File No. 33-61271 CIK #910034
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
POST-EFFECTIVE AMENDMENT NO. 3 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, 1998 pursuant to paragraph (b) of Rule 485.
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST
SERIES 2
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two. Please retain both parts of this Prospectus for future reference.
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" in Part Two.
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 the Trust during the secondary market
will include the aggregate bid price of the Bonds, an applicable sales charge,
cash, if any, in the Principal Account held or owned by the 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" in Part Two.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Date of this Prospectus is April 24, 1998
Van Kampen American Capital
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
Summary of Essential Financial Information
As of March 5, 1998
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: Interactive Data Corporation
Trustee: The Bank of New York
<TABLE>
<CAPTION>
EMIT
-----------------
<S> <C>
General Information
Principal Amount (Par Value) of Securities $ 26,000,000
Number of Units 25,522
Fractional Undivided Interest in Trust per Unit 1/25,522
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio $ 20,477,187.50
Aggregate Bid Price of Securities per Unit $ 802.33
Sales charge 5.708% (5.40% of Public Offering Price
excluding Principal Cash) $ 45.21
Principal Cash per Unit $ (10.20)
Public Offering Price per Unit (1) $ 837.34
Redemption Price per Unit $ 792.13
Excess of Public Offering Price per Unit over Redemption Price per Unit $ 45.21
Minimum Value of the Trust under which Trust Agreement may be terminated $ 1,200,000.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution $1.00 per Unit
Date of Deposit August 15, 1995
Mandatory Termination Date December 31, 2024
Evaluator's Annual Fee (4) $2,728
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 receipts by The Bank of New York of Units tendered for
redemption.
</TABLE>
<TABLE>
<CAPTION>
Special Information Based On Various Distribution Plans Monthly Semi-Annual
---------- ------------
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit $ 61.93 $ 61.93
Less: Estimated Annual Expense excluding Insurance $ 1.54 $ 1.38
Less: Annual Premium on Portfolio Insurance $ .00 $ .00
Estimated Net Annual Interest Income per Unit $ 60.39 $ 60.55
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income $ 60.39 $ 60.55
Divided by 12 and 2, respectively $ 5.03 $ 30.28
Estimated Daily Rate of Net Interest Accrual per Unit $ .16775 $ .16821
Estimated Current Return Based on Public Offering Price (2)(3) 7.12% 7.14%
Estimated Long-Term Return (2)(3) 7.78% 7.80%
Record and Computation Date TENTH day of the month as follows: monthly - each month; semi-annual - June and
December
Distribution Dates TWENTY-FIFTH day of the month as follows: monthly - each month; semi-annual - June and
December
Trustee's Annual Fee $.45 and $.35 per $1,000 principal amount of Bonds respectively, for those
portions of the Trust under the monthly and semi-annual distribution plans.
<F1>Plus accrued interest to the date of settlement (three business days after
purchase) of $5.06 and $15.15 for those portions of the Trust under the monthly and
semi-annual distribution plans.
<F2>The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge.
<F3>The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated Net
Annual Interest Income per Unit will vary with changes in fees and expenses of
the Trustee, the Evaluator and the Sponsor and with fluctuations in the relevant
currency exchange ratios 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 and with
fluctuations in the relevant currency exchange ratios; therefore, there is no
assurance that the present Estimated Current Return 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 on
premiums and the accretion of discounts) 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 and with
fluctuations in the relevant currency exchange ratios, there is no assurance
that the present Estimated Long-Term Return 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.
Neither Rate reflects the true return to Unitholders which is lower because
neither includes the effect of the delay in the first payment to Unitholders.
<F4>Notwithstanding information to the Contrary in Part Two of this Prospectus,
the Trust Indenture provides that as compensation for its services, the
Evaluator shall receive a fee of $2,520 for each evaluation. This fee may be
adjusted for increases in consumer prices for services under the category "All
Services Less Rent of Shelter" in the Consumer Price Index.
</TABLE>
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.
Moody's rated the Venezuela Bonds "Ba2" and the Brazil Bonds "B1" , while
Standard & Poor's rated the Argentina Bonds "BB-" and the Mexican Bonds and the
Philippines Bonds "BB." The remaining Bond is not rated. 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."
