VAN KAMPEN MERRITT TRUST /IL, 485APOS, 1995-06-02

VAN KAMPEN MERRITT TRUST /IL
485APOS, 1995-06-02

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1995

FILE NOS. 33-4410
811-4629
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 31 /X/
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 32 /X/

VAN KAMPEN MERRITT TRUST
(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)

One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)

(708) 684-6000
(Registrant's Telephone Number)

Dennis J. McDonnell
President, Van Kampen Merritt Trust
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
Ronald A. Nyberg, Esq.
Executive Vice President,
General Counsel and Director
Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)

on (date) pursuant to paragraph (b)

X 60 days after filing pursuant to paragraph (a)(1)

on (date) pursuant to paragraph (a)(1) of Rule 485.
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485

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 JUNE 30, 1995 ON OR BEFORE AUGUST 31, 1995.
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<PAGE> 2

EXPLANATORY NOTE

This Post-Effective Amendment No. 31 to the Registration Statement contains
one Prospectus and one Statement of Additional Information describing one
sub-trust of the Registrant. The Registration Statement is organized as follows:

Facing Page

Cross Reference Sheet with respect to Van Kampen American Capital Short-
Term Global Income Fund

Prospectus relating to Van Kampen American Capital Short-Term Global Income
Fund

Statement of Additional Information relating to Van Kampen American Capital
Short-Term Global Income Fund

Part C Information

Exhibits

The Prospectus and Statement of Additional Information with respect
to Van Kampen Merritt Emerging Markets Income Fund, a sub-trust of the
Registrant, included in Post-Effective Amendment No. 27 to the
Registration Statement is incorporated herein by reference in its entirety
and no changes to the Prospectus or Statement of Additional Information
are effected by this Post-Effective Amendment No. 31.

The Prospectuses and Statements of Additional Information with
respect to Van Kampen Merritt High Yield Fund, Van Kampen Merritt
Adjustable Rate U.S. Government Fund and Van Kampen Merritt Strategic
Income Fund, sub-trusts of the Registrant, included in Post-Effective
Amendment No. 30 to the Registration Statement are incorporated herein by
reference in its entirety and no changes to the Prospectus or Statement of
Additional Information are effected by this Post-Effective Amendment No.
31.

<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND,

A SUB-TRUST OF
VAN KAMPEN MERRITT TRUST

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
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C>
PART A INFORMATION REQUIRED IN A PROSPECTUS

Item 1. Cover Page............. Cover Page

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

Item 3. Condensed Financial
Information.......... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS; FUND
PERFORMANCE; SHAREHOLDER REPORTS AND INQUIRIES
Item 4. General Description of
Registrant........... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; INVESTMENT PRACTICES DESCRIPTION OF SHARES OF THE
FUND
Item 5. Management of the
Fund................. ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; PORTFOLIO
TRANSACTIONS AND BROKERAGE ALLOCATION; INVESTMENT ADVISORY
SERVICES; SHAREHOLDER SERVICES
Item 6. Capital Stock and Other
Securities........... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS; SHAREHOLDER
PROGRAMS; INVESTMENTS BY TAX-SHELTERED RETIREMENT PROGRAMS;
DESCRIPTION OF SHARES OF THE FUND; SHAREHOLDER REPORTS AND
INQUIRIES
Item 7. Purchase of Securities
Being Offered........ SHAREHOLDER TRANSACTION EXPENSES; PURCHASING SHARES OF THE
FUND; THE DISTRIBUTION AND SERVICE PLANS; INVESTMENTS OF
TAX-SHELTERED RETIREMENT PROGRAMS; NET ASSET VALUE;
SHAREHOLDER PROGRAMS; FUND PERFORMANCE
Item 8. Redemption or
Repurchase........... PURCHASING SHARES OF THE FUND; REDEMPTION OF SHARES;
SHAREHOLDER PROGRAMS; NET ASSET VALUE
Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>

(i)
<PAGE> 4

<TABLE>
<CAPTION>
LOCATION OR CAPTION
ITEM NUMBER OF IN STATEMENT OF
FORM N-1A ADDITIONAL INFORMATION
- ---------------------------------- -----------------------------------------------------------
<S> <C> <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
Item 12. General Information
and History.......... The Fund and the Trust
Item 13. Investment Objectives
and Policies......... Investment Policies and Restrictions; 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 the Prospectus under captions: PURCHASING
SHARES OF THE FUND; INVESTMENT ADVISORY SERVICES; THE
DISTRIBUTION AND SERVICE PLANS; Investment Advisory and
Other Services; Legal Counsel; Officers and Trustees; The
Distributor; Notes to Financial Statements
Item 17. Brokerage Allocation... Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities..... Contained in the Prospectus under the caption: DESCRIPTION
OF SHARES OF THE FUND
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered.............. Contained in the Prospectus under the captions: PURCHASING
SHARES OF THE FUND; SHAREHOLDER PROGRAMS; REDEMPTION OF
SHARES; NET ASSET VALUE
Item 20. Tax Status............. Contained in the Prospectus under captions TAX STATUS;
INVESTMENTS BY TAX-SHELTERED RETIREMENT PLANS; Tax Status
of the Fund
Item 21. Underwriters........... The Distributor; Notes to Financial Statements
Item 22. Calculation of
Performance Data..... Contained in the Prospectus under the caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements... Contained in the Prospectus under the caption: FINANCIAL
HIGHLIGHTS; Unaudited Financial Statements; Notes to
Unaudited Financial Statements; 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> 5

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.

