VAN KAMPEN MERRITT U S GOVERNMENT TRUST /IL/, 485BPOS, 1995-08-21

VAN KAMPEN MERRITT U S GOVERNMENT TRUST /IL/
485BPOS, 1995-08-21

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1995

REGISTRATION NOS. 2-89190

811-3950
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/

Post-Effective Amendment No. 27 /X/
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 28 /X/
</TABLE>

VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)

One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)
(708) 684-6000
(Registrant's Telephone Number)

Ronald A. Nyberg, Esq.
Executive Vice President,

General Counsel and Secretary,

Van Kampen American Capital, Inc.

One Parkview Plaza

Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)

Copies to:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
(312) 407-0700

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
following effectiveness of this Registration Statement.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE: (CHECK APPROPRIATE
BOX)

/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

/X/ ON SEPTEMBER 1, 1995 PURSUANT TO PARAGRAPH (B)

/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485.

IF APPROPRIATE CHECK THE FOLLOWING:

/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.

DECLARATION PURSUANT TO RULE 24F-2

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND WILL FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDING DECEMBER 31, 1995 ON OR ABOUT FEBRUARY 28, 1996.

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<PAGE> 2

VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND

CROSS REFERENCE SHEET

(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
---------------------------------- -----------------------------------------------------------
PART A INFORMATION REQUIRED IN A PROSPECTUS
<S> <C>
Item 1. Cover Page............. Cover Page

Item 2. Synopsis............... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLE

Item 3. Condensed Financial
Information.......... FINANCIAL HIGHLIGHTS; FUND PERFORMANCE

Item 4. General Description of
Registrant........... THE FUND'S INVESTMENT OBJECTIVE; HOW THE FUND SEEKS ITS
INVESTMENT OBJECTIVE; FUND ORGANIZATION
Item 5. Management of the
Fund................. SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLE; HOW THE FUND IS MANAGED
Item 6. Capital Stock and Other
Securities........... FUND ORGANIZATION; HOW TO BUY SHARES; HOW TO SELL SHARES;
DISTRIBUTION AND SERVICE PLANS; DISTRIBUTIONS AND TAXES;
ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered........ HOW TO BUY SHARES; DISTRIBUTION AND SERVICE PLANS

Item 8. Redemption or
Repurchase........... HOW TO BUY SHARES; HOW TO SELL SHARES

Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>

i
<PAGE> 3

<TABLE>
<CAPTION>
LOCATION OR CAPTION
ITEM NUMBER OF IN STATEMENT OF
FORM N-1A ADDITIONAL INFORMATION
---------------------------------- -----------------------------------------------------------
<C> <S> <C>
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page............. Cover Page
Item 11. Table of Contents...... Table of Contents
</TABLE>

<TABLE>
<C> <S> <C>
Item 12. General Information
and History.......... The Fund and the Trust
Item 13. Investment Objectives
and Policies......... Investment Policies and Restrictions; U.S. Government
Securities; Additional Investment Considerations
Item 14. Management of the
Fund................. Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities........... Officers and Trustees
Item 16. Investment Advisory and
Other Services....... Contained in Prospectus under captions: HOW THE FUND IS
MANAGED; DISTRIBUTION AND SERVICE PLANS; Legal Counsel;
Investment Advisory and Other Services; Custodian and
Independent Auditors; Officers and Trustees; The
Distributor; Notes to Financial Statements
Item 17. Brokerage Allocation... Contained in the Prospectus under caption: HOW THE FUND IS
MANAGED; Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities..... Contained in the Prospectus under caption: FUND
ORGANIZATION; The Fund and the Trust; Alternative Sales
Arrangements; Purchase of Shares
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered.............. Contained in Prospectus under captions: HOW TO BUY SHARES;
HOW TO SELL SHARES; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services; Redemptions;
Distributions from the Fund
Item 20. Tax Status............. Contained in Prospectus under captions: DISTRIBUTIONS AND
TAXES; Tax Status of the Fund
Item 21. Underwriters........... Contained in the Prospectus under captions: HOW TO BUY
SHARES; DISTRIBUTION AND SERVICE PLANS; The Distributor;
Alternative Sales Arrangements; Purchase of Shares; Notes
to Financial Statements
Item 22. Calculations of
Performance Data..... Contained in Prospectus under caption: FUND PERFORMANCE;
Performance Information
Item 23. Financial Statements... Contained in the Prospectus under caption: FINANCIAL
HIGHLIGHTS; Independent Auditors' Report; Financial
Statements; Notes to Financial Statements; Officers and
Trustees
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

ii
<PAGE> 4

--------------------------------------------------------------------------------

VAN KAMPEN AMERICAN CAPITAL

U.S. GOVERNMENT FUND
--------------------------------------------------------------------------------

Van Kampen American Capital U.S. Government Fund, formerly known as Van
Kampen Merritt U.S. Government Fund (the "Fund"), is a diversified series of the
Van Kampen American Capital U.S. Government Trust (the "Trust"), an open-end
management investment company. The Fund's investment objective is to provide a
high level of current income, with liquidity and safety of principal. The Fund
invests primarily in obligations issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities. The Fund may invest a substantial portion
of its assets in mortgage-backed securities issued by agencies of the U.S.
Government, some of which are backed by the full faith and credit of the U.S.
Government and others of which are backed only by the right of the issuer to
borrow from the U.S. Treasury or the credit of the issuer. The Fund may engage
in strategic transactions including borrowing for investment purposes and
utilizing financial derivative instruments, subject to the limitations set forth
in this Prospectus. Such transactions may entail certain risks, which are
described under "How the Fund Seeks Its Investment Objective." The net asset
value and the return of the Fund will fluctuate depending on market conditions
and other factors. The Fund is managed by Van Kampen American Capital Investment
Advisory Corp. (the "Adviser") and distributed by Van Kampen American Capital
Distributors, Inc. (the "Distributor").

Investors may elect to purchase Class A Shares, Class B Shares or Class C
Shares, each with different sales charges and expenses. The different classes of
shares permit an investor to choose the method of purchasing shares that is more
beneficial to the investor, taking into account the amount of the purchase, the
length of time the investor expects to hold the shares and other circumstances.
See "How to Buy Shares."

Additional information about the Fund is contained in a Statement of
Additional Information dated September 1, 1995, which has been filed with the
Securities and Exchange Commission, a copy of which may be obtained without
charge by calling: (800) 421-5666 (or (800) 772-8889 for the hearing impaired).
This Prospectus, which incorporates by reference the entire Statement of
Additional Information, concisely sets forth certain information about the Fund
that a prospective shareholder should know before investing in the Fund.
Shareholders should read this Prospectus carefully and retain it for future
reference. ------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

------------------
VAN KAMPEN AMERICAN CAPITAL SM

------------------

One Parkview Plaza
Oakbrook Terrace, Illinois 60181

(800) 421-5666

SEPTEMBER 1, 1995

<PAGE> 5

------------------------------------------------------------------------------

TABLE OF CONTENTS

------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder Transaction Expenses............................... 3
Annual Fund Operating Expenses and Example..................... 4
Financial Highlights........................................... 5
The Fund's Investment Objective................................ 7
How the Fund Seeks Its Investment Objective.................... 7
How the Fund Is Managed........................................ 11
How to Buy Shares.............................................. 13
How to Sell Shares............................................. 17
Distribution and Service Plans................................. 20
Distributions and Taxes........................................ 22
Fund Performance............................................... 22
Fund Organization.............................................. 23
Additional Information......................................... 23
</TABLE>

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.

2
<PAGE> 6

------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- ------------ ------------
<S> <C> <C> <C>
Maximum sales load imposed
on purchases (as a
percentage of the offering
price)..................... 4.75% (1) None None
Maximum sales load imposed
on reinvested dividends (as
a percentage of the
offering price)............ None None(3) None(3)
Deferred sales load (as a
percentage of the lesser of
the original purchase price
or redemption proceeds).... None (2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed).................. None None None
Exchange fees............... None None None
</TABLE>

----------------

(1) Reduced on investments of $100,000 or more. See "How to Buy Shares--

Class A Shares."

(2) Investments of $1 million or more are not subject to an initial sales
charge, but a contingent deferred sales charge of 1.00% may be imposed on
redemptions made within one year of the purchase.

(3) Subject to a 12b-1 fee, a portion of which may indirectly pay for the
initial sales commission incurred on behalf of the investor. See
"Distribution and Service Plans."

3
<PAGE> 7

------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES AND EXAMPLE

------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- ------- -------
<S> <C> <C> <C>
Management fees (as a percentage of average
daily net assets)............................ 0.50% 0.50% 0.50%
12b-1 fees (as a percentage of average daily
net assets).................................. 0.17%(1) 1.00% 1.00%
Other expenses (as a percentage of average
daily net assets):
Miscellaneous other expenses.......... 0.22% 0.23% 0.21%
Interest expenses..................... 0.27% 0.27% 0.27%
-------- ------- -------
Total other expenses (as a
percentage of average daily net
assets)......................... 0.49% 0.50% 0.48%
-------- ------- -------
Total expenses (as a percentage of average
daily
net assets)(2)............................... 1.16% 2.00% 1.98%
</TABLE>

----------------

(1) As of June 30, 1995, the Board of Trustees of the Trust reduced 12b-1 and
service fees for the Fund's Class A Shares to 0.25%. Such fees are being
phased-in and it is anticipated that such fees will increase over time to
the maximum aggregate amount of 0.25% of the net assets attributable to the
Class A Shares. See "Distribution and Service Plans."

(2) The Fund incurred financing expenses related to borrowings for investment
purposes. Borrowings provide the opportunity for increased net income, but
may increase the Fund's investment risk. "Total expenses" without regard to
the "Interest expenses" would have been 0.89%, 1.73% and 1.71% for each of
the Class A Shares, Class B Shares and Class C Shares, respectively. See
"Financial Highlights" and "How the Fund Seeks Its Investment Objective."

EXAMPLE:

A $1,000 investment would have the following transaction costs and operating
expenses assuming a 5% annual return. This example should not be considered
indicative of actual or expected Fund performance or expenses, both of which
will vary.

<TABLE>
<CAPTION>
WITH REDEMPTION AT
THE END OF PERIOD: ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
------------------------------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares................. $ 56 $ 75 $ 94 $ 152
Class B Shares................. $ 58 $ 89 $109 $ 161*
Class C Shares................. $ 27 $ 54 $ 93 $ 202
</TABLE>

<TABLE>
<CAPTION>
WITHOUT REDEMPTION AT THE END
OF PERIOD:
-------------------------------
<S> <C> <C> <C> <C>
Class A Shares................. $ 56 $ 75 $ 94 $ 152
Class B Shares................. $ 18 $ 54 $ 94 $ 161*
Class C Shares................. $ 17 $ 54 $ 93 $ 202
</TABLE>

----------------

* Class B Shares convert to Class A Shares at the end of six years after
purchase; ten-year amounts reflect lower expenses applicable to such shares
after conversion.

4
<PAGE> 8

--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS (for a share outstanding throughout the period)

--------------------------------------------------------------------------------

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund outstanding throughout the
periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the periods
indicated and their report thereon appears in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and related notes thereto included in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CLASS A SHARES
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 15.662 $ 15.720 $ 16.130 $ 15.253 $ 15.280 $ 14.695 $ 15.046
-------- -------- -------- -------- -------- -------- --------
Net Investment Income............................... 1.777 1.286 1.365 1.390 1.407 1.404 1.319
Net Realized and Unrealized Gain/Loss on
Investments....................................... (1.965) (.060) (.407) .897 (.024) .558 (.221)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations...................... (.788) 1.226 .958 2.287 1.383 1.962 1.098
-------- -------- -------- -------- -------- -------- --------
Less:
Distributions from and in Excess of Net Investment
Income............................................ 1.176 1.284 1.368 1.410 1.410 1.377 1.319
Distributions from Net Realized Gain on
Investments....................................... -- -- -- -- -- -- --
Return of Capital Distribution...................... -- -- -- -- -- -- .130
-------- -------- -------- -------- -------- -------- --------
Total Distributions................................... 1.176 1.284 1.368 1.410 1.410 1.377 1.449
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period........................ $ 13.698 $ 15.662 $ 15.720 $ 16.130 $ 15.253 $ 15.280 $ 14.695
======= ======= ======= ======= ======= ======= =======
Total Return (non-annualized)......................... (5.10%) 7.95% 6.27% 15.80% 9.62% 13.88% 7.50%
Net Assets at End of Period (in millions)............. $2,924.4 $3,653.6 $3,571.7 $3,505.9 $3,329.0 $3,550.5 $3,825.6
Ratio of operating Expenses to Average Net Assets
(annualized)........................................ .92% .87% .77% .68% .72% .65% .71%
Ratio of Interest Expense to Average Net Assets
(annualized)........................................ .08% N/A N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets
(annualized)........................................ 8.13% 8.08% 8.64% 8.97% 9.38% 9.37% 8.85%
Portfolio Turnover.................................... 43.69% 67.04% 110.94% 26.87% 56.16% 101.12% 166.70%

1987 1986 1985
-------- -------- --------
<S> <<C> <C> <C>
Net Asset Value, Beginning of Period.................. $ 16.568 $ 16.253 $ 15.067
-------- -------- --------
Net Investment Income............................... 1.384 1.510 1.701
Net Realized and Unrealized Gain/Loss on
Investments....................................... (1.264) .634 1.436
-------- -------- --------
Total from Investment Operations...................... .120 2.144 3.137
-------- -------- --------
Less:
Distributions from and in Excess of Net Investment
Income............................................ 1.400 1.498 1.716
Distributions from Net Realized Gain on
Investments....................................... .081 .331 .235
Return of Capital Distribution...................... .161 -- --
-------- -------- --------
Total Distributions................................... 1.642 1.829 1.951
-------- -------- --------
Net Asset Value, End of Period........................ $ 15.046 $ 16.568 $ 16.253
======= ======= =======
Total Return (non-annualized)......................... 1.45% 14.09% 22.33%
Net Assets at End of Period (in millions)............. $4,814.6 $4,450.3 $1,810.2
Ratio of operating Expenses to Average Net Assets
(annualized)........................................ .60% .56% .61%
Ratio of Interest Expense to Average Net Assets
(annualized)........................................ N/A N/A N/A
Ratio of Net Investment Income to Average Net Assets
(annualized)........................................ 8.96% 8.97% 10.01%
Portfolio Turnover.................................... 124.19% 154.33% 171.66%
</TABLE>

---------------
N/A -- Prior to 1994, interest expense was immaterial and subsequently netted
against interest income.

See Financial Statements and Notes Thereto

5
<PAGE> 9

--------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS -- continued (for a share outstanding throughout the
period)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
----------------------------------- ------------------------------
AUGUST 24, AUGUST 13,
1992 1993
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OF
DEC. 31 DISTRIBUTION) DISTRIBUTION)
------------------ TO DEC. 31, YEAR ENDED TO DEC. 31,
1994 1993 1992 DEC. 31, 1994 1993
------- ------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $15.643 $15.709 $15.983 $15.626 $16.000
------- ------- ------- ------- -------------
Net Investment Income.................................. 1.055 1.149 .425 1.063 .433
Net Realized and Unrealized Loss on Investments........ (1.964) (.063) (.263) (1.956) (.364)
------- ------- ------- ------- -------------
Total from Investment Operations......................... (.909) 1.086 .162 (.893) .069
------- ------- ------- ------- -------------
Less:
Distributions from Net Investment Income............... 1.04 1.152 .436 1.04 .443
------- ------- ------- ------- -------------
Net Asset Value, End of Period........................... $13.694 $15.643 $15.709 $13.693 $15.626
======= ======= ======= ======= -------------
Total Return (non-annualized)............................ (5.93%) 7.01% 1.64% (5.86%) .46%
Net Assets at End of Period (in millions)................ $ 436.3 $ 474.7 $ 103.1 $ 11.4 $ 9.6
Ratio of Operating Expenses to Average Net Assets
(annualized)........................................... 1.74% 1.73% 1.61% 1.74% 1.71%
Ratio of Interest Expense to Average Net Assets
(annualized)........................................... .09% N/A N/A .10% N/A
Ratio of Net Investment Income to Average Net Assets
(annualized)........................................... 7.29% 7.00% 6.16% 7.29% 6.42%
Portfolio Turnover....................................... 43.69% 67.04% 110.94% 43.69% 67.04%
</TABLE>

----------------

N/A -- Prior to 1994, interest expense was immaterial and subsequently netted
against interest income.

See Financial Statements and Notes Thereto

6
<PAGE> 10

------------------------------------------------------------------------------

THE FUND'S INVESTMENT OBJECTIVE

------------------------------------------------------------------------------

The Fund's investment objective is to provide a high level of current income,
with liquidity and safety of principal. This objective is fundamental and cannot
be changed without shareholder approval. There are risks inherent in all
securities investments and there can be no assurance that the Fund will achieve
its objective. An investment in the Fund may not be appropriate for all
investors. The Fund is not intended to be a complete investment program, and
investors should consider their long-term investment goals and financial needs
when making an investment decision with respect to the Fund. An investment in
the Fund is intended to be a long-term investment and should not be used as a
trading vehicle.

------------------------------------------------------------------------------

HOW THE FUND SEEKS ITS INVESTMENT OBJECTIVE

------------------------------------------------------------------------------

The Fund seeks to achieve this objective by investing at least 65% of its
assets in obligations issued or guaranteed by the U.S. Government or in
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government (collectively, "U.S. Government Securities"). This policy is
fundamental and cannot be changed without shareholder approval. U.S. Government
Securities are considered among the most creditworthy of fixed income
investments; however, the yields on U.S. Government securities generally are
lower than yields available from corporate debt securities. The value of U.S.
Government Securities (as with most fixed income securities) generally varies
inversely with changes in prevailing interest rates. The magnitude of these
fluctuations generally is greater for securities with longer maturities. The
fluctuating value of U.S. Government Securities affects the Fund's net asset
value but will not affect investment income from those securities.

U.S. Government Securities include: (1) U.S. Treasury obligations and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities ("Agencies") which are supported by: (a) the full faith and
credit of the U.S. Government; (b) the right of the issuer or guarantor to
borrow an amount from a line of credit with the U.S. Treasury; (c) discretionary
power of the U.S. Government to purchase obligations of the Agencies or (d) the
credit of the Agencies. U.S. Government Securities may also include: (1) real
estate mortgage investment conduits ("REMICs"), collateralized mortgage
obligations ("CMOs") and other mortgage-backed securities ("Mortgage-Backed
Securities") issued or guaranteed by an Agency, (2) "when-issued" commitments
relating to the foregoing and (3) repurchase agreements ("Repos") collateralized
by U.S. Government Securities. The Fund invests in U.S. Government Securities of
varying maturities and interest rates, including investments in obligations
issued or guaranteed in zero coupon securities ("Zero Coupon Securities").