The Trust consists of the following six issues, 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.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
1995 (1) 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value per Unit at beginning of period $ 1,000.00 $ 600.05 $ 726.35
------------- ------------- -------------
Net asset value per Unit at end of period $ 600.05 $ 726.35 $ 795.39
------------- ------------- -------------
Distributions to Unitholders of investment income
including accrued interest paid on Units
redeemed (average Units outstanding for
entire period) (1) $ 78.14 $ 65.78 $ 65.58
------------- ------------- -------------
Distributions to Unitholders from Bond
redemption proceeds (average Units
outstanding for entire period) $ -- $ -- $ --
------------- ------------- -------------
Unrealized appreciation (depreciation) of Bonds
(per Unit outstanding at end of period) $ 53.12 $ 85.32 $ (10.67)
------------- ------------- -------------
Units outstanding at end of period $ 48,000 $ 37,718 $ 26,592
------------- ------------- -------------
(1)For the period from August 15, 1995 (date of deposit) through December 31,
1995
</TABLE>
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 Capital Emerging Markets Income Trust,
Series 2:
We have audited the accompanying statements of condition (including the analyses
of net assets) and the related portfolio of Van Kampen American Capital Emerging
Markets Income Trust, Series 2 as of December 31, 1997, 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 and the years ended
December 31, 1996 and 1997. 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, 1997 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, 1997, and the results
of operations and changes in net assets for the period from August 15, 1995
(date of deposit) through December 31, 1995 and the years ended December 31,
1996 and 1997, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 13, 1998
<TABLE>
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST SERIES 2
Statements of Condition
December 31, 1997
EMIT
--------------
<S> <C>
Trust property
Cash $ --
Obligations at market value, (cost $16,498,874) (note 1) 21,186,250
Accumulated interest 265,027
Receivable for securities sold --
-------------
$ 21,451,277
=============
Liabilities and interest to Unitholders
Cash overdraft $ 279,873
Redemptions payable 20,505
Interest to Unitholders 21,150,899
-------------
$ 21,451,277
=============
Analyses of Net Assets
Interest of Unitholders (26,592 Units of fractional undivided interest
outstanding)
Cost to original investors of 52,500 Units ( note 1) $ 31,836,500
Less initial underwriting commission (note 3) 1,476,629
-------------
30,359,871
Less redemption of Units (25,908 Units) 18,146,031
-------------
12,213,840
Undistributed net investment income
Net investment income 5,384,731
Less distributions to Unitholders 5,354,851
-------------
29,880
Realized gain (loss) on Security sale or redemption 4,219,803
Unrealized appreciation (depreciation) of Securities (note 2) 4,687,376
Distributions to Unitholders of Security sale or redemption proceeds --
-------------
Net asset value to Unitholders $ 21,150,899
=============
Net asset value per Unit (26,592 Units outstanding) $ 795.39
=============
The accompanying notes are an integral part of these statements.
</TABLE>
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
Statements of Operations
Period from August 15, 1995 through December 31, 1995 and the years ended
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Investment income
Interest income $ 457,153 $ 3,075,113 $ 1,963,311
Expenses
Trustee fees and expenses 6,753 56,066 41,046
Evaluator fees 823 2,739 2,728
Supervisory fees 691 -- --
------------- --------------- ---------------
Total expenses 8,267 58,805 43,774
------------- --------------- ---------------
Net investment income 448,886 3,016,308 1,919,537
Realized gain (loss) from Bond sale or redemption
Proceeds -- 9,273,315 8,673,812
Cost -- 7,422,188 6,305,136
------------- --------------- ---------------
Realized gain (loss) -- 1,851,127 2,368,676
Net change in unrealized appreciation (depreciation) of Bonds 1,752,913 3,218,077 (283,614)
------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,201,799 $ 8,085,512 $ 4,004,599
============= =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Period from August 15, 1995 through December 31, 1995 and the years ended
December 31, 1996 and 1997
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 448,886 $ 3,016,308 $ 1,919,537
Realized gain (loss) on Bond sale or redemption -- 1,851,127 2,368,676
Net change in unrealized appreciation (depreciation) of Bonds 1,752,913 3,218,077 (283,614)
------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations 2,201,799 8,085,512 4,004,599
Distributions to Unitholders from:
Net investment income (429,764) (3,001,906) (1,923,181
Bonds sale or redemption proceeds -- -- --
Redemption of Units -- (9,818,997) (8,327,034)
------------- --------------- ---------------
Total increase (decrease) 1,772,035 (4,735,391) (6,245,616)
Net asset value to Unitholders
Beginning of period 3,326,173 19,801,545 27,396,515
Additional Securities purchased from proceeds of unit sales 14,703,337 12,330,361 --
------------- --------------- ---------------
End of period (including undistributed net investment income of
$19,122, $33,524 and $29,880, respectively) $ 19,801,545 $ 27,396,515 $ 21,150,899
============= =============== ===============
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST
PORTFOLIO as of December 31,
1997
<CAPTION>
December 31,
1997
Port- Redemption Market
folio Aggregate Rating Feature Value
Item Principal Name of Issuer, Title, Interest Rate and Maturity Date (Note 2) (Note 2) (Note 1)
- --------- -------------- ------------------------------------------------------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
A $4,500,000 Central Bank Philippines Par Bonds, Secured by 25 yr. U.S.