SUBJECT TO COMPLETION -- DATED JUNE 2, 1995

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VAN KAMPEN AMERICAN CAPITAL

SHORT-TERM GLOBAL INCOME FUND
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Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is a
separate non-diversified series of the Van Kampen American Capital Trust, an
open-end management investment company commonly known as a mutual fund. The
Fund's investment objective is to seek a high level of current income,
consistent with prudent investment risk.

The Fund seeks to achieve its investment objective by investing in a global
portfolio of high-quality debt securities denominated in various currencies and
multi-national currency units and having remaining maturities of not more than
three years. The portfolio consists of high quality debt securities issued or
guaranteed by foreign governments or supranational organizations or their
agencies, instrumentalities, or subdivisions, high-quality debt securities
issued by corporations, high quality certificates of deposit or bankers
acceptances issued or guaranteed by large U.S. or foreign banks, high-quality
commercial paper and debt securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities. Investments in securities denominated in
currencies other than the U.S. dollar involve foreign currency exchange risks.
The Fund intends to engage in strategic transactions to seek to reduce or
eliminate such risks.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. The net asset value and yield of the Fund will fluctuate
depending on market conditions and other factors. This Prospectus sets forth
information that a prospective investor should know before investing in the
Fund. Please read it carefully and retain it for future reference. The address
of the Fund is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its
telephone number is 1-800-225-2222.

(Continued on next page.)
------------------

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
FEDERALLY 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.

A Statement of Additional Information, dated , 1995, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference into this
Prospectus. A copy of the Statement of Additional Information may be obtained
without charge by calling 1-800-225-2222, ext. 6504 or, for Telecommunications
Device for the Deaf, 1-800-772-8889.

------------------
VAN KAMPEN AMERICAN CAPITALSM
------------------
THIS PROSPECTUS IS DATED , 1995.
<PAGE> 6

(Continued from previous page.)

The Fund currently offers three classes of shares (the "Alternative Sales
Arrangements") which may be purchased at a price equal to their net asset value
per share, plus sales charges which, at the election of the investor, may be
imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share accounts over $1,000,000, "Class B
Shares" and "Class C Shares"). 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 and other circumstances.

Each class of shares pays ongoing distribution and service fees at an
aggregate annual rate of (i) for Class A Shares, up to 0.25% of the Fund's
average daily net assets attributable to the Class A Shares, (ii) for Class B
Shares, up to 1.00% of the Fund's average daily net assets attributable to the
Class B Shares and (iii) for Class C Shares up to 1.00% of the Fund's average
daily net assets attributable to the Class C Shares. Investors should understand
that the purpose and function of the deferred sales charge and the distribution
and service fees with respect to the Class A Share accounts over $1,000,000,
Class B Shares and the Class C Shares are the same as those of the initial sales
charge and distribution and service fees with respect to the Class A Share
accounts below $1,000,000. Each share of the Fund represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that (i) each class of shares bears those distribution fees, service fees and
administrative expenses applicable to the respective class of shares as a result
of its sales arrangement, which will cause the different classes of shares to
have different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the Fund's
Rule 12b-1 distribution plan which relate only to such class and (iii) the
classes have different exchange privileges. Class B Shares automatically will
convert to Class A Shares six years after the end of the calendar month in which
the investor's order to purchase was accepted, in the circumstances and subject
to the qualifications described in this Prospectus. See "Purchasing Shares of
the Fund."

2
<PAGE> 7

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TABLE OF CONTENTS

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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................... 4
Shareholder Transaction Expenses..................................... 8
Annual Fund Operating Expenses and Example........................... 9
Financial Highlights................................................. 11
The Fund............................................................. 12
Investment Objective and Policies.................................... 12
Investment Practices................................................. 17
Purchasing Shares Of the Fund........................................ 23
Distributions from the Fund.......................................... 32
Redemption of Shares................................................. 33
Net Asset Value...................................................... 36
Investment Advisory Services......................................... 37
Portfolio Transactions and Brokerage Allocation...................... 39
The Distribution and Service Plans................................... 40
Tax Status........................................................... 42
Shareholder Programs................................................. 45
Investments by Tax-Sheltered Retirement Plans........................ 49
Fund Performance..................................................... 51
Shareholder Services................................................. 52
Description of Shares of the Fund.................................... 53
Shareholder Reports and Inquiries.................................... 53
Additional Information............................................... 54
</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.

3
<PAGE> 8

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PROSPECTUS SUMMARY

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THE FUND. Van Kampen American Capital Short-Term Global Income Fund (the
"Fund") is a separate non-diversified series of the Van Kampen American Capital
Trust, an open-end management investment company organized as a Delaware
business trust. See "The Fund."

INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment objective is to seek a
high level of current income, consistent with prudent investment risk. The Fund
seeks to achieve its investment objective by investing in a global portfolio of
high-quality debt securities denominated in various currencies and
multi-national currency units and having remaining maturities of not more than
three years. In normal circumstances, at least 65% of the Fund's total assets
will be invested in obligations of or issued by issuers located in at least
three different countries, one of which may be the United States. The Fund is
designed for the investor who seeks a higher yield than a money market fund and
less fluctuation in net asset value than a longer-term global bond fund. High
quality debt securities and securities with remaining maturities of less than
three years generally have lower yields than comparable securities of lower
quality and with longer maturities. There is no assurance that the fund will
achieve its investment objective. See "Investment Objective and Policies."

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 and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.

The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of the
purchase ("Class A Shares") or (ii) on a contingent deferred basis (Class A
Share accounts over $1,000,000, "Class B Shares" and "Class C Shares." Class B
Shares and "Class C Shares" sometimes are referred to herein collectively as
CDSC Shares. Class A Share accounts over $1,000,000 or otherwise subject to a
contingent deferred sales charge ("CDSC"), Class B Shares and Class C Shares
sometimes are referred to herein collectively as CDSC Shares.

The minimum initial investment with respect to the Class A Shares, Class B
Shares and Class C Shares is $500. The minimum subsequent investment with
respect to each class of shares is $25.

Class A Shares. Class A Shares are subject to an initial sales charge equal to
3.25% of the public offering price (3.36% of the net amount invested), reduced
on investments of $25,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to

4
<PAGE> 9

the Class A Shares. Certain purchases of Class A Shares qualify for reduced or
no initial sales charges and may be subject to a contingent deferred sales
charge.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within three years of
purchase. Class B Shares are subject to a contingent deferred sales charge equal
to 3.00% of the lesser of the then current net asset value or the original
purchase price on Class B Shares redeemed during the first year after purchase,
and reduced each year thereafter. Class B Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 1.00% of the
Fund's average daily net assets attributable to the Class B Shares. Class B
Shares automatically will convert to Class A Shares six years after the end of
the calendar month in which the investor's order to purchase was accepted, in
the circumstances and subject to the qualifications described in this
Prospectus.

Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a contingent deferred sales charge
equal to 1.00% of the lesser of the then current net asset value or the original
purchase price on Class C Shares redeemed during the first year after purchase.
Class C Shares are subject to ongoing distribution and service fees at an
aggregate annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class C Shares.

INVESTMENT ADVISER AND ADVISORY FEE. Van Kampen American Capital Investment
Advisory Corp. (the "Adviser") is the investment adviser for the Fund. The
annual advisory fee for the Fund is 0.55% of average daily net assets. See
"Investment Advisory Services."

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income will be
declared daily and paid monthly; net realized capital gains, if any, will be
distributed annually. 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 administrative
expenses relating to each class of shares will be borne exclusively by the
respective class of shares. See "Distributions from the Fund."

REDEMPTION. Class A Shares may be redeemed at net asset value, without charge
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the anniversary of the expiration of the CDSC
period applicable to the respective class of CDSC Shares will not be subject to
a deferred sales charge. The Fund may require the redemption of shares if the
value of an account is $50 or less. See "Redemption of Shares."

RISK FACTORS AND SPECIAL CONSIDERATIONS. As a global fund, the Fund may invest
in United States and foreign securities. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such

5
<PAGE> 10

investments. Since the Fund may invest in securities denominated or quoted in
currencies other than the United States dollar, changes in foreign currency
exchange rates may affect the value of investments in the Fund's portfolio and
the accrued income and unrealized appreciation or depreciation of investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and the Fund's yield on such assets. Foreign currency exchange rates are
determined by forces of supply and demand on the foreign exchange markets. These
forces are, in turn, affected by the international balance of payments and other
economic and financial conditions, government intervention, speculation, and
other factors. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.

With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in such countries.
There may be less publicly available information about a foreign financial
instrument than about an United States instrument, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition, certain
foreign investments made by the Fund may be subject to foreign withholding
taxes, which would reduce the Fund's total return on such investments and the
amounts available for distribution by the Fund to its shareholders. For any
taxable year that more than 50% of the Fund's total assets at the close of such
year consist of stock or securities of foreign corporations and that the Fund
otherwise qualifies for and makes an election, the amount of foreign taxes paid
by the Fund that can be treated as foreign income taxes for United States
federal income tax purposes would be included in the income of its shareholders
and (subject to certain limitations) shareholders would be entitled to credit
their portions of these amounts against their United States federal income tax
due, if any, or to deduct their portions of these amounts from their United
States taxable income, if any. See "Tax Status." Most foreign financial markets,
while growing in volume, have, for the most part, substantially less volume than
United States markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic companies.
Foreign markets also have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of the Fund are not invested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
the portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Costs associated
with transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than with transactions in United
States securities. In addition, the Fund incurs costs in connection with
conversions between various currencies. There is generally less government
supervision and regulation of

6
<PAGE> 11

exchanges, financial institutions and issuers in foreign countries than there is
in the United States.

The net asset value of the Fund's shares will be affected by changes in the
general level of interest rates. When interest rates decline, the value of a
portfolio of fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio of fixed income securities can be
expected to decline.

The Fund intends to engage in strategic transactions with all or a portion of
its portfolio investments through transactions in forward currency contracts,
options on foreign currencies, foreign currency swap contracts, financial
futures contracts and options on such financial futures contracts and through
the use of "cross hedges." Successful investments in such transactions are
subject to the Adviser's ability to predict correctly movements in the relevant
markets. Certain of such transactions may be illiquid.