The Fund historically has invested substantially all of its assets in
Mortgage-Backed Securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans secured by real property.
Mortgage

7
<PAGE> 11

Backed Securities are issued or guaranteed by U.S. Government agencies or
instrumentalities, such as certificates issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-
Backed Securities also include mortgage pass-through certificates representing
participation interests in pools of mortgage loans originated by the U.S.
Government or private lenders and guaranteed by U.S. Government agencies such as
GNMA, FNMA or FHLMC. Guarantees by GNMA are backed by the full faith and credit
of the United States. Guarantees by other agencies or instrumentalities of the
U.S. Government, such as FNMA or FHLMC, are not backed by the full faith and
credit of the United States, although FNMA and FHLMC are authorized to borrow
from the U.S. Treasury to meet their obligations.

The yield and payment characteristics of Mortgage-Backed Securities differ
from traditional debt securities. Interest and principal payments are made
regularly and frequently, usually monthly, over the life of the mortgage loans
unlike traditional debt securities and principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time.
Faster or slower prepayments than expected on underlying mortgage loans can
dramatically alter the yield to maturity of a Mortgage-Backed Security. The
value of most Mortgage-Backed Securities, like traditional debt securities,
tends to vary inversely with changes in interest rates (i.e., as interest rates
increase, the value of such securities decrease). Mortgage-Backed Securities,
however, may benefit less than traditional debt securities from declining
interest rates because prepayment of mortgages tends to accelerate during
periods of declining interest rates. When mortgage loans underlying
Mortgage-Backed Securities held by the Fund are prepaid, the Fund reinvests the
prepaid amounts in other income-producing securities, the yields of which will
reflect interest rates prevailing at the time. Therefore, the Fund's ability to
maintain a portfolio of higher-yielding Mortgage-Backed Securities will be
adversely affected to the extent that prepayments must be reinvested in
securities which have lower yields. A more complete description of
Mortgage-Backed Securities is contained in the Statement of Additional
Information.

The Fund may invest in CMOs, which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities and multiclass pass-through
securities, which are equity interests in a trust composed of mortgage assets.
Payments of principal and interest on the mortgage assets, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distributions on the multiclass pass-through securities. A more
complete description of CMOs is contained in the Statement of Additional
Information.

The Fund may invest in Zero Coupon Securities. Zero Coupon Securities are U.S.
Treasury notes and bonds which are stripped of their unmatured interest coupons
and therefore pay no interest to its holder during the life thereof. Because
Zero Coupon Securities do not pay interest prior to maturity, such securities
usually trade at a deep discount from their face or par value and such
securities are subject

8
<PAGE> 12

to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which make current distributions
of interest. Even though the holder of a Zero Coupon Security does not receive
interest payments prior to maturity, a portion of the purchase price discount
must be accrued as income each year under current federal tax law. A more
complete description of Zero Coupon Securities is contained in the Statement of
Additional Information. In order to generate sufficient cash to make
distributions, the Fund may have to dispose of securities that it would
otherwise continue to hold, which, in some cases, may be disadvantageous to the
Fund. See "Distributions and Taxes."

The Fund may also engage in strategic transactions, purchase and sell
securities on a "when issued" and "delayed delivery" basis, enter into Repos and
reverse repurchase agreements, and lend portfolio securities in certain
circumstances, in each case subject to the limitations set forth below.

The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
equity and fixed-income indices, and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate transactions such as swaps, caps, floors or collars. Collectively,
all of the above are referred to as "Strategic Transactions". The Fund generally
seeks to use Strategic Transactions as a hedging technique to seek to protect
against possible adverse changes in the market value of the Fund's securities,
protect the Fund's unrealized gains, facilitate the sale of certain securities
for investment purposes, manage the effective maturity or duration of the Fund's
portfolio, or establish positions in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. The Fund may also
use some Strategic Transactions to seek to enhance income, although no more than
25% of the Fund's assets will be committed to Strategic Transactions entered
into for non-hedging purposes.

Strategic Transactions have risks including the possible default or
illiquidity of the other party to the transaction. Furthermore the ability to
successfully use Strategic Transactions depends on the Adviser's ability to
predict pertinent market movements, which cannot be assured. Thus, the use of
such Strategic Transactions may result in losses greater than if they had not
been used, require the Fund to sell or purchase portfolio securities at
inopportune times or for prices other than current market values, limit the
amount of appreciation the Fund can realize on an investment, or cause the Fund
to hold a security it might otherwise sell. Money paid by the Fund as premium
and money or other assets placed in margin accounts in connection with entering
into Strategic Transactions are not otherwise available to the Fund for
investment purposes. The Strategic Transactions that the Fund may use and some
of their risks are described more fully in the Fund's Statement of Additional
Information.

The Fund may purchase and sell "when issued" and "delayed delivery"
securities. The Fund accrues no income on such securities until the Fund
actually takes delivery of such securities. These transactions are subject to
market fluctuation; the

9
<PAGE> 13

value of the securities at delivery may be more or less than their purchase
price. The yields generally available on comparable securities when delivery
occurs may be higher than yields on the securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller to consummate the
transaction, failure by the other party to complete the transaction may result
in the Fund missing the opportunity of obtaining a price or yield considered to
be advantageous. The Fund will engage in when issued and delayed delivery
transactions for the purpose of acquiring securities consistent with the Fund's
investment objective and policies and not for the purpose of investment
leverage.

The Fund may enter into Repos whereby the Fund acquires securities and agrees
to resell the securities at an agreed upon time and at an agreed upon price. The
difference between the purchase amount and resale amount is accrued as interest
in the Fund's net income. Failure of the seller to repurchase the securities may
cause losses for the Fund. Thus, the Fund must consider the credit-worthiness of
such party. In the event of default by such party, the Fund may not have a right
to the underlying security and there may be possible delays and expenses in
liquidating the security purchased, resulting in a decline in its value and loss
of interest. The Fund will use Repos for short-term investments. The Fund
generally will not invest more than 15% of its total assets in Repos with a term
of seven days or more.

The Fund is authorized to borrow money from banks and to engage in reverse
repurchase agreements and dollar rolls in an aggregate amount up to 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); provided,
however, that with respect to such amount no more than 5% may be invested in
bank borrowings and reverse repurchase agreements. The use of such transactions
to purchase additional securities is known as "leverage". Leverage transactions
create an opportunity for increased net income but, at the same time, may
increase the volatility of the Fund's net asset value as a result of
fluctuations in market interest rates and increase the risk of the Fund's
portfolio. The principal amount of these transactions is fixed when the
transaction is opened, but the Fund's assets may change in value during the time
these transactions are outstanding. As a result, interest expenses and other
costs from these transactions may exceed the interest income and other revenues
earned from portfolio assets, and the net income of the Fund may be less than if
these transactions were not used. Reverse repurchase agreements are transactions
whereby the Fund sells certain securities concurrently with an agreement to
repurchase the same securities at a later date at a fixed price. During the
reverse repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities. Dollar rolls are transactions whereby the
Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
such securities. Reverse repurchase agreements and dollar rolls involve the risk
that the market value of the securities retained by the Fund may decline below
the price of the securities the Fund has sold but is obligated to repurchase
under the agreement.

10
<PAGE> 14

The Fund may lend its portfolio securities to banks or broker-dealers, to a
maximum of 25% of the total assets of the Fund, provided such loans are callable
at any time and are continuously secured by collateral consisting of cash or
U.S. Government Securities equal to at least 100% of the value of the securities
loaned, including accrued interest. The Fund will receive income for having made
the loan. The Fund is the beneficial owner of the loaned securities so that any
gain or loss in the market price during the loan inures to the Fund and its
shareholders.

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HOW THE FUND IS MANAGED

------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and over $50 billion under management or supervision.
Van Kampen American Capital's more than 40 open-end and 38 closed-end funds and
more than 2,700 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is
managed by Clayton, Dubilier & Rice, Inc. a New York based private investment
firm. The General Partner of C&D L.P. is Clayton & Dubilier Associates IV
Limited Partnership ("C&D Associates L.P."). The general partners of C&D
Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital own, in the aggregate, not more than 7% of the common stock of
VK/AC Holding Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 11% of the common stock of VK/AC Holding, Inc.
Presently, and after giving effect to the exercise of such options, no officer
or trustee of the Fund owns or would own 5% or more of the common stock of VK/AC
Holding, Inc.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
series. Subject to the Trustees' authority, the Adviser and the Fund's officers
supervise and implement the Fund's investment activities. The Fund pays the
Adviser a fee

11
<PAGE> 15

(accrued daily and paid monthly) equal to a percentage of the average daily net
assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY
NET ASSETS
(MILLIONS) % PER ANNUM
------------------------------------------------ -----------
<S> <C>
First $500...................................... 0.550%
Next $500....................................... 0.525%
Next $2,000..................................... 0.500%
Next $2,000..................................... 0.475%
Next $2,000..................................... 0.450%
Next $2,000..................................... 0.425%
Thereafter...................................... 0.400%
</TABLE>

Under its investment advisory agreement, the Fund has agreed to assume and pay
the charges and expenses of the Fund's operations, including the compensation of
the Trustees of the Trust (other than those who are affiliated persons, as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the Adviser,
the Distributor or Van Kampen American Capital), the charges and expenses of
independent accountants, legal counsel, any transfer or dividend disbursing
agent and the custodian (including fees for safekeeping of securities), costs of
calculating net asset value, costs of acquiring and disposing of portfolio
securities, interest (if any) on obligations incurred by the Fund, costs of
share certificates, membership dues in the Investment Company Institute or any
similar organization, reports and notices to shareholders, costs of registering
shares of the Fund under the federal securities laws, miscellaneous expenses and
all taxes and fees to federal, state or other governmental agencies.

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit trustees/directors, officers and
employees to buy and sell securities for their personal accounts subject to
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.

PORTFOLIO MANAGER. John E. Doyle, First Vice President of the Adviser, is
primarily responsible for the day to day management of the Fund's portfolio. Mr.
Doyle has been employed by the Adviser for the last five years.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for: decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The securities in which the Fund invests are traded
principally in the over-the-counter market. Over-the-counter securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a mark-up to the dealer. Securities purchased in underwritten offerings
generally include, in the price, a fixed amount of compensation for the
advisers, underwriters and dealers. The Fund may

12
<PAGE> 16

also purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid. Purchases and sales of securities on
a stock exchange are effected through brokers who charge a commission for their
services.

The Adviser's primary considerations in selecting the manner of executing
securities transactions for the Fund will be prompt execution of orders, the
size and breadth of the market for the security, the reliability, integrity and
financial condition and execution capability of the firm, the size of and
difficulty in executing the order, and the best net price. There are many
instances when, in the judgment of the Adviser, more than one firm can offer
comparable execution services. In selecting among such firms, consideration is
given to those firms which supply research and other services in addition to
execution services. For more information, see "Portfolio Transactions and
Brokerage Allocation" in the Statement of Additional Information.

In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser
and the Distributor or dealers participating in the offering of the Fund's
shares.

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HOW TO BUY SHARES

------------------------------------------------------------------------------

The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase ("Class A
Shares") or (b) on a contingent deferred basis (Class A Share accounts over $1
million, "Class B Shares" and "Class C Shares"). The three classes of shares
permit an investor to choose the method of purchasing shares that is most
beneficial to the investor, taking into account the amount of the purchase, the
length of time the investor expects to hold the shares, whether the investor
wishes to receive dividends in cash or to reinvest them in additional shares of
the Fund, and other circumstances. Class A Share accounts over $1 million or
otherwise subject to a contingent deferred sales charge ("CDSC"), Class B Shares
and Class C Shares sometimes are referred to herein collectively as "Contingent
Deferred Sales Charge Shares" or "CDSC Shares." The minimum initial investment
with respect to each class of shares is $500 and the minimum subsequent
investment with respect to each class of shares is $25. It is presently the
policy of the distributor of the Fund's shares not to accept any order for Class
B Shares or Class C Shares in an amount in excess of $1 million or more because
it ordinarily will be more advantageous for an investor making such an
investment to purchase Class A Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares
has: (i) distribution fees, service fees and administrative expenses unique to
its respective class of

13
<PAGE> 17

shares, (ii) exclusive voting rights on certain provisions of the Fund's Rule
12b-1 distribution plan which relate only to such class and (iii) different
exchange privileges. Furthermore, the Class B Shares have a conversion feature
(discussed below).

The Fund offers its three classes of shares to the public on a continuous
basis through Van Kampen American Capital Distributors, Inc. (the
"Distributor"), as principal underwriter, which is located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered through members
of the National Association of Securities Dealers, Inc. ("NASD") acting as
securities dealers ("dealers") and through NASD members acting as brokers for
investors ("brokers") or eligible non-NASD members acting as agents for
investors ("financial intermediaries"). The Fund reserves the right to suspend
or terminate the continuous public offering at any time and without prior
notice. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent for the Fund
and a wholly-owned subsidiary of Van Kampen American Capital, performs
bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which varies depending upon the total
amount of the sale. The table below shows sales charges and the aggregate amount
of the sales charges which are paid as dealer concessions or broker agency
commissions on sales of Class A Shares. The sales charges collected from the
investor are allocated between the investor's broker, dealer or financial
intermediary and the Distributor.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSIONS
OR AGENCY
TOTAL SALES CHARGE COMMISSION
------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
SIZE OF TRANSACTION OF OFFERING OF NET OF OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000........................ 4.75% 4.99% 4.25%
$100,000 but less than $250,000........... 3.75 3.90 3.25
$250,000 but less than $500,000........... 2.75 2.83 2.25
$500,000 but less than $1,000,000......... 2.00 2.04 1.75
$1,000,000 or more........................ * * *
------------------------------------------
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. See "How to Buy Shares -- Deferred Sales Charge Alternatives" for
additional information.

14
<PAGE> 18

QUANTITY DISCOUNTS AND OTHER PURCHASE PROGRAMS. The Fund's Statement of
Additional Information contains more detailed information about quantity
discounts and other purchase programs available to purchasers of Class A Shares.
Interested investors may obtain a free copy of the Fund's Statement of
Additional Information by calling (800) 421-5666 (or (800) 772-8889 for the
hearing impaired).

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of these CDSC Shares is equal to the net asset value per
share. The investor incurs no initial sales charge at the time of purchase.
However, as discussed below, the investor may be subject to a contingent
deferred sales charge upon disposition of such shares depending on the length of
time the investor holds such shares. The Distributor compensates brokers,
dealers and financial intermediaries for participating in the continuous public
offering of the CDSC Shares but does so out of its own assets and not out of the
assets of the Fund. The amount paid to brokers, dealers and financial
intermediaries varies as a percentage of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries.
The percentage rate equals: (i) with respect to Class A Shares, 1.00% on sales
to $2 million, plus 0.80% on the next million, plus 0.20% on the $2 million and
0.08% on the excess over $5 million; (ii) 4.00% with respect to the Class B
Shares and (iii) 1.00% with respect to the Class C Shares. When an investor
sells its CDSC Shares, any applicable CDSC is paid to the Distributor and used
by the Distributor to defray its expenses related to providing distribution-
related services to the Fund in connection with the sale of such CDSC Shares,
including the payment of compensation to dealers and agents for selling such
shares. The discussions of Class A Shares, Class B Shares and Class C Shares
below summarize an investor's contingent deferred sales charge. The contingent
deferred sales charge and the distribution and service fees (see "Distribution
and Service Plans" below) enable the Fund to sell such CDSC Shares without an
initial sales charge.

15
<PAGE> 19

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a contingent deferred sales charge at the rates set forth
below, charged as a percentage of the dollar amount redeemed:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE REDEEMED
----------------------------------------------------- --------------------
<S> <C>
First................................................ 4.00%
Second............................................... 3.75%
Third................................................ 3.50%
Fourth............................................... 2.50%
Fifth................................................ 1.50%
Sixth................................................ 1.00%
Seventh and after.................................... 0.00%
</TABLE>

Conversion Feature. Six years after the end of the month in which a
shareholder's order to purchase a Class B Share of the Fund was accepted, such
Class B Share automatically will convert to a Class A Share and will no longer
be subject to the higher aggregate distribution and service fees. The purpose of
the conversion feature is to relieve the holders of Class B Shares that have
been outstanding for a period of time sufficient for the Distributor to have
been compensated for distribution expenses related to the Class B Shares from
most of the burden of such distribution-related expenses. The conversion feature
is subject to the continuing availability of an opinion of counsel to the Fund
regarding certain tax matters and the Fund may suspend such conversion feature
in the absence of such opinion.

CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a contingent deferred sales charge of
1.00% of the dollar amount subject thereto. Class C Shares redeemed thereafter
will not be subject to a contingent deferred sales charge. Class C Shares of the
Fund do not convert to Class A Shares.

WAIVERS OF CONTINGENT DEFERRED SALES CHARGE. The Fund's Statement of
Additional Information contains more detailed information about waivers of
contingent deferred sales charges available to purchasers of CDSC Shares.
Interested investors may obtain a free copy of the Fund's Statement of
Additional Information by calling (800) 421-5666 (or (800) 772-8889 for the
hearing impaired).

NET ASSET VALUE

The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting the total liabilities
attributable to such class of shares, and dividing the result by the number of
shares of such class outstanding. Generally, the

16
<PAGE> 20

net asset value for the Fund is computed once daily as of 5:00 p.m. Eastern time
Monday through Friday.

Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series.

OTHER PURCHASE INFORMATION

Purchases of a Fund's shares will be made in full and fractional shares. In
the interest of economy and convenience, certificates for shares will generally
not be issued.

The Distributor may from time to time implement special programs or contests
which are intended to result in sales of shares of the Fund. Such programs,
which will be conducted pursuant to objective criteria established by the
Distributor, generally will result in brokers, dealers and financial
intermediaries being paid additional amounts than those described above with
respect to sales of shares of the Fund. Such payments to brokers, dealers and
financial intermediaries for such programs are made by the Distributor out of
its own assets and not out of the assets of the Fund. These programs will not
change the price an investor pays for shares or the amount the Fund will receive
from such sale.

DIVIDEND REINVESTMENT PROGRAM

The Fund will automatically credit monthly and annual distributions to a
shareholder's account in additional shares of the Fund, without a sales charge.
Unless a shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 421-5666 (or (800)
772-8889 for the hearing impaired) or in writing to Van Kampen American Capital
Funds, c/o ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256.

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HOW TO SELL SHARES

------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, MO 64141-9256, by placing the
redemption request through an authorized dealer or by calling the Fund.

17
<PAGE> 21

proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
If certificates are held for the shares being redeemed, such certificates must
be endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within three business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the Securities and Exchange Commission ("SEC"). If the
shares to be redeemed have been recently purchased by check, ACCESS may delay
mailing a redemption check until it confirms that the purchase check has
cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.

DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.

18
<PAGE> 22

employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's other redemption
procedures previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be processed at the net asset
value per share determined that day. These privileges are available for all
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check or wiring redemption proceeds until it confirms that the
purchase check has cleared, usually a period of up to 15 days. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.

GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.

Further information regarding redemptions from the Fund is contained in the
Fund's Statement of Additional Information.

19
<PAGE> 23

------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

------------------------------------------------------------------------------

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan provide
that the Fund may spend a portion of the Fund's average daily net assets
attributable to each class of shares in connection with distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Fund may spend up to 0.25% per year
of the Fund's average daily net assets attributable to each class of shares
pursuant to the Service Plan in connection with the ongoing provision of
services to holders of such shares by the Distributor and brokers, dealers or
financial intermediaries in connection with the maintenance of such
shareholders' accounts. The Distribution Plan and the Service Plan are
implemented through an agreement with the Distributor and sub-agreements between
the Distributor and brokers, dealers or financial intermediaries (collectively,
"Selling Agreements") that may provide customers certain services or assistance.

CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. The Fund pays the
Distributor the lesser of the balance of the 0.25% not paid to brokers, dealers
or financial intermediaries pursuant to the Service Plan or the amount of the
Distributor's actual distribution-related expenses.

CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to

20
<PAGE> 24

holders of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, there is no carryover of such reimbursement
obligations to succeeding years.

The Distributor's expenses with respect to a class of CDSC Shares (for
purposes of this paragraph excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to such class of CDSC Shares under the Distribution Plan, the Service
Plan and payments received pursuant to the contingent deferred sales charge. Any
unreimbursed expenses will be carried forward and paid by the Fund (up to the
amount of the actual expenses incurred) in future years so long as such
Distribution Plan is in effect. Except as mandated by applicable law, the Fund
does not impose any limit with respect to the number of years into the future
that such unreimbursed expenses may be carried forward. Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation, amounts paid to the Distributor with respect to a particular CDSC
Share may be greater or less than the amount of the initial commission
(including carrying cost) paid by the Distributor with respect to such CDSC
Share. In such circumstances, the holder of such CDSC Share may be deemed to
incur expenses attributable to other shareholders of such class. As of December
31, 1994, there were $678,772 and $20,214 of unreimbursed distribution expenses
with respect to Class B Shares and Class C Shares, respectively, representing
0.02% and less than 0.01% of the Fund's total net assets. If the Distribution
Plan was terminated or not continued, the Fund would not be contractually
obligated to pay the Distributor for any expenses not previously reimbursed by
the Fund or recovered through contingent deferred sales charges.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the contingent deferred sales charge applicable
to a particular class of CDSC Shares to defray distribution-related expenses
attributable to any other class of CDSC Shares. Various federal and state laws
prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Fund's shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Fund would seek
alternate providers and expects that shareholders would not experience any
disadvantage.

21
<PAGE> 25

------------------------------------------------------------------------------

DISTRIBUTIONS AND TAXES

------------------------------------------------------------------------------

The Fund will declare distributions on a daily basis and will pay such
distributions from net investment income and net realized short-term capital
gains on a monthly basis. The Fund will also distribute annually any remaining
short-term capital gains together with long-term capital gains, if any.
Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ.

In order to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended, the Fund intends distribute substantially of
its net investment income and capital gains at least annually. Any distributions
in excess of the Fund's net investment income and capital gains will be a return
of principal, which will reduce the investor's tax basis in the shares.
Distributions of the Fund's net investment income are taxable to shareholders as
ordinary income whether received in shares or in cash. Distributions of the
Fund's net capital gains ("capital gains dividends") are taxable to shareholders
as long-term capital gains regardless of the length of time the shares of the
Fund have been held by such shareholders.

Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. For further information with respect to taxes, see
the Statement of Additional Information.

------------------------------------------------------------------------------

FUND PERFORMANCE

------------------------------------------------------------------------------

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares.

Further information about the Fund's performance is contained in the Fund's
Annual Report and the Fund's Statement of Additional Information, each of which
can be obtained without charge by calling (800) 421-5666 (or (800) 772-8889 for
the hearing impaired).

22
<PAGE> 26

------------------------------------------------------------------------------

FUND ORGANIZATION

------------------------------------------------------------------------------

The Fund is a diversified, open-end management investment company. The Fund is
a series of the Van Kampen American Capital U.S. Government Trust, a Delaware
business trust organized as of May 10, 1995 (the "Trust"). To date, the Fund is
the only series of the Trust, although the Trustees of the Trust are empowered
to organize and designate other series in the future. The Fund was originally
organized in 1984 under the name Van Kampen Merritt U.S. Government Fund Inc. as
a Maryland corporation and was reorganized in 1988 under the name Van Kampen
Merritt U.S. Government Fund as a sub-trust of Van Kampen Merritt U.S.
Government Trust, a Massachusetts business trust. The Fund was again reorganized
as of July 31, 1995 as a series of the Trust. Shares of the Trust entitle their
holders to one vote per share; however, separate votes are taken by each series
on matters affecting an individual series. The Trust does not contemplate
holding regular meetings of shareholders to elect Trustees or otherwise.
However, the holders of 10% or more of the outstanding Shares may by written
request require a meeting to consider the removal of Trustees by a vote of
two-thirds of the shares then outstanding cast in person or by proxy at such
meeting. More detailed information concerning the Trust is set forth in the
Statement of Additional Information.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes of shares, designated Class A Shares, Class B
Shares and Class C Shares. Each class of shares represents an interest in the
same assets of the Fund and are identical in all respects except that each class
bears certain distribution expenses and has exclusive voting rights with respect
to its distribution fee.

Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares into Class A Shares as described above. In the event of
liquidation, each of the shares of the Fund is entitled to its portion of all of
the Fund's net assets after all debt and expenses of the Fund have been paid.
Since Class B Shares and Class C Shares pay higher distribution expenses, the
liquidation proceeds to holders of Class B Shares and Class C Shares are likely
to be lower than to other shareholders. The fiscal year end of the Fund is
December 31.

------------------------------------------------------------------------------

ADDITIONAL INFORMATION

------------------------------------------------------------------------------

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the

23
<PAGE> 27

SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

Shareholder inquiries should be directed to: Van Kampen American Capital U.S.
Government Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence. The telephone number is (800) 421-5666 (or (800) 772-8889 for
the hearing impaired).

24
<PAGE> 28

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE

NUMBER--(800) 421-5666.

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE

NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 772-8889.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 421-5666.

VAN KAMPEN AMERICAN CAPITAL

U.S. GOVERNMENT FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
------------------
Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.

P.O. Box 418256

Kansas City, MO 64141-9256

Attn: Van Kampen American Capital Funds

Custodian

STATE STREET BANK AND
TRUST COMPANY

225 Franklin Street, P.O. Box 1713

Boston, MA 02105-1713

Attn: Van Kampen American Capital Funds

Legal Counsel

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, IL 60606

Independent Auditors

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 29

U.S. GOVERNMENT

FUND

------------------------------------------------------------------------------

P R O S P E C T U S

SEPTEMBER 1, 1995

------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 30

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND

Van Kampen American Capital U.S. Government Fund, formerly known as Van Kampen
Merritt U.S. Government Fund (the "Fund"), is a mutual fund organized as a
diversified series of Van Kampen American Capital U.S. Government Trust, a
Delaware business trust (the "Trust"). The Trust is an open-end management
investment company. The Fund's investment objective is to provide a high level
of current income with liquidity and safety of principal. The Fund invests in
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. The net asset value and the return of the Fund will fluctuate
depending on market conditions and other factors.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated September 1, 1995
(the "Prospectus"). This Statement of Additional Information does not include
all of the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge by calling the Fund's toll-free number: (800) 421-5666 (or (800)
772-8889 for the hearing impaired).

The Prospectus and this Statement of Additional Information omit certain of
the information contained in the registration statement filed with the
Securities and Exchange Commission, Washington, D.C. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
U.S. Government Securities........................................................... B-4
Additional Investment Considerations................................................. B-6
Officers and Trustees................................................................ B-13
Investment Advisory and Other Services............................................... B-18
Custodian and Independent Auditors................................................... B-20
Portfolio Transactions and Brokerage Allocation...................................... B-20
Tax Status of the Fund............................................................... B-21
The Distributor...................................................................... B-23
Legal Counsel........................................................................ B-24
Performance Information.............................................................. B-24
Alternative Sales Arrangements....................................................... B-26
Purchase of Shares................................................................... B-27
Shareholder Services................................................................. B-33
Redemptions.......................................................................... B-36
Distributions from the Fund.......................................................... B-38
Independent Auditors' Report......................................................... B-39
Financial Statements................................................................. B-40
Notes to Financial Statements........................................................ B-45
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER 1, 1995

B-1
<PAGE> 31

THE FUND AND THE TRUST

The Fund is an open-end diversified management investment company. Currently,
the Fund is the only series of the Trust. Other series may be organized and
offered in the future. The Fund was originally organized in 1984 under the name
Van Kampen Merritt U.S. Government Fund Inc. as a Maryland corporation and was
reorganized in 1988 under the name Van Kampen Merritt U.S. Government Fund as a
sub-trust of Van Kampen Merritt U.S. Government Trust, a Massachusetts business
trust. The Fund was again reorganized as of July 31, 1995 as a series of the
Trust.

The Trust is an unincorporated business trust established under the laws of
the state of Delaware by an Agreement and Declaration of Trust dated as of May
10, 1995 (the "Declaration of Trust"). The Declaration of Trust permits the
Trustees to create one or more separate investment portfolios and issue a series
of shares for each portfolio. The Trustees can further sub-divide each series of
shares into one or more classes of shares for each portfolio. The Trust can
issue an unlimited number of shares, $0.01 par value (prior to July 31, 1995,
the shares had no par value). Each share represents an equal proportionate
interest in the assets of the series with each other share in such series and no
interest in any other series. No series is subject to the liabilities of any
other series. The Declaration of Trust provides that shareholders are not liable
for any liabilities of the Trust or any of its series, requires inclusion of a
clause to that effect in every agreement entered into by the Trust or any of its
series and indemnifies shareholders against any such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of two-thirds of the shares then outstanding cast in person or by proxy at
such meeting.

The Trustees may amend the Declaration of Trust (including with respect to any
series) in any manner without shareholder approval, except that the Trustees may
not adopt any amendment adversely affecting the rights of shareholders of any
series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the Investment Company Act of 1940, as amended (the "1940 Act") or other
applicable law) and except that the Trustees cannot amend the Declaration of
Trust to impose any liability on shareholders, make any assessment on shares or
impose liabilities on the Trustees without approval from each affected
shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is to provide a high level of current
income, with liquidity and safety of principal. The Fund will invest at least
65% and up to 100% of its assets in obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities, including Government
National Mortgage Association Certificates of the modified pass-through type.
The Fund may also make other investments described in the Prospectus. The net
asset value and return of the Fund may vary.

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its agencies or instrumentalities), if,
as a result, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or, if, as
a result, the Fund would hold more than 10% of the outstanding voting
securities of an issuer. (There is no limit on the amount of the Fund's
assets which may be invested in the securities of any one issuer of
obligations issued or guaranteed by the United States Government or by its
agencies or instrumentalities.)

B-2
<PAGE> 32

2. Issue senior securities, borrow money or enter into reverse repurchase
agreements or dollar rolls in the aggregate in excess of 33 1/3 of the
Fund's total assets (after giving effect to any such borrowing); provided,
however, that with respect to such amount no more than 5% may be invested
in bank borrowings and reverse repurchase agreements. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances, borrowings, hedging transactions and risk management
techniques.

3. Buy any securities "on margin" or sell any securities "short."

4. Make investments for the purpose of exercising control or management.

5. Write, purchase or sell puts, calls or combinations thereof, or purchase
or sell interest rate futures contracts or related options, except that
the Fund may purchase or sell puts, calls or combinations thereof and may
purchase or sell commodities futures contracts on related put and call
options on such contracts for hedging purposes, in accordance with
applicable requirements of the SEC and the Commodity Futures Trading
Commission.

6. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition.

7. Invest in interests in oil, gas or other mineral exploration or
development programs.

8. Purchase or retain securities of any company if, to the knowledge of the
Fund, its officers and directors and officers and directors of the Fund's
investment adviser who individually own more than 1/2 of 1% of the
securities of such company together own beneficially more than 5% of such
securities.

9. Make loans, except that the Fund may purchase or hold debt obligations in
accordance with the investment restrictions set forth in paragraph 1
above, may enter into repurchase agreements, and may lend its portfolio
securities against collateral consisting of cash or of securities issued
or guaranteed by the U.S. Government or its agencies, which collateral is
equal at all times to at least 100% of the value of the securities loaned,
including accrued interest.

10. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

11. Purchase or sell real estate, commodities or commodity contracts, except
as set forth in 5 above.

12. Purchase or retain securities of issuers having a record of less than
three years continuous operation (such period of three years may include
the operation of predecessor companies or enterprises if the issuer came
into existence as a result of merger, consolidation or reorganization, or
the purchase of substantially all of the assets of the predecessor
companies or enterprises).

13. Invest more than 25% of its assets in a single industry. (Neither the U.S.
Government nor any of its agencies or instrumentalities will be considered
an industry for purposes of this restriction.)

The Fund may not change any of these investment restrictions without the
approval of the lesser of (i) more than 50% of the Fund's outstanding shares or
(ii) 67% of the Fund's shares present at a meeting at which the holders of more
than 50% of the outstanding shares are present in person or by proxy. As long as
the percentage restrictions described above are satisfied at the time of the
investment or borrowing, the Fund will be considered to have abided by those
restrictions even if, at a later time, a change in values or net assets causes
an increase or decrease in percentage beyond that allowed.

The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933, as amended, that are determined to be liquid by the
Adviser under guidelines adopted by the Board of Trustees of the Trust

B-3
<PAGE> 33

(under which guidelines the Adviser will consider factors such as trading
activities and the availability of price quotations), will not be treated as
restricted securities by the Fund pursuant to such rules. The Fund may, from
time to time, adopt a more restrictive limitation with respect to investment in
illiquid and restricted securities in order to comply with the most restrictive
state securities law, currently 10%. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended, which the Board of Trustees or the Fund's investment adviser
has determined under Board-approved guidelines to be liquid. The Fund's policy
with respect to investment in illiquid and restricted securities is not a
fundamental policy and may be changed by the Board of Trustees, in consultation
with the adviser, without obtaining shareholder approval.

The Fund will not generally engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objective. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates or to avoid
loss of premiums paid and unrealized capital gains earned on GNMA Certificates
selling at a substantial premium. Frequency of portfolio turnover will not be a
limiting factor if the Fund considers it advantageous to purchase or sell
securities. The Fund anticipates that the portfolio turnover rate of the Fund
will normally be less than 200%, and may be significantly less in a period of
stable or rising interest rates.

U.S. GOVERNMENT SECURITIES

U.S. Treasury Securities. The Fund may invest in U.S. Treasury securities,
including bills, notes and bonds issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
full faith and credit of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances.

Obligations Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. The Fund may invest in obligations issued by agencies of the
U.S. Government or instrumentalities established or sponsored by the U.S.
Government. These obligations, including those that are guaranteed by federal
agencies or instrumentalities, may or may not be backed by the full faith and
credit of the United States. Obligations of the Government National Mortgage
Association ("GNMA"), the Farmers Home Administration and the Export-Import Bank
are backed by the full faith and credit of the United States. Securities in
which the Fund may invest that are not backed by the full faith and credit of
the United States include, among others, obligations issued by the Tennessee
Valley Authority, the Resolution Trust Corporation, the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the United States Postal Service, each of which has the right to
borrow from the United States Treasury to meet its obligations, and obligations
of the Federal Farm Credit Bank and the Federal Home Loan Bank, the obligations
of which may be satisfied only by the individual credit of the issuing agency.
Investments in FHLMC, FNMA and other obligations may include collateralized
mortgage obligations and real estate mortgage investment conduits issued or
guaranteed by such entities. In the case of securities not backed by the full
faith and credit of the United States, the Fund must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment and may not
be able to assert a claim against the U.S. if the agency or instrumentality does
not meet its commitments.

Mortgage-Backed Securities Issued or Guaranteed by U.S. Government
Instrumentalities. The Fund may invest in mortgage-backed securities issued or
guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC and
representing undivided ownership interests in pools of mortgages. The mortgages
backing these securities may include conventional 30-year fixed rate mortgages,
15-year fixed rate mortgages, graduated payment mortgages and adjustable rate
mortgages. The U.S. Government or the issuing agency guarantees the payment of
the interest on and principal of these securities. However, the guarantees do
not extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates, nor do the guarantees extend to the yield
or value of the Fund's shares. These securities are in most cases "pass-through"
instruments, through which the holders receive a share of all interest and
principal payments from the mortgages underlying the securities, net of certain
fees. Because the principal amounts of such underlying mortgages may generally
be prepaid in whole or in part by the mortgagees at any time without penalty and
the

B-4
<PAGE> 34

prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life of a particular issue of pass-through
securities. Mortgage-backed securities are subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. The remaining
maturity of a mortgage-backed security will be deemed to be equal to the average
maturity of the mortgages underlying such security determined by the Adviser on
the basis of assumed prepayment rates with respect to such mortgages. The
remaining expected average life of a pool of mortgages underlying a
mortgage-backed security is a prediction of when the mortgages will be repaid
and is based upon a variety of factors such as the demographic and geographic
characteristics of the borrowers and the mortgaged properties, the length of
time that each of the mortgages has been outstanding, the interest rates payable
on the mortgages and the current interest rate environment. While the timing of
prepayments of graduated payment mortgages differs somewhat from that of
conventional mortgages, the prepayment experience of graduated payment mortgages
is basically the same as that of the conventional mortgages of the same maturity
dates over the life of the pool. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. When the mortgage obligations are prepaid, the Fund reinvests the
prepaid amounts in other income producing securities, the yields of which
reflect interest rates prevailing at the time. Therefore, the Fund's ability to
maintain a portfolio of high-yielding mortgage- backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid
mortgage-backed securities. Moreover, prepayments of mortgages which underlie
securities purchased by the Fund at a premium would result in capital losses.

Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. The Fund may invest in collateralized mortgage obligations
("CMOs"). CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but also may be collateralized by whole
loans or private pass-through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). Multiclass pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multiclass pass-through securities. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs deemed to be U.S. government securities are those
issued or guaranteed as to principal and interest by a person controlled or
supervised by and acting as an agency or instrumentality of the U.S. government.
The issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC").

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. The principal of and interest on the Mortgage
Assets may be allocated among the several classes of a series of a CMO in
innumerable ways.

The Fund may invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes. Substantially
all of the CMOs in which the Fund invests are PAC Bonds.

Stripped Mortgage-Backed Securities. The Fund also may invest in stripped
mortgage-backed securities ("SMBS") An SMBS is a derivative multiclass mortgage
security. SMBS usually are structured with two classes that receive different
proportions of the interest and principal distribution on a pool of Mortgage
Assets. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity

B-5
<PAGE> 35

on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on such security's
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. Conversely, if the underlying mortgage
assets experience less than anticipated prepayments of principal, the yield of
POs could be materially adversely affected. The market values of IOs and POs are
subject to greater risk of fluctuation in response to changes in market rates of
interest than many other types of government securities and, to the extent the
Fund invests in IOs and POs, increases the risk of fluctuations in the net asset
value of the Fund. The Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and through the use of
Strategic Transactions (described below).

ADDITIONAL INVESTMENT CONSIDERATIONS

The Fund may also engage in strategic transactions, purchase and sell
securities on a "when issued" and "delayed delivery" basis, enter into
repurchase and reverse repurchase agreements, and lend its portfolio securities
in certain circumstances, in each case subject to the limitations set forth
below. These investments entail risks.

Strategic Transactions. The Fund may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates and broad or specific market movements), to manage the
effective maturity or duration of the Fund's fixed-income securities or to
enhance potential gain. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative securities such as exchange-listed and over-the-counter put
and call options on securities, fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets fluctuations, to protect the
Fund's unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities.