Treasury Zeros, Series B (Interest Rate=4.25% to 12/93;
5.25% to 12/94; Thereafter Semi- Annually 5.75% to 12/95;
6.25% to 12/97;6.5% to Maturity) 6.250% Due 12/01/17 BB 1998@100 $3,802,500
- ----------------------------------------------------------------------------------------------------------------------------------
B 4,500,000 United Mexican States Par Bonds, Secured by 30 yr. U.S.
Treasury Zeros, Series A Annually 5.75% to 12/95; 6.25% to
12/97;6.5% to Maturity) 6.250% Due 12/31/19 BB 1998@100 3,768,750
- ----------------------------------------------------------------------------------------------------------------------------------
C 4,250,000 Republic of Venezuela Par Bonds, Secured by 30 yr. U.S.
Treasury Zeros, Series A Annually 5.75% to 12/95; 6.25% to
12/97;6.5% to Maturity) 6.750% Due 03/31/20 Ba2* 1998@100 3,697,500
- ----------------------------------------------------------------------------------------------------------------------------------
D 4,750,000 Central Bank of Nigeria Par Bonds, Secured by 30 yr. U.S.
Treasury Zeros, Series WW (Interest Rate=5.5% to 1/95; 6.25%
to Maturity) Annually 5.75% to 12/95; 6.25% to 12/97;6.5% to
Maturity) 6.250% Due 11/15/20 NR* 1998@100 3,325,000
- ----------------------------------------------------------------------------------------------------------------------------------
E 4,500,000 Republic of Argentina Par Bonds, Secured by 30 yr. U.S.
Treasury Zeros, Series L (Interest Rate=4.0% to 3/94; 4.25%
to 3/95; 5.0% to 3/96; 5.25% to 3/97; 5.5% to 3/98; 5.75% to
3/99; 6.0% to Maturity) 5.250% Due 03/31/23 BB- 3,307,500
- ----------------------------------------------------------------------------------------------------------------------------------
F 4,500,000 Republic of Brazil Par Bonds, Secured by 30 yr. U.S.
Treasury Zeros, Series Z-L (Interest Rate=4.0% to 4/95;
4.25% to 4/96; 5.0% to 4/97; 5.25% to 4/98; 5.5% to 4/99;
5.75% to 4/00; 6.0% to Maturity) 4.250% Due 04/15/24 B1* 1998@100 3,285,000
-------------- ----------------
$27,000,000 $21,186,250
============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST SERIES 2
Notes to Financial Statements
December 31, 1995 and 1996 and 1997
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
Ratings - The source of all ratings, exclusive of those designated N/R or * is
Standard & Poor's, A Division of McGraw-Hill. Ratings marked * are by Moody's
Investors Service, Inc. as these Bonds are not rated by Standard & Poor's, A
Division of McGraw-Hill or Moody's Investors Service, Inc. N/R indicates that
the Bond is not rated by Standard & Poor's, A Division of McGraw-Hill or Moody's
Investors Service, Inc. The ratings shown represent the latest published ratings
of the Bonds.
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, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 4,687,376
Unrealized Depreciation --
-----------
$ 4,687,376
===========
</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 and the years ended December 31, 1996
and 1997, 0 Units, 14,782 Units and 11,126 Units, respectively, were presented
for redemption.