The Fund may invest in commercial paper and certificates of deposit which are
indexed to certain specific foreign currency exchange rates. The terms of such
commercial paper or certificates of deposit provide that their principal amount
is adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. Such commercial paper and certificates of deposit entail the risk
of loss of principal.

The Fund is a "non-diversified" investment company, which means the Fund may,
subject to the requirements for qualification as a regulated investment company
for federal income tax purposes, invest more than 5% of the value of its total
assets in the securities of a single issuer. Because the Fund, as a
non-diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in the Fund may, in
certain circumstances, present greater risk to an investor than an investment in
a diversified company.

The above is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

7
<PAGE> 12

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

SHAREHOLDER TRANSACTION EXPENSES

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
-------- ------------- -------------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of the
offering price).................... 3.25%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of the offering
price)............................. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of the
then current net asset value or the
original purchase price on
redemption proceeds)............... None(2) Year 1--3.00% Year 1--1.00%
Year 2--2.00%
Year 3--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 $25,000 or more.

(2) Investments of $1,000,000 or more are not subject to a sales charge at the
time of purchase, but a contingent deferred sales charge of 1.00% may be
imposed on certain redemptions made within one year of the purchase.

(3) CDSC Shares received as reinvested dividends are 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 "The Distribution and Service
Plans."

8
<PAGE> 13

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

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)............................................. 0.55% 0.55% 0.55%
12b-1 fees(1) (as a percentage of average
daily net assets)................................... 0.25% 1.00% 1.00%
Other expenses (as a percentage of average daily
net assets)......................................... 0.34% 0.46% 0.46%
Total expenses (as a percentage of average daily
net assets)......................................... 1.14% 2.01% 2.01%
</TABLE>

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

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund to the selling broker as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker-dealers as sales
compensation.

9
<PAGE> 14

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense
ratio of 1.14% for Class A Shares, 2.01% for
Class B Shares and 2.01% for Class C Shares,
(ii) a 5% annual return and (iii) redemption at
the end of each period:
Class A Shares................................ $ 44 $ 68 $ 93 $ 167
Class B Shares................................ 50 73 108 193
Class C Shares................................ 30 63 108 234
An investor would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares................................ $ 44 $ 68 $ 93 $ 167
Class B Shares................................ 20 63 108 193
Class C Shares................................ 20 63 108 234
</TABLE>

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above, carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. Class B Shares acquired through the exchange privilege are
subject to the deferred sales charge schedule relating to the Class B Shares of
the Fund from which the purchase of Class B Shares was originally made.
Accordingly, future expenses as projected could be higher than those determined
in the above table if the investor's Class B Shares were exchanged from a fund
with a higher contingent deferred sales charge. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more
complete description of such costs and expenses, see "Investment Advisory
Services" and "The Distribution and Service Plans."

10
<PAGE> 15

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

FINANCIAL HIGHLIGHTS

(for one share outstanding throughout the period)
- --------------------------------------------------------------------------------

The following schedule presents financial highlights for each of 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 unless otherwise indicated, and their report thereon appears in the
Fund's related 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 CLASS B SHARES
---------------------------------------------------------------- ---------------------
SEPTEMBER 28, 1990 YEAR
SIX MONTHS (COMMENCEMENT SIX MONTHS ENDED
ENDED YEAR ENDED JUNE 30 INVESTMENT ENDED JUNE 30
DECEMBER 31, ------------------------------ OPERATIONS) TO DECEMBER 31, -------
1994 1994 1993 1992 JUNE 30, 1991 1994 1994
------------ ------- ------- ------- ------------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net Asset Value, Beginning of Period.... $ 8.15 $ 9.11 $ 9.65 $ 9.49 $ 9.70 $ 8.15 $ 9.10
------ ------- ------- ------- ----- ------ -------
Net Investment Income.................. .19 .28 .59 .69 .86 .15 .23
Net Realized and Unrealized Gain/Loss
on Investments and Foreign
Currency............................. (.21) (.58) (.34) .34 (.39) (.20) (.59)
------ ------- ------- ------- ----- ------ -------
Total from Investment Operations........ (.02) (.30) .25 1.03 .47 (.05) (.36)
------ ------- ------- ------- ----- ------ -------
Less:
Distributions from and in Excess of Net
Investment Income.................... .32 .35 .79 .87 .68 .29 .32
Return of Capital Distribution
(Note 1)............................. .00 .31 .00 .00 .00 .00 .27
------ ------- ------- ------- ----- ------ -------
Total Distributions..................... .32 .66 .79 .87 .68 .29 .59
------ ------- ------- ------- ----- ------ -------
Net Asset Value, End of Period.......... $ 7.81 $ 8.15 $ 9.11 $ 9.65 $ 9.49 $ 7.81 $ 8.15
======== ======= ======= ======= ====== ======== =======
Total Return (Non-annualized)........... (.21%) (3.61%) 2.86% 11.35% 4.97% (.62%) (4.22%)
Net Assets at End of Period (In
millions).............................. $ 98.2 $ 147.7 $ 205.9 $ 205.1 $ 85.4 $ 185.3 $ 271.8
Ratio of Expenses to Average Net Assets
(Annualized)........................... 1.19% 1.13% 1.14% 1.32% 1.57% 2.01% 1.85%
Ratio of Net Investment Income to
Average Net Assets (Annualized)........ 6.21% 3.65% 6.49% 8.05% 13.82% 5.43% 2.91%
Portfolio Turnover...................... 121.10% 259.10% 141.22% 64.87% 77.89% 121.10% 259.10%