Some Strategic Transactions may also be used to enhance potential gain
although no more than 25% of the Fund's assets will be committed to Strategic
Transactions entered into for non-hedging purposes. When the Fund sells an
option, if the underlying securities do not increase (in the case of a call
option) or decrease (in the case of a put option) to a price level that would
make the exercise of the option profitable to the holder of the option, the
option generally will expire without being exercised and the Fund will realize
as profit the premium received for such option. When a call option of which the
Fund is the writer is exercised, the option holder purchases the underlying
security at the strike price and the Fund does not participate in any increase
in the price of such securities above the strike price. In addition, the Fund
would need to replace the underlying securities at prices which may not be
advantageous to the Fund. When a put option of which the Fund is the writer is
exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

B-6
<PAGE> 36

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable. See "Tax Status of the Fund."

General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the

B-7
<PAGE> 37

absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from Standard &
Poor's Ratings Group ("S&P") or "P-1" from Moody's Investor Services, Inc.
("Moody's") or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 15% of its assets
in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets. All calls sold by the
Fund must be "covered" (i.e., the Fund must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though the Fund will
receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations and Eurodollar instruments (whether or not it holds the

B-8
<PAGE> 38

above securities in its portfolio.) The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect index futures and
Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

B-9
<PAGE> 39

Combined Transactions. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high-grade securities
at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high-grade assets equal to the excess of the index value over the
exercise price on a current

B-10
<PAGE> 40

basis. A put option written by the Fund requires the Fund to segregate liquid,
high-grade assets equal to the exercise price.

OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, and the Fund will segregate an amount of assets equal to
the full value of the option. OTC options settling with physical delivery, or
with an election of either physical delivery or cash settlement, will be treated
the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high-grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. See "Tax
Status of the Fund."

"When Issued" and "Delayed Delivery" Transactions. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on securities in connection with such purchase
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price, and
yields generally available on comparable securities when delivery occurs may be
higher or lower than yields on the securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or portfolio securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. The Fund will make
commitments to purchase securities on such basis only with the intention of
actually acquiring these securities, but the Fund may sell such securities prior
to the settlement date if such sale is considered to be advisable. To the extent
the Fund engages in "when issued" and "delayed delivery" transactions, it will
do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose of investment leverage.

B-11
<PAGE> 41

Repurchase Agreements. The Fund may enter into repurchase agreements with
banks and broker-dealers, under which the Fund purchases securities and agrees
to resell the securities at an agreed upon time and at an agreed upon price.
Under the 1940 Act, repurchase agreements may be considered collateralized loans
by the Fund, and the difference between the amount the Fund pays for the
securities and the amount it receives upon resale is accrued as interest and
reflected in the Fund's net income. When the Fund enters into repurchase
agreements, it relies on the seller to repurchase the securities. Failure to do
so may result in a loss for the Fund if the market value of the securities is
less than the repurchase price. At the time the Fund enters into a repurchase
agreement, the value of the underlying security including accrued interest will
be equal to or exceed the value of the repurchase agreement and, for repurchase
agreements that mature in more than one day, the seller will agree that the
value of the underlying security including accrued interest will continue to be
at least equal to the value of the repurchase agreement. In determining whether
to enter into a repurchase agreement with a bank or broker-dealer, the Fund will
take into account the credit-worthiness of such party. In the event of default
by such party, the Fund may not have a right to the underlying security and
there may be possible delays and expenses in liquidating the security purchased,
resulting in a decline in its value and loss of interest. The Fund will use
repurchase agreements as a means of making short-term investments, and will
invest in repurchase agreements of duration of seven days or less in an amount
not exceeding 25% of the net assets of the Fund. The Fund's ability to invest in
repurchase agreements that mature in more than seven days is subject to an
investment restriction that limits the Fund's investment in "illiquid"
securities, including such repurchase agreements, to 15% of the Fund's net
assets.

Reverse Repurchase Agreements and Dollar Rolls. In order to seek a high level
of current income, the Fund may enter into reverse repurchase agreements with
respect to securities which could otherwise be sold by the Fund. Reverse
repurchase agreements involve sales by the Fund of portfolio assets concurrently
with an agreement by the Fund to repurchase the same assets at a later date at a
fixed price. During the reverse repurchase agreement period, the Fund continues
to receive principal and interest payments on these securities.

In order to seek a high level of current income, the Fund may enter into
dollar rolls in which the Fund sells securities for delivery in the current
month and simultaneously contracts to repurchase, typically in 30 or 60 days,
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund forgoes principal and interest
paid on such securities. The Fund is compensated by the difference between the
current sales price and the forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. A "covered roll" is a specific type of dollar roll
for which there is an offsetting cash position or cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction.

The Fund will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value to its obligations in respect of reverse repurchase
agreements and dollar rolls and, accordingly, the Fund will not treat such
obligations as senior securities for purposes of the 1940 Act. "Covered rolls"
are not subject to these segregation requirements. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities
retained by the Fund may decline below the price of the securities the Fund has
sold but is obligated to repurchase under the agreement. In the event the buyer
of securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.

The Fund is authorized to borrow money from banks or otherwise in an amount up
to 33 1/3% of the Fund's total assets (after giving effect to any such
borrowing). The Fund considers reverse repurchase agreements and dollar rolls to
be borrowings for purposes of such percentage limitation. No more than 5% of the
Fund's total assets may be invested in bank borrowings and reverse repurchase
agreements. The Fund will borrow only when the Adviser believes that such
borrowings will benefit the Fund.

Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, increases the risk of the Fund's portfolio. Leveraging by the
Fund will generally increase the volatility of the Fund's net asset value in
response to fluctuations in market interest rates and accordingly may increase
the risk of the

B-12
<PAGE> 42

Fund's portfolio. Although the principal of such borrowings will be fixed, the
Fund's assets may change in value during the time the borrowing is outstanding.
Borrowing will create interest expenses for the Fund which can exceed the income
from the assets retained. To the extent the income derived from securities
purchased with borrowed funds exceeds the interest the Fund will have to pay,
the Fund's net income will be greater than if borrowing were not used.
Conversely, if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of borrowing, the net income of the Fund will be
less than if borrowing were not used, and therefore the amount available for
distribution to stockholders as dividends will be reduced.

Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to banks or
broker-dealers, to a maximum of 25% of the assets of the Fund, where such loans
are callable at any time and are continuously secured by collateral consisting
of cash or of securities issued or guaranteed by the U.S. Government or its
agencies, which collateral is equal at all times to at least 100% of the value
of the securities loaned, including accrued interest. The Fund will receive
amounts equal to earned income for having made the loan. Any cash collateral
pursuant to these loans will be invested in short-term instruments. The Fund is
the beneficial owner of the loaned securities in that any gain or loss in the
market price during the loan inures to the Fund and its shareholders. Thus, when
the loan is terminated, the value of the securities may be more or less than
their value at the beginning of the loan. In determining whether to lend its
portfolio securities to a bank or broker-dealer, the Fund will take into account
the credit-worthiness of such borrower and will monitor such credit-worthiness
on an ongoing basis inasmuch as default by the other party may cause delays or
other collection difficulties. The Fund may pay finders' fees in connection with
loans of its portfolio securities.

OFFICERS AND TRUSTEES

The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and their principal occupations for the last five
years and their affiliations, if any, with Van Kampen American Capital
Investment Advisory Corp. (the "VK Adviser" or "Adviser"), Van Kampen American
Capital Asset Management, Inc. (the "AC Adviser"), Van Kampen American Capital
Management, Inc., McCarthy, Crisanti & Maffei, Inc., MCM Asia Pacific Company,
Limited, Van Kampen American Capital Distributors, Inc. (the "Distributor"), Van
Kampen American Capital, Inc. ("Van Kampen American Capital") or VK/AC Holding,
Inc. For purposes hereof, the term "Van Kampen American Capital Funds" includes
each of the open-end investment companies advised by the VK Adviser (excluding
the Van Kampen Merritt Series Trust) and each of the open-end investment
companies advised by the AC Adviser.

TRUSTEES

<TABLE>
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Randor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing.
Trustee of each of the Van Kampen American Capital Funds.
</TABLE>

B-13
<PAGE> 43

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
<S> <C>
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

B-14
<PAGE> 44

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
<S> <C>
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
</TABLE>

B-15
<PAGE> 45

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
----------------------------------- ---------------------------------------------------------
<S> <C>
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Age: 73 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

OFFICERS

<TABLE>
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.

Ronald A. Nyberg..... Vice President and Executive Vice President, General Counsel and
Age: 41 Secretary Secretary of Van Kampen American Capital.
Executive Vice President and a Director of
the VK Adviser and the Distributor. Executive
Vice President of the AC Adviser. Vice
President and Secretary of each of the Van
Kampen American Capital Funds and closed-end
funds advised by the VK Adviser. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to March 1990,
Secretary of Van Kampen Merritt Inc., the VK
Adviser and McCarthy, Crisanti & Maffei, Inc.

Edward C. Wood III... Vice President, Treasurer Senior Vice President of the VK Adviser. Vice
Age: 39 and Chief Financial President, Treasurer and Chief Financial
Officer Officer of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.

Nicholas Dalmaso..... Assistant Secretary Assistant Vice President and Attorney of Van
Age: 30 Kampen American Capital. Assistant Secretary
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
</TABLE>

B-16
<PAGE> 46

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
--------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Scott E. Martin...... Assistant Secretary Senior Vice President, Deputy General Counsel
Age: 38 and Assistant Secretary of Van Kampen
American Capital. Senior Vice President,
Deputy General Counsel and Secretary of the
VK Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Weston B. Assistant Secretary Vice President, Associate General Counsel and
Wetherell.......... Assistant Secretary of Van Kampen American
Age: 39 Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.
John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>

---------------

* Such Trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Powell and McDonnell are interested persons of the
VK Adviser and the Fund by reason of their positions with the VK Adviser. Mr.
Sheehan is an interested person of the VK Adviser and the Fund by reason of
his firm having acted as legal counsel to the VK Adviser. Mr. Whalen is an
interested person of the Fund by reason of his firm acting as legal counsel
for the Fund.

Messrs. Powell and McDonnell own, or have the opportunity to purchase, an
equity interest in VK/AC Holding, Inc., the parent company of Van Kampen
American Capital, and have entered into employment contracts (for a term of five
years) with Van Kampen American Capital.

The Fund will pay trustees who are not affiliated persons of the VK Adviser,
the Distributor or Van Kampen American Capital an annual retainer of $2,500 per
year and $125 per regular quarterly meeting of the Fund, plus expenses. No
additional fees are proposed at the present time to be paid for special
meetings, committee meetings or to the chairman of the board. The trustees have
approved an aggregate annual compensation cap from the combined fund complex of
$84,000 per trustee (excluding any retirement benefits) until December 31, 1996,
based upon the current net assets and the current number of Van Kampen American
Capital funds (except that Mr. Whalen, who is also a trustee of the closed-end
funds advised by the VK Adviser would receive additional compensation for
serving as a trustee of such funds). In addition, the VK Adviser has agreed to
reimburse the Fund through December 31, 1996, for any increase in the aggregate
trustees' compensation over the aggregate compensation paid by the Fund in its
1994 fiscal year.

B-17
<PAGE> 47

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT
COMPENSATION FROM AS PART OF FUND BENEFITS UPON AND FUND COMPLEX
NAME REGISTRANT(2) EXPENSES(3) RETIREMENT(4) PAID TO TRUSTEE(5)
------------------------------- ------------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............... $3,785 $ 45 $2,500 $ 62,362
Philip G. Gaughan.............. 3,778 997 2,500 63,250
Donald C. Miller............... 3,774 1,414 2,500 62,178
Jack A. Nelson................. 3,785 495 2,500 62,362
Jerome L. Robinson............. 3,778 833 2,500 58,475
Wayne W. Whalen................ 2,903 340 2,500 49,875
</TABLE>

---------------

(1) Messrs. Powell and McDonnell, trustees of the Registrant, are affiliated
persons of the Adviser and are not eligible for compensation or retirement
benefits from the Registrant. Messrs. Branagan, Caruso, Hilsman, Rees,
Sheehan, Sisto and Woodside were elected as trustees of the Registrant at a
shareholders meeting held July 21, 1995 and thus received no compensation or
retirement benefits from the Registrant during its 1994 fiscal year.

(2) The Registrant is Van Kampen Merritt U.S. Government Trust (the "Trust").
The amounts shown in this column are from the Trust's 1994 fiscal year.
Beginning in October 1994, each trustee, except Messrs. Gaughan and Whalen,
began deferring his entire aggregate compensation. The total combined amount
of deferred compensation (including interest) accrued with respect to each
trustee from the Fund Complex (as defined herein) as of December 31, 1994 is
as follows: Mr. Kennedy $14,737; Mr. Miller $14,553; Mr. Nelson $14,737 and
Mr. Robinson $13,725.

(3) The Retirement Plan commenced as of August 1, 1994 for the Registrant. The
amounts in this column are the retirement benefits accrued during the Fund's
fiscal year ended December 31, 1994.

(4) This is the estimated annual benefits payable per year for the 10-year
period commencing in the year of such trustee's retirement by the Fund
assuming: the trustee has 10 or more years of service on the Board of the
Fund and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service may receive
reduced retirement benefits from the Fund.

(5) As of December 31, 1994, the Fund Complex consists of 20 mutual funds
advised by the Adviser which had the same members on each funds' Board of
Trustees. The amounts shown in this column are accumulated from the
Aggregate Compensation of each of these 20 mutual funds in the Fund Complex
during the calendar year ended December 31, 1994. The Adviser also serves as
investment adviser for other investment companies; however, with the
exception of Messrs. Merritt, McDonnell and Whalen, the Trustees are not
trustees of such investment companies. Combining the Fund Complex with other
investment companies advised by the Adviser, Mr. Whalen received Total
Compensation of $161,850 during the calendar year ended December 31, 1994.

As of August 11, 1995, the trustees and officers as a group own less than 1%
of the shares of the Fund.

To the knowledge of the Fund, as of August 11, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class A Shares or Class B Shares.

As of August 11, 1995, the following persons owned of record or beneficially
5% or more of the Fund's Class C Shares: Bishop of the Roman Catholic Diocese of
Charlotte, NC c/o W.G. Weldon, P.O. Box 36776, Charlotte, NC 28236-6776, 8%;
Donaldson, Lufkin, Jenrette Securities Inc., P.O. Box 2052, Jersey City, NJ
07303-2052, 7%, and Martha J. Ruoff Estate, Russell Ruoff Conservator, 435 North
Alfred, Los Angeles, CA 90048-2504, 8%.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987

B-18
<PAGE> 48

transacted business under the name of American Portfolio Advisory Service Inc.).
The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, which
in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc.
is controlled, through the ownership of a substantial majority of its common
stock by The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D
L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York based private investment firm. The General
Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership
("C&D Associates L.P."). The general partners of C&D Associates L.P. are Joseph
L. Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore, Donald J.
Gogel, Leon J. Hendrix, Jr., and Hubbard C. Howe and Andrall E. Pearson, each of
whom is a principal of Clayton, Dubilier & Rice, Inc. In addition, certain
officers, directors and employees of Van Kampen American Capital own, in the
aggregate, not more than 7% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
11% of the common stock of VK/AC Holding, Inc.

The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will supply investment research and portfolio management,
including the selection of securities for the Fund to purchase, hold or sell and
the selection of brokers through whom the Fund's portfolio transactions are
executed. The Adviser also administers the business affairs of the Fund,
furnishes offices, necessary facilities and equipment, provides administrative
services, and permits its officers and employees to serve without compensation
as officers of the Fund and trustees of the Trust if duly elected to such
positions.

The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.

The Adviser's activities are subject to the review and supervision of the
Board of Trustees of the Trust, of which the Fund is a series, to whom the
Adviser renders periodic reports of the Fund's investment activities.

The investment advisory agreement will remain in effect from year to year if
specifically approved by the Trustees of the Trust or the Fund's shareholders
and by the disinterested Trustees of the Trust in compliance with the
requirements of the 1940 Act. The agreement may be terminated without penalty
upon 60 days written notice by either party and will automatically terminate in
the event of assignment.

The agreement specifies that the Adviser will reimburse the Fund for annual
expenses of the Fund which exceed the most stringent limits prescribed by any
state in which the Fund shares are offered for sale. The most stringent limit as
of the date of this Statement of Additional Information, as affecting the Fund,
requires the Adviser to reimburse the Fund to the extent that aggregate expenses
of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.

For the years ended December 31, 1994, 1993 and 1992, the Fund recognized
advisory expenses of $18,897,359, $19,904,333 and $15,462,526, respectively.

OTHER AGREEMENTS

SUPPORT SERVICES AGREEMENT. Under a support services agreement with the
Distributor which terminated as of July 10, 1995 concurrent with the Fund's
change in transfer agent, the Fund received support services for shareholders,
including the handling of all written and telephonic communications, except
initial order entry and other distribution-related communications. Payment by
the Fund for such services was made on cost basis for the employment of the
personnel and the equipment necessary to render the support services. The Fund,
and the other Van Kampen American Capital mutual funds distributed by the
Distributor, shared such costs proportionately among themselves based upon their
respective net asset values.

B-19
<PAGE> 49

For the years ended December 31, 1994, 1993 and 1992, the Fund recognized
expenses of approximately $1,755,000, $1,622,650 and $1,382,598, respectively,
representing the Distributor's cost of providing certain support services.

FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
distributed by the Distributor and advised by the Adviser in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost being paid by the Fund and such other Van Kampen American
Capital funds based proportionally on their respective net assets.

For the years ended December 31, 1994, 1993 and 1992, the Fund recognized
expenses of approximately $80,100, $80,675 and $54,810, respectively,
representing the Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the fund's minute books and records, preparation and oversight of
the fund's regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. Payment
by the Fund for such services is made on a cost basis for the salary and salary
related benefits, including but not limited to bonuses, group insurances and
other regular wages for the employment of personnel, as well as overhead and the
expenses related to the office space and the equipment necessary to render the
legal services. Other funds distributed by the Distributor also receive legal
services from Van Kampen American Capital. Of the total costs for legal services
provided to the funds distributed by the Distributor, one half of such costs are
allocated equally to each fund and the remaining one half of such costs are
allocated to specific funds based on monthly time records.

For the years ended December 31, 1994, 1993 and 1992, the Fund recognized
expenses of approximately $62,900, $60,300 and $38,800, respectively,
representing Van Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT AUDITORS

State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.

The independent auditors for the Fund are KPMG Peat Marwick LLP, 303 East
Wacker Drive, Chicago, IL 60601. The selection of independent auditors will be
subject to ratification by the shareholders of the Fund at any annual meeting of
shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and the investment adviser, including
quotations necessary to determine the value of the Fund's net assets. Any
research benefits derived are available for all clients of the investment
adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser and still must be analyzed and reviewed
by its staff, the receipt of research information is not expected to materially
reduce its expenses.

