units exceeds demand, or for other
business reasons, the Sponsor may discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units, a
Unitholder desiring to dispose of his Units may be able to do so only by
tendering such Units to the Trustee for redemption at the redemption price.
Cost to Investors - The cost to original investors was based on the
Evaluator's determination of the aggregate offering price of the Bonds per
Unit on the date of an investor's purchase, plus a sales charge of 4.9% of the
public offering price which is equivalent to 5.152% of the aggregate offering
price of the Bonds. The secondary market cost to investors is based on the
Evaluator's determination of the aggregate bid price of the Bonds per Unit on
the date of an investor's purchase plus a sales charge based upon the years to
average maturity of the Bonds in the portfolio. The sales charge ranges from
1.0% of the public offering price (1.010% of the aggregate bid price of the
Bonds) for a Trust with a portfolio with less than two years to average
maturity to 5.40% of the public offering price (5.708% of the aggregate bid
price of the Bonds) for a Trust with a portfolio with twenty-one to
thirty or more years to average maturity.
Other Fees - The Evaluator, Interactive Data Corporation, receives an annual
fee for regularly evaluating the Trust's portfolio. The fee may be adjusted
for increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index.
NOTE 4 - REDEMPTION OF UNITS
During the period ended December 31, 1995, 0 Units were presented for
redemption.
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the Underwriters. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page
<S> <C>
Summary of Essential Financial Information 3
The Trust 5
Investment Objectives and Portfolio Selection 6
Trust Portfolio 6
Risk Factors 8
Estimated Current Return and Estimated
Long-Term Return 11
Trust Operating Expenses 12
Tax Status 13
Public Offering 17
Rights of Unitholders 22
Trust Administration 26
Other Matters 30
Report of Independent Certified Public Accountants 31
Statement of Condition 32
Analysis of Net Assets 32
Statement of Operations 33
Statement of Changes in Net Assets 33
Portfolio 34
Notes to Portfolio 35
</TABLE>
This Prospectus contains information concerning the Trust and the Sponsor, but
does not contain all of 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.
PROSPECTUS
April 17, 1996
Van Kampen American Capital
Emerging Markets Income Trust
Series 2
A Wealth of Knowledge A Knowledge of Wealthsm
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Please retain this Prospectus for future reference.
Contents of Post-Effective Amendment
to Registration Statement
This Post-Effective Amendment to the Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Van Kampen American Capital Emerging Markets Income Trust,
Series 2, 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 to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Chicago and State of Illinois on
the 24th day of April, 1996.
Van Kampen American Capital Emerging Markets
Income Trust, Series 2
(Registrant)
By: Van Kampen American Capital Distributors, Inc.
(Depositor)
By: Sandra A. Waterworth
Vice President
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities on April 24, 1996:
Signature Title
Don G. Powell Chairman and Chief )
Executive Officer )
)
William R. Molinari President and Chief )
Operating Officer )
)
Ronald A. Nyberg Executive Vice President )
and General Counsel )
)
William R. Rybak Executive Vice President )
and Chief Financial Officer)
Sandra A. Waterworth )
(Attorney in Fact)*
____________________
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 203
(File No. 33-65744) and with the Registration Statement on Form S-6
of Insured Municipals Income Trust, 170th Insured Multi-Series (File
No. 33-55891) and the same are hereby incorporated herein by this
reference.
Consent of Independent Certified Public Accountants
We have issued our report dated March 17, 1996 accompanying the
financial statements of Van Kampen American Capital Emerging Markets
Income Trust, Series 2 as of December 31, 1995, and for the period then
ended, contained in this Post-Effective Amendment No. 1 to Form S-6.
We consent to the use of the aforementioned report in the Post-
Effective Amendment and to the use of our name as it appears under the
caption "Auditors".
Grant Thornton LLP
Chicago, Illinois
April 24, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> EMIT
<CAPTION>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> AUG-15-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 17895837
<INVESTMENTS-AT-VALUE> 19648750
<RECEIVABLES> 0
<ASSETS-OTHER> 307771
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