CLASS B SHARES CLASS C SHARES
--------------------------- ------------------------------
YEAR JULY 22, 1991 SIX MONTHS AUGUST 13, 1993
ENDED (COMMENCEMENT ENDED (COMMENCEMENT
JUNE 30, OF DISTRIBUTION) DECEMBER 31, OF DISTRIBUTION)
1993 TO JUNE 30, 1992 1994 TO JUNE 30, 1994
------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net Asset Value, Beginning of Period.... $ 9.65 $ 9.43 $ 8.16 $ 9.24
------- ------ ------ ------
Net Investment Income.................. .55 .78 .22 .33
Net Realized and Unrealized Gain/Loss
on Investments and Foreign
Currency............................. (.37) .19 (.27) (.89)
------- ------ ------ ------
Total from Investment Operations........ .18 .97 (.05) (.56)
------- ------ ------ ------
Less:
Distributions from and in Excess of Net
Investment Income.................... .73 .75 .29 .27
Return of Capital Distribution
(Note 1)............................. .00 .00 .00 .25
------- ------ ------ ------
Total Distributions..................... .73 .75 .29 .52
------- ------ ------ ------
Net Asset Value, End of Period.......... $ 9.10 $ 9.65 $ 7.82 $ 8.16
======= ======== ======== ========
Total Return (Non-annualized)........... 2.02% 10.47% (.62%) (6.32%)
Net Assets at End of Period (In
millions).............................. $ 393.1 $ 241.7 $ 0.2 $ 0.2

Ratio of Expenses to Average Net Assets
(Annualized)........................... 1.85% 2.08% 2.01% 1.84%
Ratio of Net Investment Income to
Average Net Assets (Annualized)........ 5.82% 8.54% 5.43% 3.01%
Portfolio Turnover...................... 141.22% 64.87% 121.10% 259.10%
</TABLE>

- ----------------
Note 1 - For tax purposes, the determination of a return of capital distribution
is made at the end of the Fund's fiscal year. Therefore, while it is likely that
a portion of the Fund's distributions will ultimately be characterized as a
return of capital for tax purposes, no such designation has been made for the
six months ended December 31, 1994.

See Financial Statements and Notes Thereto

11
<PAGE> 16

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

THE FUND

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

Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is a
mutual fund, which pools shareholders' money to seek to achieve a specified
investment objective. In technical terms, the Fund is a separate non-diversified
series of Van Kampen American Capital Trust (the "Trust"), which is an open-end
management investment company organized as a Delaware business trust.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also manage other mutual funds distributed by Van Kampen American
Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses and other
information on any of these other funds, please call the telephone number on the
cover page of the Prospectus.

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

INVESTMENT OBJECTIVE AND POLICIES

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

The Fund's investment objective is to seek a high level of current income,
consistent with prudent investment risk. The Fund seeks to achieve its
investment objective by investing in a global portfolio of high-quality debt
securities denominated in various currencies and multi-national currency units
and having remaining maturities of not more than three years. The Fund's
investment objective is fundamental and, as such, cannot be changed without the
approval of the holders of a majority (defined as the lesser of (i) 67 percent
of the voting securities present at a meeting of shareholders, if the holders of
more than 50 percent of the outstanding voting securities are present or
represented by proxy at such meeting, or (ii) more than 50 percent of the
outstanding voting securities) of the Fund's outstanding shares. The Fund is
designed for the investor who seeks a higher yield than a money market fund and
less fluctuation in net asset value than a longer-term global bond fund. High
quality debt securities and securities with remaining maturities of less than
three years generally have lower yields than comparable securities of lower
quality and with longer maturities. There can be no assurance that the Fund will
achieve its investment objective.

The Fund invests in debt securities denominated in multi-national currency
units and in the currencies of countries whose governments are considered stable
by the Adviser and whose currency is convertible into U.S. dollars. Such
currencies currently include, among others, the Australian Dollar, Austrian
Schilling, British Pound Sterling, Canadian Dollar, Dutch Guilder, European
Currency Unit ("ECU"), French Franc, German Mark, Italian Lira, Japanese Yen,
New Zealand Dollar, Spanish Peseta, Swedish Krona and Swiss Franc. In 1992,
non-dollar fixed income securities (i.e., those denominated in a currency other
than the U.S. dollar) comprised more than 50% of the global fixed-income market.
An issuer of debt securities purchased by the Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated.