EMERGING MARKETS INCOME TRUST
PROSPECTUS PART TWO
- --------------------------------------------------------------------------------
THE FUND. Van Kampen Merritt Emerging Markets Income Trust, Series 1 and Van
Kampen American Capital Emerging Markets Income Trust, Series 2 (the "Trusts")
are separate unit investment trusts which offer investors the opportunity to
purchase Units representing proportionate interests in a fixed 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"). Each Trust is comprised of that number of Units specified under
"Summary of Essential Financial Information" in Part One of this Prospectus.
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 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 the Brady Bonds deposited in the Trust are either
rated below investment grade or are 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. 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 secondary market Public Offering Price of each
Trust 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 the Bonds in the Trust were available for
direct purchase by investors, the purchase price of the Bonds would not include
the sales charge included in the Public Offering Price of the Units. See "Public
Offering".
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" appearing in Part One of this
Prospectus. 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" appearing in Part One of this Prospectus and under
"Estimated Current Return and Estimated Long Term Return".
DISTRIBUTION. Distributions of interest received by the Trust, pro-rated on
an annual basis, will be made monthly unless the Unitholder elects to receive
them semi-annually. Distributions of funds from the Principal Account, if any,
will be made on a semi-annual basis, except under certain special circumstances
(see "Rights of Unitholders--Distributions of Interest and Principal").
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. 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").
Units of the Trust are not insured by the FDIC, are not deposits or other
obligations of, or guaranteed by, and depository institution or any government
agency and are subject to investment risk, including possible loss of the
principal amount invested.
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE.
BOTH PARTS OF THIS PROSPECTUS SHOULD
BE RETAINED FOR FUTURE REFERENCE. THIS PROSPECTUS IS
DATED AS OF THE DATE OF THE PROSPECTUS PART I
ACCOMPANYING THIS PROSPECTUS PART II.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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".
THE TRUST
Van Kampen Merritt Emerging Markets Income Trust, Series 1 and Van Kampen
American Capital Emerging Markets Income Trust, Series 2 are separate unit
investment trusts created under the laws of the State of New York pursuant to a
Trust Indenture and 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 "Portfolio"
appearing in Part One of this Prospectus. 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.
Unless otherwise terminated as provided in "Summary of Essential Financial
Information" appearing in Part One, 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.
Each Unit represents a fractional undivided interest in the Trust. To the
extent that any Units are redeemed by the Trustee, the fractional undivided
interest in the Trust represented by each unredeemable Unit will increase
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 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 and fully collateralized as to principal by U.S. Treasury
zero coupon bonds and partially collateralized as to income payments. A
secondary investment objective is capital appreciation. For a brief description
of the interest collateralization of each Brady Bond, see "Notes to Portfolio"
appearing in Part One of this Prospectus.
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 collateralization as to
interest payments, (e) whether the Securities are U.S. dollar-denominated
securities and (f) the creditworthiness of the issuing countries.
TRUST PORTFOLIO
PORTFOLIO. The portfolio of each Trust consists of those issues set forth
under "Portfolio" in Part One of this Prospectus.
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.
Investors should recognize that Brady Bonds have been issued only recently,
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 final maturity of the Brady Bonds. Collateral purchases are financed by the
IMF, the World Bank and the debtor nations' reserves. In addition, all 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.
RISK FACTORS
SPECIAL BRADY BOND RISKS. The Brady Bonds in the Trusts have been issued in
minimum denominations of $250,000 and generally have 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" appearing in Part One, 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 Treasury bonds, payable upon the
stated maturity of the related Bonds. All 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 affect 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. The Securities in the Trust are either
rated below investment grade or are unrated (see "Investment Objectives and
Portfolio Selection"). 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 are 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 BONDS COLLATERAL RISKS. The principal of the Brady Bonds in the Trust
are collateralized by zero coupon 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 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 treasury
obligations. These 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. 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 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 are also
collateralized for a period of at least 12 months. 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."
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.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the date set forth in the "Summary of Essential Financial Information",
the Estimated Current Returns and the Estimated Long-Term Returns under the
monthly and semi-annual distribution plans were those indicated in the "Summary
of Essential Financial Information" appearing in Part One. 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.