If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a

B-20
<PAGE> 50

higher commission, (or, if the broker's profit is part of the cost of the
security, will have to pay a higher price for the security) than would be the
case if no weight were given to the broker's furnishing of those research
services. This will be done, however, only if, in the opinion of the Adviser,
the amount of additional commission or increased cost is reasonable in relation
to the value of such services.

In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. Although it is possible that in some cases
this procedure could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned, it is also possible that the ability
to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.

While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the Trustees.

The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act which requires that the commissions
paid to the Distributor and other affiliates of the Fund must be reasonable and
fair compared to the commissions, fees or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. The rule and procedures
also contain review requirements and require the Adviser to furnish reports to
the Trustees and to maintain records in connection with such reviews. After
consideration of all factors deemed relevant, the Trustees will consider from
time to time whether the advisory fee will be reduced by all or a portion of the
brokerage commission given to affiliated brokers.

State securities laws 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.

TAX STATUS OF THE FUND

The Trust and each of its series, including the Fund, will be treated as
separate corporations for income tax purposes. The Fund may be subject to tax if
it fails to distribute net capital gains, or if its annual distributions, as a
percentage of its income, are less than the distributions required by tax laws.

The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. To qualify as a regulated
investment company, the Fund must comply with certain requirements of the Code
relating to, among other things, the source of its income and diversification of
its assets. If the Fund so qualifies and if it distributes each year to its
shareholders at least 90% of its net investment income (which includes net
short-term capital gains, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on the income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income to satisfy the 90% distribution requirement. The Fund will not be subject
to federal income tax on any net capital gains distributed to its shareholders.

In order to avoid a 4% excise tax the Fund will be required to distribute by
December 31 of each year at least 98% of its ordinary income for such year and
at least 98% of its net capital gains (the latter of which is generally computed
on the basis of the one-year period ending on October 31 of such year), plus any
required distribution amounts that were not distributed in previous taxable
years. For purposes of the excise tax, any ordinary income or net capital gain
retained by, and subject to federal income tax in the hands of, the Fund will be
treated as having been distributed.

B-21
<PAGE> 51

Some of the Fund's investment practices are subject to special provisions of
the Code, that may, among other things, defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of gains or losses realized by the Fund. These provisions may also
require the Fund to mark-to-market some of the positions in its portfolio (i.e.,
treat them as if they were closed out), which may cause the Fund to recognize
income without receiving the cash with which to make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. The Fund will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and avoid income and excise taxes, the Fund may have to
dispose of securities that it would otherwise have continued to hold.

The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's gross income be derived from the disposition of securities
held for less than three months.

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income whether received in shares or in cash. Shareholders who
receive distributions in the form of additional shares will have a basis for
federal income tax purposes in each such share equal to the fair market value
thereof on the reinvestment date. Distributions of the Fund's net capital gains
("capital gains dividends") are taxable to shareholders as long-term capital
gains regardless of the length of time the shares of the Fund have been held by
such shareholders. Distributions in excess of the Fund's earnings and profits,
such as distributions of principal, first will reduce the adjusted tax basis of
the shares held by the shareholders and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such shareholders (assuming
such shares are held as a capital asset). The Fund will inform shareholders of
the source and tax status of such distributions promptly after the close of each
calendar year. Distributions from the Fund will not be eligible for the
dividends received deduction for corporations.

Redemption or resale of shares of the Fund will be a taxable transaction for
federal income tax purposes. Redeeming shareholders will recognize gain or loss
in an amount equal to the difference between their basis in such redeemed shares
of the Fund and the amount received. If such shares are held as a capital asset,
the gain or loss generally will be a capital gain or loss and will be long-term
if such shareholders have held their shares for more than one year. Any loss
realized on shares held for six months or less will be treated as long-term
capital loss to the extent of any amounts received by the shareholder as capital
gains dividends with respect to such shares.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such months and paid in January of the following
year will be treated as having been distributed by the Fund and received by the
shareholders on the December 31 of the year in which the dividends were
declared. In addition, certain other distributions made after the close of a
taxable year of the Fund may be "spilled back" and treated as having been paid
by the Fund (except for purposes of the 4% excise tax) during such taxable year.
In such case, shareholders will be treated as having received such dividends in
the taxable year in which the distribution is actually made.

The Fund is required in certain circumstances to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) or who are otherwise subject to
backup withholding. Foreign shareholders, including shareholders who are
nonresident aliens, may be subject to U.S. withholding tax on certain
distributions (whether received in cash or in shares) at a rate of 30% or such
lower rate as prescribed by any applicable treaty.

B-22
<PAGE> 52

GENERAL. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisers regarding
the specific federal tax consequences of holding and disposing of shares, as
well as the effects of state, local and foreign tax laws.

THE DISTRIBUTOR

The Distributor offers one of the industry's broadest lines of investments --
encompassing mutual funds, closed-end funds and unit investment trusts -- and is
currently the nation's 5th largest broker-sold mutual fund group according to
Strategic Insight. Van Kampen American Capital's roots in money management
extend back to 1926. Today, Van Kampen American Capital manages or supervises
more than $50 billion in mutual funds, closed-end funds and unit investment
trusts -- assets which have been entrusted to Van Kampen American Capital in
more than 2 million investor accounts. Van Kampen American Capital has one of
the largest research teams (outside of the rating agencies) in the country, with
86 analysts devoted to various specializations.

Shares of the Fund are offered on a continuous basis through Van Kampen
American Capital Distributors, Inc. (the "Distributor"), One Parkview Plaza,
Oakbrook Terrace, IL 60181. The Distributor is a wholly owned subsidiary of Van
Kampen American Capital, which is a subsidiary of VK/AC Holding, Inc., a
Delaware corporation that is controlled through an ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C & D L.P."), a Connecticut limited partnership. In
addition, certain officers, directors and employees of Van Kampen American
Capital, Inc., and its subsidiaries own, in the aggregate not more than 7% of
the common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 11% of the common stock of
VK/AC Holding, Inc. C & D L.P. is managed by Clayton, Dubilier & Rice, Inc.
Clayton & Dubilier Associates IV Limited Partnership ("C & D Associates L.P.")
is the general partner of C & D L.P. Pursuant to a distribution agreement, the
Distributor will purchase shares of the Fund for resale to the public, either
directly or through securities dealers, and is obligated to purchase only those
shares for which it has received purchase orders. A discussion of how to
purchase and redeem the Fund's shares and how the Fund's shares are priced is
contained in the Prospectus.

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and Service Plan sometimes are
referred to herein collectively as the "Plans". The Plans provide that the Fund
may spend a portion of the Fund's average daily net assets attributable to each
class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of such class, respectively. The Plans are being implemented through an
agreement (the "Distribution and Service Agreement") with the Distributor,
sub-agreements between the Distributor and members of the NASD acting as
securities dealers and NASD members or eligible non-members acting as brokers or
agents for investors (collectively, "Selling Agreements") that may provide for
their customers or clients certain services or assistance, which may include,
but not be limited to, processing purchase and redemption transactions,
establishing and maintaining shareholder accounts regarding the Fund, and such
other services as may be agreed to from time to time and as may be permitted by
applicable statute, rule or regulation. Brokers, dealers and financial
intermediaries that have entered into sub-agreements with the Distributor and
sell shares of the Fund are referred to herein as "financial intermediaries."

Under the Distribution and Service Agreement and the Selling Agreements,
financial intermediaries that sold shares prior to July 1, 1987, or prior to the
beginning of the calendar quarter in which the Selling Agreement between the
Fund and such financial intermediary was approved by the Fund's Board of
Trustees (an "Implementation Date") are not eligible to receive compensation
pursuant to such Distribution and Service Agreement and/or Selling Agreement. To
the extent that there remain outstanding shares of the Fund that were purchased
prior to all Implementation Dates, the percentage of the total average daily net
asset value of a class of shares that may be utilized pursuant to the
Distribution and Service Agreement will be less than the maximum percentage
amount permissible with respect to such class of shares under the Distribution
and Service Agreement.

B-23
<PAGE> 53

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.

For the year ended December 31, 1994, the Fund recognized expenses under the
Plans of $6,434,233, $4,715,679 and $119,027 for the Class A Shares, Class B
Shares and Class C Shares, respectively, of which $5,269,767, $1,137,098 and
$10,752 represent payments to financial intermediaries under the Selling
Agreements for Class A Shares, Class B Shares and Class C Shares, respectively.
For the year ended December 31, 1994, the Fund has reimbursed the Distributor
$784,001, $143,555 and $0 for advertising expenses, and $139,742, $106,683 and
$0 for compensation of the Distributor's sales personnel for Class A Shares,
Class B Shares and Class C Shares, respectively.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom, Chicago,
Illinois.

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a monthly basis with respect to
the immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum sales charge) per share of such class on the last
day of such period. The Fund's net investment income per share is determined by
taking the interest attributable to a given class of shares earned by the Fund
during the period, subtracting the expenses attributable to a given class of
shares accrued for the period (net of any reimbursements), and dividing the
result by the average daily number of shares of each class outstanding during
the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield quotations do not reflect the imposition of a contingent
deferred sales charge, and if any such contingent deferred sales charge imposed
at the time of redemption were reflected, it would reduce the performance
quoted.

The Fund calculates average compounded total return by determining the
redemption value (less any applicable contingent deferred sales charge) at the
end of specified periods (after adding back all dividends and other
distributions made during the period) of a $1,000 investment in a given class of
shares of the Fund (less the maximum sales charge, if any) at the beginning of
the period, annualizing the increase or decrease over the specified period with
respect to such initial investment and expressing the result as a percentage.
Average compounded total return will be computed separately for each class of
shares.

Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share of a given class can be expected to

B-24
<PAGE> 54

fluctuate over time, and accordingly upon redemption a shareholder's shares may
be worth more or less than their original cost.

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative total return is calculated by measuring the value of an initial
investment in a given class of shares of the Fund at a given time, and if
applicable may include or exclude the sales charge or CDSC as indicated,
determining the value of all subsequent reinvested distributions, and dividing
the net change in the value of the investment as of the end of the period by the
amount of the initial investment and expressing the result as a percentage.
Non-standardized total return will be calculated separately for each class of
shares. Non-standardized total return calculations do not reflect the imposition
of a contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC imposed at the time of redemption were
reflected, it would reduce the performance quoted.

CLASS A SHARES

The average total return, including the payment of the maximum sales charge,
with respect to the Class A Shares for (i) the one year period ended December
31, 1994 was (9.51%); (ii) the 5 year period ended December 31, 1994 was 5.67%;
(iii) the 10 year period ended December 31, 1994 was 8.61% and (iv) the
approximately 10 year, 7 month period from May 27, 1984 (the commencement of
investment operations of the Fund) through December 31, 1994 was 9.34%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1994 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 8.73%. The Fund's current distribution
rate with respect to the Class A Shares for the month ending December 31, 1994
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 7.85%.

The Fund's cumulative non-standardized total return, including payment of the
maximum sales charge, with respect to the Class A Shares from its inception to
the end of the current period, was 157.31%.

The Fund's cumulative non-standardized total return, excluding payment of the
maximum sales charge, with respect to Class A Shares from its inception to the
end of the current period was 169.91%.

CLASS B SHARES

The average total return, including payment of the CDSC, with respect to the
Class B Shares for (i) the one year period ended December 31, 1994 was (9.43%)
and (ii) the approximately 2 year, 5 month period of August 24, 1992
(commencement of distribution) through December 31, 1994 was (0.29%).

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 30, 1994 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 8.29%. The Fund's current distribution
rate with respect to the Class B Shares for the month ending December 31, 1994
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 7.28%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class B Shares from its inception to the end of the
current period was (0.70%).

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class B Shares from its inception to the end of the
current period was 2.31%.

CLASS C SHARES

The average total return, including payment of the CDSC, with respect to the
Class C Shares for (i) the one year period ended December 31, 1994 was (6.73%)
and (ii) the approximately one year, 4 month period from August 13, 1993
(commencement of distribution) through December 31, 1994 was (3.86%).

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1994 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 8.30%.

B-25
<PAGE> 55

The Fund's current distribution rate with respect to the Class C Shares for the
month ending December 31, 1994 (calculated in the manner described in the
Prospectus under the heading "Fund Performance") was 7.28%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class C Shares from its inception to the end of the
current period was (5.43%).

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class C Shares from its inception to the end of the
current period was (5.43%).

ALTERNATIVE SALES ARRANGEMENTS

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and accumulated
distribution fees with respect to each class of shares that may be incurred over
the anticipated duration of their investment in the Fund.

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares or Class C Shares in an amount of $1 million or more because it
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and, therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC may wish to defer the sales charge and have
all his or her funds initially invested in Class B Shares or Class C Shares. If
such an investor anticipates that he or she will redeem such shares prior to the
expiration of the CDSC period applicable to Class B Shares, the investor may
wish to acquire Class C Shares. Investors must weigh the benefits of deferring
the sales charge and having all of their funds invested against the higher
aggregate distribution and service fee applicable to Class B Shares and Class C
Shares (discussed below). Investors who intend to hold their shares for a
significantly long time may not wish to continue to bear the ongoing
distribution and service expenses of Class C Shares which, in the aggregate,
eventually would exceed the aggregate amount of initial sales charge and
distribution and service expenses applicable to Class A Shares, irrespective of
the fact that a CDSC would eventually not apply to a redemption of Class C
Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to

B-26
<PAGE> 56

such class and (iii) has a different exchange privilege. Only the Class B Shares
are subject to a conversion feature (discussed below). Generally, a class of
shares subject to a higher ongoing distribution fee, service fee or, where
applicable, the conversion feature will have a higher expense ratio and pay
lower dividends than a class of shares subject to a lower ongoing distribution
fee, service fee or not subject to the conversion feature. The per share net
asset values of the different classes of shares are expected to be substantially
the same; from time to time, however, the per share net asset values of the
classes may differ. The net asset value per share of each class of shares of the
Fund will be determined as described in the Prospectus under "How to Buy
Shares."

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Code.

PURCHASE OF SHARES

The Fund currently offers three classes of shares to the public on a
continuous basis through the Distributor, as principal underwriter, which is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also
offered through members of the National Association of Securities Dealers, Inc.
("NASD") acting as securities dealers ("dealers") and through NASD members
acting as brokers for investors ("brokers") or eligible non-NASD members acting
as agents for investors ("financial intermediaries"). The Fund reserves the
right to suspend or terminate the continuous public offering at any time and
without prior notice.

The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or with the Distributor, plus any
applicable sales charge. Sales personnel of brokers, dealers and financial
intermediaries distributing the Fund's shares may receive differing compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, certain favorable distribution arrangements for shares of the Fund.
Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees and sponsor business seminars to
qualifying brokers, dealers or financial intermediary for certain services or
activities which are primarily intended to result in sales of shares of the
Fund. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. Such fees paid for such services and
activities

B-27
<PAGE> 57

with respect to the Fund will not exceed in the aggregate 1.25% of the average
total daily net assets of the Fund on an annual basis. The Distributor may
provide additional compensation to Edward D. Jones & Co. or an affiliate thereof
based on a combination of its sales of shares and increases in assets under
management. Such payments to brokers, dealers or financial intermediaries for
sales contests, other sales programs and seminars are made by the Distributor
out of its own assets and not out of the assets of the Fund. These programs will
not change the price an investor will pay for shares or the amount that the Fund
will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
dealers who receive more than 90% or more of the sales charge may be deemed to
be "underwriters" as that term is defined in the Securities Act of the 1933.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
------------------------------------------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000............................. 3.75 3.90 3.25
$250,000 but less than $500,000............................. 2.75 2.83 2.25
$500,000 but less than $1,000,000........................... 2.00 2.04 1.75
$1,000,000 or more.......................................... * * *
</TABLE>

---------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on redemptions made within one year of the
purchase. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million, plus 0.20% on the next $2 million
and 0.08% on the excess over $5 million. See "Purchase of Shares--Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.

QUANTITY DISCOUNTS

Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.

Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.

As used herein, "any person" eligible for a reduced sales charge includes an
individual, their spouse and minor children (and any trust or custodial accounts
for their benefit) and any corporation, partnership, or sole proprietorship
which is 100% owned, either alone or in combination, by any of the foregoing; a
trustee or other fiduciary purchasing for a single fiduciary account; or a
"company" as defined is section 2(a)(8) of the 1940 Act.

B-28
<PAGE> 58

As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Money Market Fund ("Money Market Fund"), Van Kampen American Capital Tax Free
Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve Fund
("Reserve Fund") and The Govett Funds, Inc.

VOLUME DISCOUNTS. The size of investment shown in the preceding table applies
to the total dollar amount being invested by any person at any one time in Class
A Shares of the Fund alone, or in combination with other shares of the Fund and
shares of other Participating Funds although other Participating Funds may have
different sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in Class A
Shares of the Fund with other shares of the Fund and shares of Participating
Funds plus the current offering price of all shares of the Fund and other
Participating Funds which have been previously purchased and are still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table includes the amount
of intended purchases of Class A Shares of the Fund with other shares of the
Fund and shares of the Participating Funds plus the value of all shares of the
Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the charges applicable to the purchases made and the charges previously
paid. When an investor signs a Letter of Intent, shares equal to at least 5% of
the total purchase amount of the level selected will be restricted from sale or
redemption by the investor until the Letter of Intent is satisfied or any
additional sales charges have been paid; if the Letter of Intent is not
satisfied by the investor and any additional sales charges are not paid,
sufficient restricted shares will be redeemed by the Fund to pay such charges.
Additional information is contained in the application accompanying this
Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit trust reinvestment programs and purchases by registered
representatives of selling firms or purchases by persons affiliated with the
Fund or the Distributor. The Fund reserves the right to modify or terminate
these arrangements at any time.

UNIT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund with no minimum initial or subsequent investment requirement, and
with a lower sales charge if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all investments made from
unit trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer or financial intermediary or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide the Fund's transfer agent with
appropriate backup data for each participating investor in a computerized format
fully compatible with the transfer agent's processing system.

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<PAGE> 59

As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently.

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:

(1) Current or retired Trustees/Directors of funds advised by the Adviser, Van
Kampen American Capital Asset Management, Inc. or John Govett & Co.
Limited and such persons' families and their beneficial accounts.

(2) Current or retired directors, officers and employees of VK/AC Holding,
Inc. and any of its subsidiaries, Clayton, Dubilier & Rice, Inc.,
employees of an investment subadviser to any fund described in (1) above
or an affiliate of such subadviser; and such persons' families and their
beneficial accounts.

(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and minor children when purchasing for any accounts they
beneficially own, or, in the case of any such financial institution, when
purchasing for retirement plans for such institution's employees.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a twelve-month
period following such transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10 million or more. The
Distributor may pay commissions of up to 1.00% for such purchases.

(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.

(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.

(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
Participating Funds, Money Market Fund, Tax Free Money Fund or Reserve
Fund. For such investments the Fund imposes a contingent deferred sales
charge of 1.00% in the event of redemptions within one year of the
purchase other than redemptions required to make payments to participants
under the terms of the plan. The contingent deferred sales charge incurred
upon certain redemptions is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for such purchases as follows: 1.00% on sales
to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess
over $10 million.