The Fund seeks to minimize credit risk by limiting its portfolio investments
to high-quality debt securities. Accordingly, the Fund may only invest in: (i)
obligations issued or guaranteed by foreign governments or supranational
organizations or their agencies,

12
<PAGE> 17

instrumentalities or subdivisions and that are rated, at the time of investment,
at least AA by Standard & Poor's Ratings Group ("S&P") or at least Aa by Moody's
Investors Service, Inc. ("Moody's") or similarly rated by another nationally
recognized statistical rating organization ("NRSRO") as determined by the
Adviser subject to the review of the Board of Trustees ("High Quality Ratings")
or, if unrated, determined by the Adviser to be of comparable quality; (ii)
corporate debt securities having at least one High Quality Rating, at the time
of investment, or if unrated, determined by the Adviser to be of comparable
quality; (iii) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, banks (including foreign branches
of U.S. banks or U.S. or foreign branches of foreign banks) having total assets
of more than $500 million and determined by the Adviser to be of high quality;
(iv) commercial paper rated, at the time of investment, A-1 by S&P, Prime-1 by
Moody's or similarly rated by another NRSRO as determined by the Adviser subject
to the review of the Board of Trustees or, if not rated, issued by U.S. or
foreign companies having outstanding debt securities rated at least A by S&P or
Moody's or similarly rated by another NRSRO, or determined by the Adviser to be
of comparable quality; and (v) debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.

In pursuing its investment objective, the Fund seeks to minimize fluctuations
in net asset value as a result of changes in market rates of interest by
investing only in shorter-term debt securities having remaining maturities of
not more than three years. The net asset value of the Fund's shares will change
as the general level of interest rates fluctuate. When interest rates decline,
the value of a portfolio primarily invested in debt securities can be expected
to rise. Conversely, when interest rates rise, the value of a portfolio
primarily invested in debt securities can be expected to decline. However,
shorter-term securities generally are less sensitive to changes in value as a
result of fluctuations in market rates of interest than are longer-term
securities, and it is expected that the net asset value of the Fund's shares
will fluctuate as a result of changes in market rates of interest less than that
of a longer-term global bond fund. The Fund's net asset value may fluctuate as a
result of changes in foreign exchange rates, independent of fluctuations in
market rates of interest, although as described herein the Fund intends to
engage in foreign currency hedging transactions to seek to minimize such
fluctuations. Normally, a high proportion of the Fund's portfolio consists of
money market instruments. The Adviser actively manages the Fund's portfolio,
allocating portfolio assets among various types of U.S. and foreign debt
securities and adjusting the Fund's exposure to each currency based on the
Adviser's perception of the most favorable markets and issuers. In this regard,
the percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with the Adviser's
assessment of the relative yield and appreciation potential of such securities
and the relationship of a country's currency to the U.S. dollar. Fundamental
economic strength, credit quality and interest rate trends are the principal
factors considered by the Adviser in determining to increase or decrease the
emphasis placed upon a particular industry sector within the Fund's investment
portfolio. The Fund will not invest more than 25% of its total assets in debt
securities denominated in a single currency other than the U.S. dollar.

13
<PAGE> 18

From time to time the returns available on short-term debt instruments
denominated in the currencies of certain foreign countries may be more
attractive than the corresponding returns available on U.S. dollar denominated
short-term debt instruments. However, the attractive returns which may from time
to time be available from certain short-term foreign currency denominated debt
instruments can be adversely affected by changes in currency exchange rates. The
Fund will receive much of its income and gains, if any, in currencies other than
U.S. dollars, although the Fund will make distributions in U.S. dollars. A
reduction in the value of such foreign currencies relative to the value of the
U.S. dollar would adversely affect the dollar value of the net assets (including
accrued income and unrealized appreciation or depreciation of investments) of
the Fund. The Fund will seek to maintain a portfolio of investments that is, in
the aggregate, relatively neutral to fluctuations in the value of the U.S.
dollar relative to the currencies of major industrialized nations. In addition,
the Fund intends to engage in hedging and risk management transactions in
instruments such as forward currency contracts, options on foreign currencies,
foreign currency swap agreements, financial futures contracts and options
thereon. There can be no assurance that the Fund will not be adversely affected
by fluctuations in currency exchange rates and such hedging and risk management
transactions entail risks. See "Investment Practices."

The Fund may invest without limitation in commercial paper and certificates of
deposit which are indexed to certain specific foreign currency exchange rates.
The terms of such commercial paper or certificates of deposit provide that the
principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect fluctuations in the exchange rate between two currencies
while the obligation is outstanding, depending on the terms of the specific
security. The Fund will purchase such commercial paper or certificates of
deposit with the currency in which it is denominated and, at maturity, will
receive interest and principal payments thereon in that currency, but the amount
of principal payable by the issuer at maturity will vary in proportion to the
change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper and certificates of deposit entail the risk of loss
of principal, the potential for realizing gains as a result of changes in
foreign currency exchange rates enables the Fund to hedge (or cross-hedge)
against a decline in the U.S. dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. The Fund
will purchase such commercial paper and certificates of deposit for hedging
purposes only, not for speculation. The staff of the Securities and Exchange
Commission (the "SEC") is currently considering whether the Fund's purchase of
this type of commercial paper and certificates of deposit would result in the
issuance of a "senior security" within the meaning of the Investment Company
Act. The Fund believes that such investments do not involve the creation of such
a senior security, but nevertheless undertakes, pending the resolution of this
issue by the staff, to establish a segregated account with respect to its
investments in this type of commercial paper and certificates of deposit and to
maintain in such account cash not available for investment or U.S. government
securities or other liquid high quality debt securities having a value equal to
the aggregate principal amount of outstanding commercial paper and certificates
of deposit of this type.