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 for
evaluations and other out-of-pocket expenses 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. However, Van Kampen American Capital
Investment Advisory Corp. (the "Supervisor"), which is an affiliate of the
Sponsor, will receive an annual supervisory fee, which is not to exceed the
amount set forth under "Summary of Essential Financial Information", for
providing portfolio supervisory services for the Trust. Such fee (which is based
on the number of Units outstanding on January 1 of each year. may exceed the
actual costs of providing such supervisory services for this Trust, but at no
time will the total amount received for portfolio supervisory services rendered
to the Trust and to any other unit investment trusts sponsored by the Sponsor
for which the Supervisor provides portfolio supervisory services in any calendar
year exceed the aggregate cost to the Supervisor of supplying such services in
such year. 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. The Sponsor and the Underwriters 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
Compensation".
COMPENSATION OF EVALUATOR. The Evaluator shall receive the evaluation fee set
forth under "Summary of Essential Financial Information" appearing in Part One
of this Prospectus 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 an annual fee from
the Trust based on the largest aggregate amount of Securities in the Trust at
any time during such period. Such fee will be computed as set forth in the
"Summary of Essential Financial Information" in Part One. 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
For purposes of the following discussion and opinion, it is assumed that the
Securities are debt for Federal income tax purposes. 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 electable portion of such Security's stated
redemption price at maturity (or, if issued with original issue discount, the
electable 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 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. The secondary market public offering price is based on the bid
prices of the Obligations in the Trust, an applicable sales charge as determined
in accordance with the table set forth below, which is based upon the estimated
long-term return life of the Trust, cash, if any, in the Principal Account held
or owned by such Trust, and 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 charge rates will be applied to the Trust based upon the estimated
long-term return life 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%.
Employees, officers and directors (including their spouses, children,
grandchildren, parents, grandparents, siblings, mothers-in-law, fathers-in-law,
sons-in-law, daughters-in-law and trustees, custodians or fiduciaries for the
benefit of such persons) of Van Kampen American Capital Distributors, Inc. and
its affiliates, dealers and their affiliates, and vendors providing services to
the Sponsor may purchase Units at the Public Offering Price less the applicable
dealer concession.
Units may be purchased in the 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 bonafide employee of any firm offering Units for sale to
investors or their spouses or children 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 TO CARRY). In the case of Series 1,
accrued interest to carry consists of two elements. The first element arises as
a result of accrued interest which is the accumulation of unpaid interest on a
bond from the last day on which interest thereon was paid. Interest on
Securities in the Trust is actually paid either monthly or semi-annually to the
Trust. However, interest on the Securities in the Trust is accounted for daily
on an accrual basis. Because of this, the Trust always has an amount of interest
earned but not yet collected by the Trustee because of coupons that are not yet
due. For this reason, the Public Offering Price of Units will have added to it
the proportionate share of accrued and undistributed interest to the date of
settlement. For a description of the special treatment of accrued interest in
the case of a defaulted Brady Bond, see "Risk Factors--Special Brady Bond
Risks."
The Trustee advanced the amount of accrued interest as of the First
Settlement Date and the same was distributed to the Sponsor. Such advance was
repaid to the Trustee through the first receipts of interest received on the
Securities. Consequently, the amount of accrued interest added to the Public
Offering Price of Units included only accrued interest arising after the First
Settlement Date of the Trust, less any distributions from the Interest Account
subsequent to this First Settlement Date. Since the First Settlement Date is the
date of settlement for anyone who ordered Units on the Initial Date of Deposit,
no accrued interest was added to the Public Offering Price of Units ordered on
the Initial Date of Deposit.
The second element of accrued interest to carry arises because of the
structure of the Interest Account. The Trustee has no cash for distribution to
Unitholders until it receives interest payments on the Securities in the Trust.
The Trustee is obligated to provide its own funds, at times, in order to advance
interest distributions. The Trustee will recover these advancements when such
interest is received. Interest Account balances are established so that it will
not be necessary on a regular basis for the Trustee to advance its own funds in
connection with such interest distributions. The Interest Account balances are
also structured so that there will generally be positive cash balances and since
the funds held by the Trustee will be used by it to earn interest thereon, it
benefits thereby (see "Trust Operating Expenses--Trustee's Fee").