The term "families" includes a person's spouse, minor children and
grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the

B-30
<PAGE> 60

purchase by the close of business on the next business day following acceptance
of the order. An authorized broker, dealer or financial intermediary may charge
a transaction fee for placing an order to purchase shares pursuant to this
provision or for placing a redemption order with respect to such shares. The
Fund may terminate, or amend the terms of, offering shares of the Fund at net
asset value to such groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares and Class C Shares.
The public offering price of a CDSC Share is equal to the net asset value per
share without the imposition of a sales charge at the time of purchase. CDSC
Shares are sold without an initial sales charge so that the Fund may invest the
full amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Fund, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate will be equal to (i) with respect to Class A Shares, 1.00%
on sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next
$2 million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares, and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being redeemed. Accordingly, no sales charge will be imposed on increases
in net asset value above the initial purchase price. In addition, no contingent
deferred sales charge will be assessed on CDSC Shares derived from reinvestment
of dividends or capital gains distributions. Solely for purposes of determining
the number of years from the time of any payment for the purchase of CDSC
Shares, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.

Proceeds from the contingent deferred sales charge applicable to a class of
CDSC Shares are paid to the Distributor and are used by the Distributor to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the contingent deferred sales charge and the
distribution and services fees facilitates the ability of the Fund to sell such
CDSC Shares without a sales charge being deducted at the time of purchase.

In determining whether a contingent deferred sales charge is applicable to a
redemption of CDSC Shares, it will be assumed that the redemption is made first
of any CDSC Shares acquired pursuant to reinvestment of dividends or
distributions, second of CDSC Shares that have been held for a sufficient period
of time such that the contingent deferred sales charge no longer is applicable
to such shares, third of Class A Shares in the shareholder's Fund account that
have converted from Class B Shares, if any, and fourth of CDSC Shares held
longest during the period of time that a contingent deferred sales charge is
applicable to such CDSC Shares. The charge will not be applied to dollar amounts
representing an increase in the net asset value per share since the time of
purchase.

To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the increase in net asset
value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.75% (the applicable rate in the second year after
purchase).

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<PAGE> 61

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1 million or more,
although for such investments the Fund imposes a contingent deferred sales
charge of 1.00% on redemptions made within one year of the purchase. A
commission will be paid to dealers who initiate and are responsible for
purchases of $1 million or more as follows: 1.00% on sales to $2 million, plus
0.80% on the next million, plus 0.20% on the next $2 million and 0.08% on the
excess over $5 million.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C> <C>
First.................................................. 4.00%
Second................................................. 3.75%
Third.................................................. 3.50%
Fourth................................................. 2.50%
Fifth.................................................. 1.50%
Sixth.................................................. 1.00%
Seventh and after...................................... 0.00%
</TABLE>

The contingent deferred sales charge is waived on redemptions of Class B
Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services--Systematic Withdrawal Plan."

For purposes of conversion to Class A Shares, Class B Shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
Shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account also will convert to Class A
Shares. The holding period applicable to a Class B Share acquired through the
use of the exchange privilege (discussed below) shall be the holding period
applicable to a Class B Share of such Fund acquired other than through use of
the exchange privilege. For purposes of calculating the holding period
applicable to a Class B Share of the Fund prior to conversion, a Class B Share
of the Fund issued in connection with an exercise of the exchange privilege, or
a series of exchanges, shall be deemed to have been issued on the date on which
the investor's order to purchase the exchanged Class B Share was accepted or, in
the case of a series of exchanges, when the investor's order to purchase the
original Class B Share was accepted.

The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee and transfer agency costs
with respect to Class B Shares does not result in the Fund's dividends or
distributions constituting "preferential dividends" under the Code, and (ii)
that the conversion of Class B Shares does not constitute a taxable event under
federal income tax law. The conversion of Class B Shares to Class A Shares may
be suspended if such an opinion is no longer available. In that event, no
further conversions of Class B Shares would occur, and Class B Shares might
continue to be subject to the higher aggregate distribution and service fees for
an indefinite period.

B-32
<PAGE> 62

redeemed thereafter will not be subject to a contingent deferred sales charge.
Class C Shares do not convert to Class A Shares.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales
charge is waived on redemptions of Class B Shares and Class C Shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemptions." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "Redemptions" for further discussion
of the waiver provisions.

SHAREHOLDER SERVICES

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer agent
for the Fund and a wholly-owned subsidiary of Van Kampen American Capital,
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
under which shares are held by ACCESS. Except as described herein, after each
share transaction in an account, the shareholder receives a statement showing
the activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.

SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate a fee for replacing the lost certificate equal to no more
than 2.00% of the net asset value of the issued shares and bill the party to
whom the replacement certificate was mailed.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 (or (800) 772-8889 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.

B-33
<PAGE> 63

RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. American
Capital Trust Company serves as custodian under the IRA, 403(b)(7) and Keogh
plans. Details regarding fees, as well as full plan administration for profit
sharing, pension and 401(k) plans, are available from the Distributor.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 (or (800) 772-8889 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any other
Participating Fund, Money Market Fund, Tax Free Money Fund or Reserve Fund so
long as a pre-existing account for such class of shares exists for such
shareholder.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Money Market Fund, the Tax Free Money Fund or the
Reserve Fund, subject to certain limitations herein or in such other fund's
prospectus. Before effecting an exchange, shareholders in the Fund should obtain
and read a current prospectus of the fund into which the exchange is to be made.
SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE
FOR SALE IN THEIR STATE.

In general, shares of the Fund must have been registered in the shareholder's
name for at least 15 days prior to an exchange. Shares of the Fund registered in
a shareholder's name for less than 15 days may only be exchanged upon receipt of
prior approval of the Adviser; however, under normal circumstances, it is the
policy of the Adviser not to approve such requests. Upon 60 days after the date
of this prospectus, the Fund will increase the number of days shares must be
registered in a shareholder's name prior to an exchange to 30 days.

Exchanges of Class A Shares of the Fund that have been charged a sales charge
lower than the sales charge applicable to the other fund will have the sales
charge differential imposed upon the exchange into such fund. Similarly,
exchanges of any Class A Shares of other funds that have been charged a sales
charge lower than the sales charge applicable to the Fund will have the sales
charge differential imposed upon exchange into the Fund. Shares of other funds
which have not previously been charged a sales charge (except for shares
purchased via the reinvestment option) will be charged the sales charge
differential applicable to Class A Shares of the Fund upon exchange into the
Fund.

No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. Upon redemption of Class B Shares and Class C Shares from the Van Kampen
American Capital family of funds, Class B Shares and Class C Shares which have
been exchanged are subject to the contingent deferred sales charge imposed by
the initial Van Kampen American Capital fund purchased by the investor prior to
any exchanges. The holding period requirements for the contingent deferred sales
charge, and the conversion privilege for Class B Shares of the Fund, are
determined by the date of purchase into the initial Van Kampen American Capital
fund purchased by the investor prior to any exchanges.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 (or (800) 772-8889 for the hearing impaired). A shareholder
automatically has telephone exchange privileges unless otherwise designated in
the application form accompanied by this Prospectus. The exchange will take
place at the relative net asset values of the shares next determined after
receipt of such request with adjustment for any additional sales charge. Any
shares exchanged begin earning dividends on the next business day after the
exchange is affected. Van Kampen American Capital and its subsidiaries,
including ACCESS (collectively, "VKAC"), and the Fund

B-34
<PAGE> 64

employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither VKAC nor the Fund
will be liable for following telephone instructions which it reasonably believes
to be genuine. VKAC and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Fund reserves the right to
reject any order to acquire its shares through exchange. In addition, the Fund
may restrict or terminate the exchange privilege at any time on 60 days' notice
to its shareholders of any termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. This plan provides for the orderly use of the entire account,
not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which taxable gain or loss will be
recognized. The plan holder may arrange for monthly, quarterly, semi-annual, or
annual checks in any amount not less than $25. Such a systematic withdrawal plan
may also be maintained by an investor purchasing shares for a retirement plan
established on a form made available by the Fund. See "Shareholder Services --
Retirement Plans."

Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment in the Fund at the time the
election to participate in the plan is made. See "Purchase of Shares -- Deferred
Sales Charge Alternatives -- Waiver of Contingent Deferred Sales Charge."

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Fund reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.

SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY

CHECK WRITING PRIVILEGE. Holders of Class A Shares of the Fund for which
certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
Form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to such shareholder. These checks may
be made payable by the holder of Class A Shares to the order of any person in
any amount of $100 or more.

When a check is presented to State Street Bank for payment, full and
fractional Class A Shares required to cover the amount of the check are redeemed
from the shareholder's account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of Class A Shares. Any gain or loss
realized on the sale of Class A Shares is a taxable event. See "Redemptions."

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all

B-35
<PAGE> 65

uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares may not liquidate the entire account by means of a
check. The check writing privilege may be terminated or suspended at any time by
the Fund or State Street Bank. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on these checks.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.

REDEMPTIONS

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would exceed $50,000, or
if the proceeds are not to be paid to the record owner at the record address, or
if the record address has changed within the previous 30 days, signature(s) must
be guaranteed by one of the following: a bank or trust company; a broker-dealer;
a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next determined after the
request is received by ACCESS in proper form. Payment for shares redeemed (less
any sales charge, if applicable) will ordinarily be made by check mailed within
three business days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payments may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.

B-36
<PAGE> 66

order. Payment for shares redeemed (less any sales charge, if applicable) will
ordinarily be made by check mailed within three business days to the dealer.

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this Prospectus or call the Fund at (800) 421-5666
(or (800) 772-8889 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's other redemption
procedures previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be processed at the net asset
value per share determined that day. These privileges are available for all
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check or wiring redemption proceeds until it confirms that the
purchase check has cleared, usually a period of up to 15 days. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.

REDEMPTION UPON DISABILITY. The Fund will waive the contingent deferred sales
charge on redemptions following the disability of holders of Class B Shares and
Class C Shares. An individual will be considered disabled for this purpose if he
or she meets the definition thereof in Section 72(m)(7) of the Code, which in
pertinent part defines a person as disabled if such person "is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B Shares and Class C Shares.

In cases of disability, the contingent deferred sales charges on Class B
Shares and Class C Shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
Shares and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.

B-37
<PAGE> 67

sales charge. Any applicable contingent deferred sales charge will be deducted
from the proceeds of this redemption. Any involuntary redemption may only occur
if the shareholder account is less than the minimum investment due to
shareholder redemptions.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value next determined after the order is
received, which must be within 120 days after the date of the redemption. See
"Purchase of Shares -- Waiver of Contingent Deferred Sales Charge."
Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.

DISTRIBUTIONS FROM THE FUND

The Fund will declare distributions on a daily basis and will pay such
distributions from net investment income and net realized short-term capital
gains on a monthly basis. The monthly distribution is composed of all or a
portion of investment income earned by the Fund plus all or a portion of net
short-term capital gains, if any, realized by the Fund on transactions in
securities and in futures and options, in each case less the Fund's expenses.
The Fund will also distribute annually any remaining short-term capital gains
together with long-term capital gains, if any. Long-term capital gains
distributions consist of the Fund's realized long-term gains on transactions in
securities and in futures and options, net of any realized capital losses, less
any carryover capital losses from previous years.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or, where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.

Investors will be entitled to begin receiving dividends on their shares on the
business day after the Fund's transfer agent receives payments for such shares.
However, shares become entitled to dividends on the day the Fund's transfer
agent receives payment for the shares either through a fed wire or NSCC
settlement. Shares remain entitled to dividends through the day such shares are
processed for payment on redemption.

Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Shareholders wishing to utilize this service
should complete the appropriate section of the account application accompanying
this Prospectus or available from Van Kampen Merritt Funds, c/o ACCESS, P.O. Box
418256, Kansas City, MO 64141-9256. After ACCESS receives this completed form,
distribution checks will be sent to the bank or other person so designated by
such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 (or (800) 772-8889 for the hearing impaired)

or in writing to ACCESS.

B-38
<PAGE> 68
Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen Merritt U.S. Government Fund

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt U.S. Government Fund (the "Fund"), including the portfolio of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Merritt U.S. Government Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Chicago, Illinois
January 31, 1995

B-39
<PAGE> 69

Van Kampen Merritt U.S. Government Fund

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1994
--------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
---------------------------------------------------------------------------
Mortgage-Backed Securities 124.4%
<S> <C> <C> <C> <C>
$ 1,554 FHLMC ....................... 10.250% 11/01/09 $ 1,632,666
417 FHLMC ....................... 11.250 09/01/15 448,450
1 FHLMC ....................... 8.000 01/01/19 557
23,000 FHLMC <F3> .................. 8.000 01/15/21 22,258,940
60,308 FHLMC ....................... 8.500 Various 59,138,499
28,665 FHLMC ....................... 10.000 Various 30,053,451
15,086 FHLMC ....................... 10.000 Various 15,746,191
45,436 FHLMC ....................... 11.000 Various 48,686,509
6,891 FHLMC (Seasoned) ............ 8.500 01/01/16 6,843,267
15,061 FHLMC REMIC #106G PAC ....... 8.250 12/15/20 14,512,780
16,723 FHLMC REMIC #127D PAC ....... 6.000 05/15/20 15,508,218
10,894 FHLMC REMIC #1350G PAC ...... 7.500 08/15/19 10,000,365
17,373 FHLMC REMIC #14B PAC ........ 9.000 12/15/19 17,208,557
13,550 FHLMC REMIC #163E PAC ....... 6.000 01/15/21 11,527,527
30,326 FHLMC REMIC #165K PAC <F3> .. 6.500 09/15/21 25,932,976
32,376 FHLMC REMIC #181E PAC ....... 7.000 08/15/21 28,378,211
44,820 FHLMC REMIC #79C PAC ........ 8.600 10/15/05 43,860,572
17,025 FHLMC REMIC #89D ............ 9.000 02/15/21 16,905,107
23,277 FHLMC REMIC #92G PAC ........ 7.000 11/15/20 20,079,189
13,124 FHLMC REMIC #97G PAC ........ 9.250 11/15/05 13,128,101
57 FNMA ........................ 12.500 03/01/15 63,482
3,737 FNMA ........................ 13.000 06/01/15 4,140,352
8,898 FNMA ........................ 8.500 07/01/19 8,805,797
4,334 FNMA ........................ 9.500 05/01/20 4,460,900
146,972 FNMA ........................ 6.500 Various 129,379,760
230,256 FNMA ........................ 7.000 Various 209,098,002
945,814 FNMA <F2> ................... 7.500 Various 883,730,583
68,897 FNMA ........................ 8.000 Various 66,118,788
13,840 FNMA ........................ 8.500 Various 13,610,304
8,365 FNMA ........................ 9.000 Various 8,412,213
12,570 FNMA ........................ 10.500 Various 13,394,656
14,675 FNMA ........................ 11.000 Various 15,853,413
2,341 FNMA ........................ 11.500 Various 2,548,187
4,326 FNMA #28- Interest Only ..... 8.500 01/01/18 1,508,800
3,164 FNMA #7- Interest Only ...... 8.500 04/01/17 1,067,826
14,231 FNMA (Seasoned) ............. 9.000 Various 14,381,504
15,000 FNMA REMIC #93-4HB PAC ....... 11.000 01/25/19 16,149,600
14,245 FNMA REMIC #89-49C PAC ...... 8.900 11/25/17 14,276,944
18,323 FNMA REMIC #89-63E .......... 9.400 06/25/12 18,409,982
11,900 FNMA REMIC #89-85D PAC ...... 7.600 05/25/18 11,669,735
11,900 FNMA REMIC #89-94G PAC ...... 7.500 12/25/19 10,911,467
16,957 FNMA REMIC #89-97C .......... 9.000 01/25/15 16,983,609
18,085 FNMA REMIC #90-12G PAC ...... 4.500 02/25/20 12,763,670
</TABLE>

See Notes to Financial Statements

B-40

<PAGE> 70

<TABLE>
<CAPTION>
Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------------
Portfolio of Investments (Continued)
December 31, 1994
--------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
--------------------------------------------------------------------------------------
Mortgage-Backed Securities (Continued)
<S> <C> <C> <C> <C>
$5,843 FNMA REMIC #90-43C .................. 9.500% 09/25/18 $5,854,638
20,517 FNMA REMIC #90-71H PAC .............. 8.500 06/25/20 20,057,009
13,674 FNMA REMIC #90-97E PAC .............. 7.000 08/25/19 13,203,099
5,697 GNMA ................................ 11.500 Various 6,266,997
148,051 GNMA ................................ 7.000 Various 132,919,924
374,285 GNMA ................................ 7.500 Various 347,377,550
351,018 GNMA ................................ 8.000 Various 335,766,698
313 GNMA ................................ 8.000 Various 300,899
76,922 GNMA ................................ 8.500 Various 75,815,396
155 GNMA ................................ 8.500 Various 152,645
829,113 GNMA <F3> ........................... 9.000 Various 836,616,596
340,335 GNMA ................................ 9.000 Various 344,054,754
89,179 GNMA ................................ 9.500 Various 92,048,098
22,921 GNMA ................................ 10.000 Various 24,109,723
32,593 GNMA ................................ 10.500 Various 34,843,523
3,303 GNMA ................................ 11.000 Various 3,598,755
3,560 GNMA ................................ 12.000 Various 3,971,609
3,806 GNMA ................................ 12.500 Various 4,285,340
2,494 GNMA ................................ 13.000 Various 2,833,376
1,180 GNMA GPM ............................ 12.250 Various 1,322,434
297 GNMA II ............................. 8.500 Various 290,125
12,214 GNMA II ............................. 10.500 Various 12,828,330
7,127 GNMA II ............................. 11.000 Various 7,632,559
3,096 GNMA II ............................. 11.500 Various 3,346,999
3,131 GNMA II ............................. 12.000 Various 3,422,928
1,798 GNMA II ............................. 12.500 Various 1,983,528
---------------
4,194,493,239
U.S. Treasury Securities 6.2% ---------------
15,000 U.S. T- Bonds <F3> ................... 13.125 5/15/01 18,938,850
15,000 U.S. T- Bonds <F3> ................... 13.750 8/15/04 20,870,400
45,000 U.S. T- Bonds <F3> ................... 14.000 11/15/11 65,580,750
40,000 U.S. T- Bonds <F3> ................... 12.000 8/15/13 53,225,600
50,000 U.S. T- Notes ....................... 7.500 12/31/96 49,843,500
----------
208,459,100
-----------
Total Long-Term Investments 130.6%
(Cost $4,565,413,344) <F1> ........................................... 4,402,952,339

Liabilities in Excess of Other Assets (30.6%) ....................... (1,030,753,830)
----------------
Net Assets 100% ..................................................... $3,372,198,509
----------------

<FN>
<F1> At December 31, 1994, cost for federal income tax purposes is $4,565,413,344; the aggregate
gross unrealized appreciation is $26,598,905 and the aggregate gross unrealized depreciation is
$189,059,910, resulting in net unrealized depreciation on investments of $162,461,005.
<F2> Securities purchased pursuant to a dollar roll transaction.
<F3> Assets segregated as collateral for dollar roll and reverse repurchase
transactions.
</TABLE>

See Notes to Financial Statements

B-41
<PAGE> 71

<TABLE>
<CAPTION>
Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1994
--------------------------------------------------------------------------------
Assets:
<S> <C>
Investments, at Market Value (Cost $4,565,413,344) <F1>..................................... $4,402,952,339
Cash........................................................................................ 640
Receivables:
Interest.................................................................................... 33,959,021
Investments Sold............................................................................ 2,501,358
Fund Shares Sold............................................................................ 913,868
Other....................................................................................... 227,355
-----------------
Total Assets................................................................................ 4,440,554,581
-----------------
Liabilities:
Payables:
Investments Purchased....................................................................... 896,476,563
Reverse Repurchase Agreements <F4>.......................................................... 146,265,000
Income Distributions ....................................................................... 11,899,729
Fund Shares Repurchased..................................................................... 8,559,921
Investment Advisory Fee <F2>................................................................ 1,462,149
Accrued Expenses............................................................................ 3,692,710
-----------------
Total Liabilities........................................................................... 1,068,356,072
-----------------
Net Assets.................................................................................. $ 3,372,198,509
-----------------
Net Assets Consist of:
Paid in Surplus <F3>........................................................................ $ 4,057,915,563
Accumulated Undistributed Net Investment Income............................................. 766,993
Net Unrealized Depreciation on Investments.................................................. (162,461,005)
Accumulated Net Realized Loss on Investments................................................ (524,023,042)
-----------------
Net Assets.................................................................................. $ 3,372,198,509
-----------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $2,924,430,635
and 213,486,730 shares of beneficial interest issued and outstanding) <F3>.................. $ 13.70
Maximum sales charge (4.65%* of offering price)............................................. .67
-----------------
Maximum offering price to public............................................................ $ 14.37

-----------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $436,334,534 and
31,861,261 shares of beneficial interest issued and outstanding) <F3>....................... $ 13.69

-----------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $11,431,779 and
834,804 shares of beneficial interest issued and outstanding) <F3>.......................... $ 13.69

-----------------
Class D Shares:
Net asset value and offering price per share (Based on net assets of $1,561 and
114 shares of beneficial interest issued and outstanding) <F3>.............................. $ 13.69

-----------------
*On sales of $100,000 or more, the sales charge will be reduced. Effective January 16, 1995,
the maximum sales charge was changed to 4.75%.