14
<PAGE> 19

The Fund may invest in debt securities issued by supranational organizations
such as the World Bank, which was chartered to finance development projects in
developing member countries, and the Asian Development Bank, which is an
international development bank established to lend funds, promote investment and
provide technical assistance to member nations in the Asian and Pacific regions.
Supranational entities do not have taxing authority and are therefore dependent
on their members' support in order to meet interest and principal payments.

The Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Economic Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. The Fund's Adviser does not believe that such adjustments will
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European supranationals, in particular, issue ECU-denominated
obligations.

As a global fund, the Fund may invest in United States and foreign securities.
It is a policy of the Fund that, in normal circumstances, the Fund's assets will
be invested in obligations of or issued by issuers located in at least three
different countries, one of which may be the United States. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other foreign
or United States governmental laws or restrictions applicable to such
investments. Since the Fund may invest in securities denominated or quoted in
currencies other than the United States dollar, changes in foreign currency
exchange rates may affect the value of investments in the portfolio and the
accrued income and unrealized appreciation or depreciation of investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and the Fund's yield on such assets. Foreign currency exchange rates are
determined by forces of supply and demand on the foreign exchange markets. These
forces are, in turn, affected by the international balance of payments and other
economic and financial conditions, government intervention, speculation, and
other factors. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.

15
<PAGE> 20

available for distributions by the Fund to its shareholders. For any taxable
year that more than 50% of the Fund's total assets at the close of such year
consist of stock or securities in foreign corporations and that the Fund
otherwise qualifies for and makes an election, the amount of foreign taxes paid
by the Fund that can be treated as foreign income taxes for United States
federal income tax purposes would be included in the income of its shareholders
and (subject to certain limitations) shareholders would be entitled to credit
their portion of these amounts against their United States federal income tax
due, if any, or to deduct their portions of these amounts from their United
States taxable income, if any. See "Tax Status." Foreign financial markets,
while growing in volume, have, for the most part, substantially less volume than
United States markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic companies.
The foreign markets also have different clearance and settlement procedures and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are not invested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities, including custodial costs
and foreign brokerage commissions, are generally higher than with transactions
in United States securities. In addition, the Fund will incur costs in
connection with conversions between various currencies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States.

The Fund may invest in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Such securities may include
either direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes or bonds) or securities issued or guaranteed by agencies or
instrumentalities of the U.S. government (such as Federal Home Loan Bank
securities and Federal National Mortgage Association securities). Of the
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
government, some are backed by the full faith and credit of the U.S. government
and others are backed only by the rights of the issuer to borrow from the U.S.
Treasury.

The Fund has a fundamental policy which states that it may not purchase any
security which is restricted as to disposition under federal securities laws or
by contract or which is not readily marketable or is illiquid, if immediately
after such purchase more than 10% of the Fund's assets (taken at market value)
would be invested in such securities. The following are presently subject to
such policy: (a) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will not entertain bids or
offers), (b) certain options purchased by the Fund over-the-counter on
securities other than U.S.

16
<PAGE> 21

government securities and the cover for options written by the Fund over the
counter, and (c) repurchase agreements not terminable within seven days. See
"Investment Practices," below.

The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), which will relieve
the Fund of any liability for federal income tax to the extent its earnings are
distributed to shareholders. See "Tax Status." To so qualify, among other
requirements, the Fund will limit its investments so that, at the close of each
quarter of the taxable year (i) at least 50% of the market value of the Fund's
total assets will be invested in cash, cash items, U.S. government securities
and other securities that are, for purposes of this requirement, limited in
respect of a single issuer to an amount not greater in market value than 5% of
the market value of its total assets and to not more than 10% of the outstanding
voting securities of a single issuer and (ii) not more than 25% of the market
value of the Fund's total assets will be invested in the securities (other than
U.S. government securities or the securities of other regulated investment
companies) of a single issuer or any two or more issuers that the Fund controls
and that are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. Because the Fund, as a
non-diversified investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor than an
investment in a diversified company.

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

INVESTMENT PRACTICES

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

In connection with the investment objectives and policies described above, the
Fund may, but is not required to, utilize various other investment strategies as
described below to earn income, facilitate portfolio management and mitigate
risk. Such strategies are generally accepted by modern portfolio managers and
are regularly utilized by many mutual funds and other institutional investors.
Although the Adviser believes that these investment practices may further the
Fund's investment objectives, no assurance can be given that these investment
practices will achieve this result.

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income indices and other financial instruments,
purchase and sell financial futures contracts, enter into various interest rate
transactions such as swaps, caps, floors or collars, and enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currency or currency futures.
Collectively, all the above are referred to as "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 or currency

17
<PAGE> 22

exchange rate 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. The Fund may sell
options on securities the Fund owns or has the right to purchase without
additional payments, up to a maximum of 25% of the Fund's assets, for
non-hedging purposes. 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.

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 of portfolio securities at inopportune times or for prices
other than at 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 currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. 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
contemplated use of these futures contracts and options thereon 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. 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.