Accrued interest to carry is computed as of the Initial Record Date of the
Trust and is set forth in "Summary of Essential Financial Information" appearing
in Part One of this Prospectus. If a Unitholder sells or redeems all or a
portion of his Units or if the Securities in the Trust are sold or otherwise
removed or if the Trust is liquidated, he will receive at that time his
proportionate share of the accrued interest to carry computed to the settlement
date in the case of sale or liquidation and to the date of tender in the case of
redemption.
ACCRUED INTEREST. The following describes the treatment of accrued interest
for Series 2. 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 Unit.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee advanced 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 of 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" appearing in
Part One in accordance with fluctuations in the prices of the underlying
Securities in the Trust.
The Public Offering Price per Unit is 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. 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 follows: (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.
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. Units repurchased in the secondary market, if any, may be
offered by this Prospectus at the Public Offering Price, plus accrued interest,
computed as described herein, by the sponsor and through dealers.
Broker-dealers or others will be allowed a concession or agency commission
which 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.
The minimum purchase in the secondary market will be one Unit.
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 COMPENSATION. The Sponsor will receive the gross sales commission
equal to the sales charge described under "Summary of Essential Financial
Information" in Part One, less any reduced sales charge (as described under
"Public Offering--General" above). In addition, the Sponsor realized a profit or
sustained 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. 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.
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, and certain of
the other Underwriters may, maintain a secondary market for the Units of the
Trust. In so maintaining a market, the Sponsor or any such Underwriters will
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 or any such Underwriters 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. Although 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. 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 such other signature guarantee program in
addition to, or in substitution for, STAMP, as may be accepted by the Trustee.
In certain instances the Trustee may require additional documents such as, but
not limited to, trust instruments, certificates of death, appointments as
executor or administrator or certificates of corporate authority. 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 will be distributed on or
shortly after the twenty-fifth day of each month on a pro rata basis to
Unitholders of record as of the preceding record date (which will be the tenth
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 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 twenty-fifth 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 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.
On or before the twenty-fifth 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.
DISTRIBUTION OPTIONS. Unitholders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. The plan of distribution will remain in effect until changed.
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 for all subsequent distributions. 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 June and December.
Distributions will be made on the twenty-fifth day of the month subsequent to
the respective record dates.
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 certain Van Kampen American Capital or
Morgan Stanley mutual funds which are registered in the Unitholder's state or
residence. Such mutual funds are hereinafter collectively referred to as the
"Reinvestment Funds".
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 as described above (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 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, except for those cases in which the
value of insurance has been included, 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.
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 "Trust Portfolio--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" appearing
in Part One of the Prospectus. 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 initial Date of Deposit as indicated
in "Summary of Essential Financial Information" appearing in Part One of this
Prospectus. 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 gross negligence (negligence in the case of the Trustee) 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. The Sponsor is an indirect subsidiary
of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly owned subsidiary of MSAM
Holdings II, Inc., which in turn is a wholly owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD").
MSDWD is a global financial services firm with a market capitalization of
more than $21 billion which was created by the merger of Morgan Stanley Group
Inc. with and into Dean Witter, Discover & Co. on May 31, 1997. MSDWD, together
with various of its directly and indirectly owned subsidiaries, is engaged in a
wide range of financial services through three primary businesses: securities,
asset management and credit services. These principal businesses include
securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange commodities and swaps (involving foreign exchange,
commodities, indices and interest rating and investing; global custody,
securities clearance services and securities lending; and credit card services.
As of June 2, 1997, MSDWD, together with its affiliated investment advisory
companies, had approximately $270 billion of assets under management,
supervision or fiduciary advice.
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, (630) 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 and Seattle. As of November 30, 1996, the total
stockholders' equity of Van Kampen American Capital Distributors, Inc. was
$129,451,000 (unaudited). (This paragraph relates only to the Sponsor and not to
the Trusts or to any other Series thereof. 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 September 30, 1997, the Sponsor and its Van Kampen American Capital
affiliates managed or supervised approximately $65.3 billion of investment
products, of which over $10.85 billion is invested in municipal securities. The
Sponsor and its Van Kampen American Capital affiliates managed $54 billion of
assets, consisting of $34.3 billion for 55 open-end mutual funds (of which 45
are distributed by Van Kampen American Capital Distributors, Inc.) $14.2 billion
for 37 closed-end funds and $5.5 billion for 106 institutional accounts. The
Sponsor has also deposited approximately $26 billion of unit investment trusts.