</TABLE>

See Notes to Financial Statements

B-42
<PAGE> 72

<TABLE>
<CAPTION>
Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 1994
--------------------------------------------------------------------------------
Investment Income:
<S> <C>
Interest.......................................................................................................... $ 312,095,070
Fee Income <F4>................................................................................................... 30,166,992
-----------------
Total Income...................................................................................................... 342,262,062
-----------------
Expenses:
Investment Advisory Fee <F2>...................................................................................... 18,897,359
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $6,434,233,
$4,715,679, $119,027 and $4, respectively) <F7> ............................................................... 11,268,943
Shareholder Services ............................................................................................. 5,134,959
Custody........................................................................................................... 2,105,364
Legal <F2>........................................................................................................ 319,000
Trustees Fees and Expenses <F2>................................................................................... 49,500
Other............................................................................................................. 508,386
-----------------
Total Operating Expenses.......................................................................................... 38,283,511
Interest Expense <F4>............................................................................................. 3,324,515
-----------------
Net Investment Income............................................................................................. $ 300,654,036
-----------------
Realized and Unrealized Gain/Loss on Investments:
Net Realized Gain/Loss on Investments:
Proceeds from Sales............................................................................................... $ 11,923,735,360
Cost of Securities Sold........................................................................................... (12,105,017,302)
-----------------
Net Realized Loss on Investments (Including realized loss on closed and expired option and futures transactions
of $11,942,581 and $5,200,635, respectively)................................................................... (181,281,942)
-----------------
Net Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................................................................... 169,269,531
End of the Period ................................................................................................ (162,461,005)
-----------------
Net Unrealized Depreciation on Investments During the Period..................................................... (331,730,536)
-----------------
Net Realized and Unrealized Loss on Investments................................................................... $ (513,012,478)
-----------------
Net Decrease in Net Assets from Operations........................................................................ $ (212,358,442)
-----------------

</TABLE>

See Notes to Financial Statements

B-43
<PAGE> 73

<TABLE>
Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended December 31, 1994 and 1993
--------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993

------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................................................... $ 300,654,036 $ 316,003,802
Net Realized Loss on Investments............................................ (181,281,942) (45,902,032)
Net Unrealized Appreciation/Depreciation on Investments During the Period... (331,730,536) 23,557,010
----------------- -----------------
Change in Net Assets from Operations ....................................... (212,358,442) 293,658,780
Distributions from Net Investment Income*................................... (299,974,780) (315,942,680)
----------------- -----------------
Net Change in Net Assets from Investment Activities......................... (512,333,222) (22,283,900)
----------------- -----------------
From Capital Transactions <F3>:
Proceeds from Shares Sold................................................... 225,736,668 734,098,330
Net Asset Value of Shares Issued Through Dividend Reinvestment.............. 146,031,506 153,470,193
Cost of Shares Repurchased.................................................. (625,132,457) (402,171,672)
----------------- -----------------
Net Change in Net Assets from Capital Transactions.......................... (253,364,283) 485,396,851
----------------- -----------------
Total Increase/Decrease in Net Assets....................................... (765,697,505) 463,112,951
Net Assets:
Beginning of the Period..................................................... 4,137,896,014 3,674,783,063
----------------- -----------------
End of the Period (Including undistributed net investment income of
$766,993 and $87,737, respectively)......................................... $ 3,372,198,509 $ 4,137,896,014
----------------- -----------------
</TABLE>

Year Ended Year Ended
*Distributions by Class December 31, 1994 December 31, 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Distributions from Net Investment Income:
Class A Shares .......................... $ (265,263,650) $ (295,036,236)
Class B Shares .......................... (33,862,695) (20,776,787)
Class C Shares .......................... (848,319) (129,657)
Class D Shares .......................... (116) -0-
----------------- -----------------
$ (299,974,780) $ (315,942,680)
----------------- -----------------
</TABLE>

See Notes to Financial Statements

B-44

<PAGE> 74

Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1994
--------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen Merritt U.S. Government Fund (the "Fund") is organized as a sub-trust
of Van Kampen Merritt U.S. Government Trust (the "Trust"), a Massachusetts
business trust and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund commenced
investment operations on May 31, 1984. On August 24, 1992, the Fund commenced
distribution of Class B shares. The distribution of the Fund's Class C shares,
which were initially introduced as Class D shares and subsequently renamed Class
C shares on March 7, 1994, commenced on August 13, 1993. The distribution of the
Fund's fourth class of shares, Class D shares, commenced on March 14, 1994.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A.Security Valuation-Investments are stated at value using market quotations or,
if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.

B.Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may purchase and sell securities on a "when issued" and "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund will maintain, in a segregated account with its custodian, assets having
an aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made.

C.Investment Income-Interest income is recorded on an accrual basis. Original
issue discounts on securities purchased are amortized over the expected life of
each applicable security.

D.Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At December 31, 1994, the Fund had an accumulated capital loss carry forward for
tax purposes of $524,023,042. Of this amount, $74,101,929, $157,069,720,
$50,594,575, $6,272,412, $8,800,432, $45,902,032 and $181,281,942 will expire on
December 31, 1995, 1996, 1997, 1998, 2000, 2001 and 2002, respectively.

E.Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.

2.Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
----------------------------------
<S> <C>
First $500 million... .550 of 1%
Next $500 million.... .525 of 1%
Next $2 billion...... .500 of 1%
Next $2 billion...... .475 of 1%
Next $2 billion...... .450 of 1%
Next $2 billion...... .425 of 1%
Thereafter........... .400 of 1%

</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom, counsel
to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended December 31, 1994, the Fund recognized expenses of
approximately $1,898,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' ("VKAC") cost of providing accounting, legal,
portfolio pricing and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.
At December 31, 1994, VKAC owned 105, 100 and 100 shares of Classes B, C and D,
respectively.

B-45
<PAGE> 75

Van Kampen Merritt U.S. Government Fund
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
December 31, 1994
--------------------------------------------------------------------------------

3. Capital Transactions

The Fund has outstanding four classes of common shares, Classes A, B, C and D.
There are an unlimited number of shares of each class without par value
authorized. At December 31, 1994, paid in surplus aggregated $3,537,006,303,
$507,798,545, $13,109,002 and $1,713 for Classes A, B, C and D, respectively.
For the year ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
----------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 7,599,641 $ 112,208,814
Class B....................... 7,168,455 106,241,984
Class C....................... 498,458 7,284,166
Class D....................... 113 1,704
------------- -----------------
Total Sales................... 15,266,667 $ 225,736,668
------------- -----------------
Dividend Reinvestment:
Class A....................... 8,956,898 $ 129,070,604
Class B....................... 1,141,680 16,421,225
Class C....................... 37,661 539,668
Class D....................... 1 9
------------- -----------------
Total Dividend Reinvestment... 10,136,240 $ 146,031,506
------------- -----------------
Repurchases:
Class A....................... (36,347,230) $ (523,299,211)
Class B....................... (6,793,189) (97,347,991)
Class C....................... (317,931) (4,485,255)
Class D....................... -0- -0-
------------- -----------------
Total Repurchases............. (43,458,350) $ (625,132,457)
------------- -----------------

</TABLE>

At December 31, 1993, paid in surplus aggregated $3,819,026,096, $482,483,327
and $9,770,423 for Class A, B and C, respectively. For the year ended December
31, 1993, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
----------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 21,185,821 $ 337,931,085
Class B....................... 24,241,179 386,349,922
Class C....................... 619,586 9,817,323
------------- -----------------
Total Sales................... 46,046,586 $ 734,098,330
------------- -----------------
Dividend Reinvestment:
Class A....................... 8,970,749 $ 142,830,037
Class B....................... 665,206 10,557,661
Class C....................... 5,267 82,495
------------- -----------------
Total Dividend Reinvestment... 9,641,222 $ 153,470,193
------------- -----------------
Repurchases:
Class A....................... (24,095,621) $ (384,231,494)
Class B....................... (1,122,035) (17,810,783)
Class C....................... (8,237) (129,395)
------------- -----------------
Total Repurchases............. (25,225,893) $ (402,171,672)
------------- -----------------
</TABLE>

Class B, C and D shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Classes C and D as detailed in the following schedule.
The Class B, C and D shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
----------------------------------------------------
<S> <C> <C> <C>
First ................... 4.00% 1.00% 0.75%
Second .................. 3.75% None None
Third ................... 3.50% None None
Fourth .................. 2.50% None None
Fifth ................... 1.50% None None
Sixth ................... 1.00% None None
Seventh and Thereafter .. None None None
</TABLE>

For the year ended December 31, 1994, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$671,000 and CDSC on the redeemed shares of Classes B, C and D of approximately
$2,301,000. Sales charges do not represent expenses of the Fund.

4.Investment Transactions
Aggregate purchases and cost of sales, including principal paydowns and dollar
rolls, of investment securities, excluding short-term notes, for the year ended
December 31, 1994, were $11,787,022,614 and $12,105,017,302, respectively.
The Fund utilizes investment techniques called "dollar rolls," "forward
transactions" and reverse repurchase agreements for leverage purposes. In a
dollar roll, the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase, typically in 30 to 60 days,
substantially similar (same type, coupon and maturity) securities on a specified
future date from the same party at an agreed upon price which is less than the
sales price. The Fund is compensated by the difference between the current sales
price and the forward price for the future purchase.

In a forward transaction, the Fund purchases securities for delivery in the
current month and subsequently agrees to postpone delivery until the next
available delivery date, usually the next month. The Fund receives a fee as
compensation for postponing delivery. Fee income on these transactions is
recognized at the offsetting transaction's trade date for dollar rolls and the
date when settlement is postponed for forward transactions. At December 31,
1994, the Fund had open dollar roll and/or forward transactions with a market
value of $883.7 million and related assets segregated for these open purchases
of $884.8 million.

B-46
<PAGE> 76

In a reverse repurchase agreement the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. During the reverse
repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities. The average daily balance of reverse
repurchase agreements during the period was approximately $73.3 million with an
average interest rate of 4.54%. At December 31, 1994, the interest rate in
effect for reverse repurchase agreements was 6.00%.

5.Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract. Summarized below are the specific types of
derivative financial instruments used by the Fund.

A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.

Transactions in options for the year ended December 31, 1994, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
---------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993... 2,850 $ (5,233,170)
Options Written and
Purchased (Net).................... 34,948 (30,111,447)
Options Terminated in Closing
Transactions (Net)................. (35,048) 33,233,549
Options Expired (Net).............. (2,750) 2,111,068
--------- ---------------
Outstanding at December 31, 1994... -0- $ -0-
--------- ---------------

</TABLE>

B. Futures Contracts-A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.

The fluctuation in market value of the contracts is settled daily through a cash
margin account. Realized gains and losses are recognized when the contracts are
closed or expire.

Transactions in futures, each with a par value of $100,000, for the year ended
December 31, 1994, were as follows:

Contracts
-----------------------------------------------
<S> <C>
Outstanding at December 31, 1993... -0-
Futures Opened..................... 5,809
Futures Closed..................... (5,809)
--------
Outstanding at December 31, 1994... -0-
--------
</TABLE>

6. Mortgage Backed Securities
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies--Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC). A Collateralized Mortgage Obligation (CMO) is a bond which is
collateralized by a pool of MBS's. The Fund also invests in REMIC's (Real Estate
Mortgage Investment Conduit) which are simply another form of CMO. These MBS
pools are divided into classes or tranches with each class having its own
characteristics. For instance, a PAC (Planned Amortization Class) is a specific
class of mortgages which over its life will generally have the most stable cash
flows and the lowest prepayment risk. A GPM (Graduated Payment Mortgage) is a
negative amortization mortgage where the payment amount gradually increases over
the life of the mortgage. The early payment amounts are not sufficient to cover
the interest due and, therefore, the unpaid interest is added to the principal,
thus increasing the borrower's mortgage balance.

An Interest Only security is another class of MBS representing ownership in the
cash flows of the interest payments made from a specified pool of MBS. The cash
flow on this instrument decreases as the mortgage principal balance is repaid by
the borrower.

7.Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.

Annual fees under the Plans of up to .30% each of Class A and Class D shares and
1.00% each of Class B and Class C shares are accrued daily. Included in these
fees for the year ended December 31, 1994, are payments to VKAC of approximately
$4,583,300.

B-47
<PAGE> 77

PART C: OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

<TABLE>
<S> <C>
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Independent Auditors' Report
Financial Statements
Notes to Financial Statements
</TABLE>

(B) EXHIBITS:

<TABLE>
<S> <C>
(1)(a) Form of Agreement Declaration of Trust(27)
(b) Form of Certificate of Designation for Van Kampen American Capital U.S.
Government Fund(27)
(2) Form of By-Laws(27)
(4) Form of Specimen of Share Certificate.
(i) Class A Shares(27)
(ii) Class B Shares(27)
(iii) Class C Shares(27)
(5) Form of Investment Advisory Agreement(27)
(6)(a) Form of Distribution and Service Agreement(27)
(b) Form of Dealer Agreement(27)
(c) Form of Broker Agreement(27)
(d) Form of Bank Agreement(27)
(8)(a) Custodian Agreement(8)
(b) Form of Transfer Agency Agreement(27)
(9)(a) Form of Fund Accounting Agreement(27)
(b) Form of Legal Services Agreement(27)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom(27)
(11) Consent of KPMG Peat Marwick LLP+
(13) Letter of understand relating to initial capital*
(14)(a) Copy of Proposed Model Simplified Employee Pension Plan.(1)
(b) Copy of Proposed Model Individual Retirement Account Plan.(2)
(i) Copy of Proposed Profit-Sharing Adoption Agreement for Prototype
Paired Defined Contribution Plan.(3)
(ii) Copy of Proposed Money Purchase Pension Adoption Agreement for
Prototype Paired Defined Contribution Plan.(3)
(15)(a) Form of Distribution Plan Pursuant to Rule 12b-1(27)
(b) Form of Shareholder Assistance Agreement(27)
(c) Form of Administrative Services Agreement(27)
(d) Form of Service Plan(27)
(16) Computation of Performance Quotations(25)
(17)(a) Investment Companies for which Van Kampen American Capital Distributors, Inc.
acts as principal underwriter or depositor+
(b) List of Officers and Directors of Van Kampen American Capital Distributors,
Inc.+
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>

---------------
* Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement, File No. 2-89190, filed on April 6,
1984.

(1) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement, File No. 2-89190, filed on June 19,
1984.

(2) Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement, File No. 2-89190, filed on August 20,
1984.

C-1
<PAGE> 78

(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement, File No. 2-89190, filed on January 25,
1985.

(8) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement, File No. 2-89190, filed February 5,
1988.

(25) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement, File No. 2-89190, filed April 28,
1995.

(27) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement, File No. 2-89190, filed August 2,
1995.

+ Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:

To the best knowledge of Registrant, no person is controlled by or under
common control with the Registrant.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES:

As of August 11, 1995:

<TABLE>
<CAPTION>
(2)
(1) NUMBER
OF
RECORD
TITLE OF CLASS HOLDERS
-------
<S> <C>
Shares of Beneficial Interest*
Class A Shares............................. 125,810
Class B Shares............................. 19,375
Class C Shares............................. 190
* Prior to May 1, 1995, the Fund offered Class D
Shares.
</TABLE>

ITEM 27. INDEMNIFICATION:

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

Article 8, Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officers or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall

C-2
<PAGE> 79

determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:

See "How the Fund is Managed" in the Prospectus and "Officers and Trustees"
and "Investment Advisory and Other Services" in the Statement of Additional
Information for information regarding the business of the Adviser. For
information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of Van Kampen American
Capital Investment Advisory Corp., reference is made to the Adviser's current
Form ADV filed under the Investment Advisers Act of 1940, incorporated herein by
reference.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as a principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit (17)(a) hereto.

(b) Van Kampen American Capital Distributors, Inc., which is an affiliated
person of an affiliated person of the Fund. The name, principal business address
and positions and offices with Van Kampen American Capital Distributors, Inc. of
each of the officers thereof are set forth in Exhibit 17(b). Except as disclosed
under the heading "Officers and Trustees" in Part B of this Registration
Statement, none of such persons has any position or office with Registrant.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS:

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, ACCESS Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri 64153, or at the State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by the Adviser, will
be maintained at its offices, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.

ITEM 31. MANAGEMENT SERVICES:

Not applicable.

ITEM 32. UNDERTAKINGS:

(a) Not applicable.

(b) Not applicable.

(c) The Registrant provides the information required by Item 5A in the
respective annual reports to shareholders of Registrant's series and hereby
undertakes to furnish without charge to each person to whom a prospectus is
delivered for a particular series with a copy of the latest annual report to
shareholders of such series.

C-3
<PAGE> 80

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, VAN KAMPEN AMERICAN CAPITAL U.S.
GOVERNMENT TRUST, CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS
OF THIS REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT
OF 1933, HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY
OF OAKBROOK TERRACE AND THE STATE OF ILLINOIS, ON THE 16TH DAY OF AUGUST, 1995.