All of Van Kampen American Capital's open-end funds, closed-ended funds 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 shall 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 Trusts 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 Unit Investment Trust
Division 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.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The statement of condition and the
related portfolio as of the date of this Prospectus included in this Prospectus
have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report in Part One of this Prospectus, and
are included herein in reliance upon the authority of said firm as experts in
accounting and auditing. 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 dealers. This Prospectus does not
constitute an offer to sell, or a solicitation of any offer to buy, securities
in any state to any persons to whom it is not lawful to make such offer in such
state.
Table of Contents Page
----------------- ------
The Trust 2
Investment Objectives and Portfolio Selection 2
Trust Portfolio 2
Portfolio 2
Brady Bonds 2
Risk Factors 2
Special Brady Bond Risks 2
Sovereign Debt Securities 3
Unrated and Low-Rated Instruments 3
Brady Bonds Collateral Risks 3
Liquidity 4
Estimated Current Returns and Estimated Long-Term Return 4
Trust Operating Expense 4
Initial Costs 4
Compensation of Sponsor 4
Trustee's Fee 4
Miscellaneous Expenses 4
Tax Status 5
Limitations on Deductibility of Trust
Expenses by Unitholders 5
Acquisition Premium 5
Original Issue Discount 5
Market Discount 5
Computation of the Unitholder's Tax Basis 5
Recognition of Taxable Gain or Loss Upon Disposition of
Securities by the Trust or Disposition of Units 6
Foreign Investors 6
General 6
Public Offering 6
General 6
Accrued Interest (Accrued Interest to Carry) 7
Accrued Interest 7
Offering Price 8
Unit Distribution 8
Sponsor Compensation 8
Public Market 8
Rights of Unitholders 8
Certificates 8
Distributions of Interest and Principal 9
Distribution Options 9
Reinvestment Option 9
Reports Provided 10
Redemption of Units 10
Trust Administration 10
Sponsor Purchases of Units 10
Portfolio Administration 11
Amendment or Termination 11
Limitation on Liabilities 11
Sponsor 11
Trustee 12
Other Matters 12
Legal Options 12
Independent Certified Public Accountants 12
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
EMERGING MARKETS
INCOME TRUST
PROSPECTUS
PART TWO
NOTE: THIS PROSPECTUS MAY BE USED ONLY
WHEN ACCOMPANIED BY PART ONE. BOTH
PARTS OF THIS PROSPECTUS SHOULD BE
RETAINED FOR FUTURE REFERENCE.
DATED AS OF THE DATE
OF THE PROSPECTUS
PART ONE ACCOMPANYING
THIS PROSPECTUS
PART TWO.
Sponsor:
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
------ A Wealth of Knowledge o Knowledge of Wealth(sm) ------
VAN KAMPEN AMERICAN CAPITAL
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, 1998.
VAN KAMPEN AMERICAN CAPITAL EMERGING MARKETS INCOME TRUST, SERIES 2
(Registrant)
By VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
(Depositor)
By: Gina Costello
Assistant Secretary
(SEAL)
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below on April 24, 1998 by the
following persons who constitute a majority of the Board of Directors of Van
Kampen American Capital Distributors, Inc.:
SIGNATURE TITLE
Don G. Powell Chairman and Chief )
Executive Officer )
John H. Zimmerman President and Chief Operating )
Officer )
Ronald A. Nyberg Executive Vice President and )
General Counsel )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Gina Costello_______
(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 Van Kampen American Capital Equity Opportunity Trust,
Series 64 (File No. 333-33087) and Van Kampen American Capital Equity
Opportunity Trust, Series 87 (File No. 333-44581) and the same are hereby
incorporated herein by this reference.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 13, 1998 accompanying the financial
statements of Van Kampen American Capital Emerging Markets Income Trust, Series
2 as of December 31, 1997, and for the period then ended, contained in this
Post-Effective Amendment No. 3 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, 1998
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<PER-SHARE-NAV-END> 795.386
<EXPENSE-RATIO> 0.002
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