VAN KAMPEN AMERICAN CAPITAL
U.S. GOVERNMENT TRUST

By: /s/ RONALD A. NYBERG
-----------------------------------------------------
Ronald A. Nyberg, Vice President and Secretary

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON AUGUST 16, 1995 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ DONALD C. MILLER* Chairman of the Board and
--------------------------------------------- Trustee
Donald C. Miller
/s/ DENNIS J. McDONNELL* President and Trustee
--------------------------------------------- (Chief Executive Officer)
Dennis J. McDonnell

/s/ R. CRAIG KENNEDY* Trustee
---------------------------------------------
R. Craig Kennedy

/s/ JACK E. NELSON* Trustee
---------------------------------------------
Jack E. Nelson

/s/ PHILIP P. GAUGHAN* Trustee
---------------------------------------------
Philip P. Gaughan

/s/ JEROME L. ROBINSON* Trustee
---------------------------------------------
Jerome L. Robinson

/s/ WAYNE W. WHALEN* Trustee
---------------------------------------------
Wayne W. Whalen

/s/ J. MILES BRANAGAN* Trustee
---------------------------------------------
J. Miles Branagan

/s/ RICHARD E. CARUSO* Trustee
---------------------------------------------
Richard E. Caruso

/s/ ROGER HILSMAN* Trustee
---------------------------------------------
Roger Hilsman

/s/ DON G. POWELL* Trustee
---------------------------------------------
Don G. Powell

/s/ DAVID REES* Trustee
---------------------------------------------
David Rees
</TABLE>

C-4
<PAGE> 81

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>

/s/ LAWRENCE J. SHEEHAN* Trustee
---------------------------------------------
Lawrence J. Sheehan

/s/ FERNANDO SISTO* Trustee
---------------------------------------------
Fernando Sisto

/s/ WILLIAM S. WOODSIDE* Trustee
---------------------------------------------
William S. Woodside

/s/ EDWARD C. WOOD, III* Vice President and
--------------------------------------------- Treasurer (Chief
Edward C. Wood, III Financial
and Accounting Officer)
---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney, a copy of which has been
previously filed.

/s/ RONALD A. NYBERG August 16, 1995
---------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>

C-5
<PAGE> 82

VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST

SCHEDULE OF EXHIBITS TO POST-EFFECTIVE

AMENDMENT 27 TO FORM N-1A SUBMITTED TO THE

SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1995

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------------------------------------------------------------------------- ------
<S> <C> <C>
(1)(a) Form of Agreement Declaration of Trust(27)
(b) Form of Certificate of Designation for Van Kampen American Capital U.S.
Government Fund(27)
(2) Form of By-Laws(27)
(4) Form of Specimen of Share Certificate.
(i) Class A Shares(27)
(ii) Class B Shares(27)
(iii) Class C Shares(27)
(5) Form of Investment Advisory Agreement(27)
(6)(a) Form of Distribution and Service Agreement(27)
(b) Form of Dealer Agreement(27)
(c) Form of Broker Agreement(27)
(d) Form of Bank Agreement(27)
(8)(a) Custodian Agreement(8)
(b) Form of Transfer Agency Agreement(27)
(9)(a) Form of Fund Accounting Agreement(27)
(b) Form of Legal Services Agreement(27)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom(27)
(11) Consent of KPMG Peat Marwick LLP+
(13) Letter of understand relating to initial capital*
(14)(a) Copy of Proposed Model Simplified Employee Pension Plan.(1)
(b) Copy of Proposed Model Individual Retirement Account Plan.(2)
(i) Copy of Proposed Profit-Sharing Adoption Agreement for Prototype
Paired Defined Contribution Plan.(3)
(ii) Copy of Proposed Money Purchase Pension Adoption Agreement for
Prototype Paired Defined Contribution Plan.(3)
(15)(a) Form of Distribution Plan Pursuant to Rule 12b-1(27)
(b) Form of Shareholder Assistance Agreement(27)
(c) Form of Administrative Services Agreement(27)
(d) Form of Service Plan(27)
(16) Computation of Performance Quotations(25)
(17)(a) Investment Companies for which Van Kampen American Capital Distributors,
Inc. acts as principal underwriter or depositor+
(b) List of Officers and Directors of Van Kampen American Capital
Distributors, Inc.+
(24) Power of Attorney+
(27) Financial Data Schedules+
</TABLE>

---------------
* Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement, File No. 2-89190, filed on April 6,
1984.

(1) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement, File No. 2-89190, filed on June 19,
1984.

(2) Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement, File No. 2-89190, filed on August 20,
1984.
<PAGE> 83

(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement, File No. 2-89190, filed on January 25,
1985.

(8) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement, File No. 2-89190, filed February 5,
1988.

(25) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement, File No. 2-89190, filed April 28,
1995.

(27) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement, File No. 2-89190, filed August 2,
1995.

+ Filed herewith.

<PAGE> 1
EXHIBIT 11

CONSENT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Van Kampen American Capital U.S. Government Fund:

We consent to the use of our report included in the Statement of Additional
Information which is incorporated by reference into the Prospectus and to the
reference to our Firm under the headings "Financial Highlights" in the
Prospectus and "Custodian and Independent Auditors" in the Statement of
Additional Information.

KPMG Peat Marwick LLP

Chicago, Illinois
August 17, 1995

<PAGE> 1

EXHIBIT 17 (a)

INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN/AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
AUGUST 17, 1995

Van Kampen Merritt U.S. Government Trust
Van Kampen Merritt Tax Free Fund
Van Kampen Merritt Insured Tax Free Income Fund
Van Kampen Merritt Tax Free High Income Fund
Van Kampen Merritt California Insured Tax Free Fund
Van Kampen Merritt Municipal Income Fund
Van Kampen Merritt Limited Term Municipal Income Fund
Van Kampen Merritt Florida Insured Tax Free Income Fund
Van Kampen Merritt New Jersey Tax Free Income Fund
Van Kampen Merritt New York Tax Free Income Fund
Van Kampen Merritt Trust
Van Kampen Merritt High Yield Fund
Van Kampen Merritt Short-Term Global Income Fund
Van Kampen Merritt Adjustable Rate U.S. Government Fund
Van Kampen Merritt Strategic Income Fund
Van Kampen Merritt Emerging Markets Income Fund
Van Kampen Merritt Growth Fund
Van Kampen Merritt Equity Trust
Van Kampen Merritt Growth and Income Fund
Van Kampen Merritt Utility Fund
Van Kampen Merritt Balanced Fund
Van Kampen Merritt Total Return Fund
Van Kampen Merritt Pennsylvania Tax Free Income Fund
Van Kampen Merritt Money Market Trust
Van Kampen Merritt Money Market Fund
Van Kampen Merritt Tax Free Money Fund
Van Kampen Merritt Prime Rate Income Trust
Van Kampen Merritt Series Trust
American Capital Comstock Fund, Inc.
American Capital Corporate Bond Fund, Inc.
American Capital Emerging Growth Fund, Inc.
American Capital Enterprise Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Federal Mortgage Trust
American Capital Global Managed Assets Fund, Inc.
American Capital Government Securities, Inc.
American Capital Government Target Series
American Capital Growth and Income Fund, Inc.
American Capital Harbor Fund, Inc.
American Capital High Yield Investments, Inc.
American Capital Life Investment Trust
American Capital Municipal Bond Fund, Inc.
American Capital Pace Fund, Inc.
American Capital Real Estate Securities Fund, Inc.
American Capital Reserve Fund, Inc.
American Capital Tax-Exempt Trust
American Capital Texas Municipal Securities, Inc.
American Capital U.S. Government Trust for Income
American Capital Utilities Income Fund, Inc.
American Capital World Portfolio Series, Inc.
<PAGE> 2

<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 353
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1 through 1009
Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . . . . Series 5 through 84
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . Series 9 through 80
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 144
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . Series 1 through 20
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 75
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 27
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 95
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . . . Series 1 through 13
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 76
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 55
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 73
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 130
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 55
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 92
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 105
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust-Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 127
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 83
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 98
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 204
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 79
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-32
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 67
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 5

</TABLE>

<PAGE> 1

EXHIBIT 17(b)

OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

<TABLE>
<CAPTION>
NAME OFFICE LOCATION
---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX

William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer

Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX

Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Frederick Shepherd Sr. Vice President Houston, TX
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL

Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL

Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
</TABLE>

<PAGE> 2

<TABLE>
<S> <C> <C>
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Jack Glaw Vice President Fairhope, AL
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Gary Polson Vice President Overland Park, KS
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, VA
Colette Saucedo Vice President Houston, TX
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C>
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL

James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Scott M. Pulkrabek Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX

David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
</TABLE>

<PAGE> 4

DIRECTORS

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

<TABLE>
<CAPTION>
NAME OFFICE LOCATION
---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd
Houston, TX 77056

William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181

Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181

William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>

<PAGE> 1

EXHIBIT 24
POWER OF ATTORNEY

The undersigned, being officers and trustees of Van Kampen American
Capital U.S. Government Trust, a Delaware business trust (the "Trust"), do
hereby, in the capacities shown below, individually appoint Dennis J. McDonnell
and Ronald A. Nyberg, each of Oakbrook Terrace, Illinois, and each of them, as
the agents and attorneys-in-fact with full power of substitution and
resubstitution, for each of the undersigned, to execute and deliver, for and on
behalf of the undersigned, any and all amendments to the Registration Statement
on Form N-1A filed by the Trust with the Securities and Exchange Commission
pursuant to the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940.

This Power of Attorney may be executed in multiple counterparts, each
of which shall be deemed an original, but which taken together shall constitute
one instrument.

Dated: July 25, 1995

Signature Title

/s/ J. Miles Branagan
----------------------- Trustee
J. Miles Branagan

<PAGE> 2

/s/ Richard E. Caruso
----------------------------- Trustee
Richard E. Caruso

/s/ Philip P. Gaughan
----------------------------- Trustee
Philip P. Gaughan

/s/ Roger Hilsman
------------------------ Trustee
Roger Hilsman

/s/ R. Craig Kennedy
------------------------ Trustee
R. Craig Kennedy

/s/ Dennis J. McDonnell
----------------------- President, Chief Executive Officer and Trustee
Dennis J. McDonnell

/s/ Donald C. Miller
--------------------- Chairman and Trustee
Donald C. Miller

<PAGE> 3

/s/ Jack E. Nelson
--------------------------- Trustee
Jack E. Nelson

/s/ Don G. Powell
--------------------------- Trustee
Don G. Powell

/s/ David Rees
--------------------- Trustee
David Rees

/s/ Jerome L. Robinson
----------------------- Trustee
Jerome L. Robinson

/s/ Lawrence J. Sheehan
------------------------- Trustee
Lawrence J. Sheehan

/s/ Fernando Sisto
------------------------- Trustee
Fernando Sisto

<PAGE> 4

/s/ Wayne W. Whalen
-------------------- Trustee
Wayne W. Whalen

/s/ Edward C. Wood III
----------------------- Chief Financial and Accounting Officer
Edward C. Wood III

/s/ William S. Woodside
------------------------- Trustee
William S. Woodside

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> U.S. GOVERNMENT

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4,565,413,344<F1>
<INVESTMENTS-AT-VALUE> 4,402,952,339<F1>
<RECEIVABLES> 37,374,247<F1>
<ASSETS-OTHER> 227,355<F1>
<OTHER-ITEMS-ASSETS> 640<F1>
<TOTAL-ASSETS> 4,440,554,581<F1>
<PAYABLE-FOR-SECURITIES> 896,476,563<F1>
<SENIOR-LONG-TERM-DEBT> 146,265,000<F1>
<OTHER-ITEMS-LIABILITIES> 25,614,509<F1>
<TOTAL-LIABILITIES> 1,068,356,072<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 3,537,006,303
<SHARES-COMMON-STOCK> 213,486,730
<SHARES-COMMON-PRIOR> 233,277,421
<ACCUMULATED-NII-CURRENT> 766,993<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (524,023,042)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (162,461,005)<F1>
<NET-ASSETS> 2,924,430,635
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 312,095,070<F1>
<OTHER-INCOME> 30,166,992<F1>
<EXPENSES-NET> 41,608,026<F1>
<NET-INVESTMENT-INCOME> 300,654,036<F1>
<REALIZED-GAINS-CURRENT> (181,281,942)<F1>
<APPREC-INCREASE-CURRENT> (331,730,536)<F1>
<NET-CHANGE-FROM-OPS> (212,358,442)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (265,263,650)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,599,641
<NUMBER-OF-SHARES-REDEEMED> (36,347,230)
<SHARES-REINVESTED> 8,956,898
<NET-CHANGE-IN-ASSETS> (729,143,217)
<ACCUMULATED-NII-PRIOR> 87,737<F1>
<ACCUMULATED-GAINS-PRIOR> (342,741,100)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 18,897,359<F1>
<INTEREST-EXPENSE> 3,324,515<F1>
<GROSS-EXPENSE> 41,608,026<F1>
<AVERAGE-NET-ASSETS> 3,266,258,106
<PER-SHARE-NAV-BEGIN> 15.662
<PER-SHARE-NII> 1.177
<PER-SHARE-GAIN-APPREC> (1.965)
<PER-SHARE-DIVIDEND> (1.176)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.698
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 73,300,000<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This Item relates to the Fund on a composite basis and not on a class basis.
<F4>
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> U.S. GOVERNMENT

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4,565,413,344<F1>
<INVESTMENTS-AT-VALUE> 4,402,952,339<F1>
<RECEIVABLES> 37,374,247<F1>
<ASSETS-OTHER> 227,355<F1>
<OTHER-ITEMS-ASSETS> 640<F1>
<TOTAL-ASSETS> 4,440,554,581<F1>
<PAYABLE-FOR-SECURITIES> 896,476,563<F1>
<SENIOR-LONG-TERM-DEBT> 146,265,000<F1>
<OTHER-ITEMS-LIABILITIES> 25,614,509<F1>
<TOTAL-LIABILITIES> 1,068,356,072<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 507,798,545
<SHARES-COMMON-STOCK> 31,861,261
<SHARES-COMMON-PRIOR> 30,344,315
<ACCUMULATED-NII-CURRENT> 766,993<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (524,023,042)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (162,461,005)<F1>
<NET-ASSETS> 436,334,534
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 312,095,070<F1>
<OTHER-INCOME> 30,166,992<F1>
<EXPENSES-NET> 41,608,026<F1>
<NET-INVESTMENT-INCOME> 300,654,036<F1>
<REALIZED-GAINS-CURRENT> (181,281,942)<F1>
<APPREC-INCREASE-CURRENT> (331,730,536)<F1>
<NET-CHANGE-FROM-OPS> (212,358,442)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (33,862,695)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,168,455
<NUMBER-OF-SHARES-REDEEMED> (6,793,189)
<SHARES-REINVESTED> 1,141,680
<NET-CHANGE-IN-ASSETS> (38,352,313)
<ACCUMULATED-NII-PRIOR> 87,737<F1>
<ACCUMULATED-GAINS-PRIOR> (342,741,100)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 18,897,359<F1>
<INTEREST-EXPENSE> 3,324,515<F1>
<GROSS-EXPENSE> 41,608,026<F1>
<AVERAGE-NET-ASSETS> 470,430,781
<PER-SHARE-NAV-BEGIN> 15.643
<PER-SHARE-NII> 1.055
<PER-SHARE-GAIN-APPREC> (1.964)
<PER-SHARE-DIVIDEND> (1.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.694
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 73,300,000<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Fund level figures.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> U.S. GOVERNMENT

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4,565,413,344<F1>
<INVESTMENTS-AT-VALUE> 4,402,952,339<F1>
<RECEIVABLES> 37,374,247<F1>
<ASSETS-OTHER> 227,355<F1>
<OTHER-ITEMS-ASSETS> 640<F1>
<TOTAL-ASSETS> 4,440,554,581<F1>
<PAYABLE-FOR-SECURITIES> 896,476,563<F1>
<SENIOR-LONG-TERM-DEBT> 146,265,000<F1>
<OTHER-ITEMS-LIABILITIES> 25,614,509
<TOTAL-LIABILITIES> 1,068,356,072<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 13,109,002
<SHARES-COMMON-STOCK> 834,804
<SHARES-COMMON-PRIOR> 616,616
<ACCUMULATED-NII-CURRENT> 766,993<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (524,023,042)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (162,461,005)<F1>
<NET-ASSETS> 11,431,779
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 312,095,070<F1>
<OTHER-INCOME> 30,166,992<F1>
<EXPENSES-NET> 41,608,026<F1>
<NET-INVESTMENT-INCOME> 300,654,036<F1>
<REALIZED-GAINS-CURRENT> (181,281,942)<F1>
<APPREC-INCREASE-CURRENT> (331,730,536)<F1>
<NET-CHANGE-FROM-OPS> (212,358,442)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (848,319)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 498,458
<NUMBER-OF-SHARES-REDEEMED> (317,931)
<SHARES-REINVESTED> 37,661
<NET-CHANGE-IN-ASSETS> (1,796,464)
<ACCUMULATED-NII-PRIOR> 87,737<F1>
<ACCUMULATED-GAINS-PRIOR> (342,741,100)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 18,897,359<F1>
<INTEREST-EXPENSE> 3,324,515<F1>
<GROSS-EXPENSE> 41,608,026<F1>
<AVERAGE-NET-ASSETS> 11,863,587
<PER-SHARE-NAV-BEGIN> 15.626
<PER-SHARE-NII> 1.063
<PER-SHARE-GAIN-APPREC> (1.956)
<PER-SHARE-DIVIDEND> (1.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.693
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 73,300,000<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Fund level figures.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> U.S. GOVERNMENT

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> MAR-04-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4,565,413,344<F1>
<INVESTMENTS-AT-VALUE> 4,402,952,339<F1>
<RECEIVABLES> 37,374,247<F1>
<ASSETS-OTHER> 227,355<F1>
<OTHER-ITEMS-ASSETS> 640<F1>
<TOTAL-ASSETS> 4,440,554,581<F1>
<PAYABLE-FOR-SECURITIES> 896,476,563<F1>
<SENIOR-LONG-TERM-DEBT> 146,265,000<F1>
<OTHER-ITEMS-LIABILITIES> 25,614,509<F1>
<TOTAL-LIABILITIES> 1,068,356,072<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1713
<SHARES-COMMON-STOCK> 114
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 766,993<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (524,023,042)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (162,461,005)<F1>
<NET-ASSETS> 1561
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 312,095,070<F1>
<OTHER-INCOME> 30,166,992<F1>
<EXPENSES-NET> 41,608,026<F1>
<NET-INVESTMENT-INCOME> 300,654,036<F1>
<REALIZED-GAINS-CURRENT> (181,281,942)<F1>
<APPREC-INCREASE-CURRENT> (331,730,536)<F1>
<NET-CHANGE-FROM-OPS> (212,358,442)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (116)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 57
<ACCUMULATED-NII-PRIOR> 87,737<F1>
<ACCUMULATED-GAINS-PRIOR> (342,741,100)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 18,897,359<F1>
<INTEREST-EXPENSE> 3,324,515<F1>
<GROSS-EXPENSE> 41,608,026<F1>
<AVERAGE-NET-ASSETS> 1615
<PER-SHARE-NAV-BEGIN> 15.04
<PER-SHARE-NII> .799
<PER-SHARE-GAIN-APPREC> (1.232)
<PER-SHARE-DIVIDEND> (.913)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.694
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 73,300,000<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Fund level figures.
</FN>

</TABLE>