18
<PAGE> 23

The Fund may engage in currency transactions in order to hedge the value of
currencies against fluctuations in relative value. Currency transactions include
forward currency contracts, exchange listed currency futures, exchange listed
and OTC options on currencies, and currency swaps. A forward currency contract
involves a privately negotiated obligation to purchase or sell (with delivery
generally required) a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. A currency swap is an agreement to
exchange cash flows based on the notional difference among two or more
currencies and operates similarly to an interest rate swap. The Fund may enter
into currency transactions with persons rated A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
options) are determined to be of equivalent credit quality by the Adviser. The
Fund's dealings in forward currency contracts and other currency transactions
such as futures, options, options on futures and swaps will be limited to
hedging involving either specific transactions or portfolio positions. The Fund
will not enter into a transaction to hedge currency exposure to an extent
greater, after netting all transactions intended to wholly or partially offset
other transactions, than the aggregate market value (at the time of entering
into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to proxy hedging as described below.

The Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which the Fund has or in which Fund expects to have
portfolio exposure. To attempt to reduce the effect of currency fluctuations on
the value of existing or anticipated holdings of portfolio securities, the Fund
also may engage in proxy hedging. Proxy hedging is often used when the currency
to which the Fund's portfolio is exposed is difficult to hedge or to hedge
against the dollar. Proxy hedging entails entering into a forward contract to
sell a currency whose changes in value are generally considered to be linked to
a currency or currencies in which some or all of the Fund's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of the Fund's securities denominated in
linked currencies. For example, if the Adviser considers the Austrian schilling
to be linked to the German deutschemark (the "D-mark"), the Fund holds
securities denominated in Austrian schillings and the Adviser believes that the
value of schillings will decline against the U.S. dollar, the Adviser may enter
into a contract to sell D-marks and buy dollars. Proxy hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.

Currency transactions are subject to some risks different from other
transactions. Because currency control is of great importance to the issuing
governments and influences

19
<PAGE> 24

economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments.
These can result in losses to the Fund if it is unable to deliver or receive
currency or funds in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures are
subject to the same risks that apply to the use of futures generally. Further,
settlement of a currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading options on currency
futures is relatively new, and the ability to establish and close out positions
on such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.

When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in securities the
disposition of which is subject to substantial legal or contractual restrictions
or the markets for which are illiquid. 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 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (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.

"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

20
<PAGE> 25

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
high-grade 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. No specific
limitation exists as to the percentage of the Fund's assets which may be used to
acquire securities on a "when issued" or "delayed delivery" basis. 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
purposes of investment leverage.

LENDING OF PORTFOLIO HOLDINGS. The Fund has a fundamental policy which states
that the Fund may not make loans, except to the extent the obligations the Fund
may invest in are considered to be loans, through loans of portfolio securities
or the acquisition of securities subject to repurchase agreements. Consistent
therewith, the Fund may seek to increase its income by lending financial
instruments in its portfolio in accordance with present regulatory policies,
including those of the Board of Governors of the Federal Reserve System and the
SEC. Such loans may be made, without limit, to brokers, dealers, banks or other
recognized institutional borrowers of financial instruments and are required to
be secured continuously by collateral, including cash, cash equivalents or U.S.
Treasury bills maintained on a current basis at an amount at least equal to the
market value of the financial instruments loaned. The Fund would have the right
to call a loan and obtain the financial instruments loaned at any time on five
days' notice. For the duration of a loan, the Fund would continue to receive the
equivalent of the interest paid by the issuer on the financial instruments
loaned and also would receive compensation from the investment of the
collateral. The Fund would not have the right to vote any financial instruments
having voting rights during the existence of the loan, but the Fund could call
the loan in anticipation of an important vote to be taken among holders of the
financial instruments or in anticipation of the giving or withholding of their
consent on a material matter affecting the financial instruments. As with other
extensions of credit, risks of delay in recovery or even loss of rights in the
collateral exist should the borrower of the financial instruments fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. The creditworthiness of firms to which the Fund lends its
portfolio holdings will be monitored on an ongoing basis by the Adviser pursuant
to procedures adopted and reviewed, on an ongoing basis, by the Board of
Trustees of the Fund. No specific limitation exists as to the percentage of the
Fund's assets which the Fund may lend.

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 Investment Company Act of 1940, as amended (the "Investment Company
Act"), repurchase agreements may be considered collateralized loans by the Fund,
and the difference

21
<PAGE> 26

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
creditworthiness 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 may invest in repurchase agreements
of duration of seven days or less without limitation. 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 10% of the Fund's net
assets.

OTHER PRACTICES. The Fund has a fundamental policy which states that it may
not borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage, pledge,
or hypothecate any assets except in connection with a borrowing and in amounts
not in excess of 10% of the total asset value of the Fund. Borrowings may not be
made for investment leverage, but only to enable the Fund to satisfy redemption
requests where liquidation of portfolio securities is considered disadvantageous
or inconvenient. In this connection, the Fund will not purchase portfolio
securities during any period that such borrowings, including the Fund's
commitments pursuant to reverse repurchase agreements, exceed 5% of the total
asset value of the Fund (after giving effect to the amount borrowed).
Notwithstanding this policy, the Fund may enter into when issued and delayed
delivery transactions as described in this Prospectus.

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act. See
"Investment Policies and Restrictions" in the Statement of Additional
Information.

PORTFOLIO TURNOVER. The Fund may engage in active short-term trading to
benefit from yield disparities among different issuers of securities, to seek
short-term profits during periods of fluctuating interest rates, or for other
reasons. Such trading will increase the Fund's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income. Management
anticipates that the annual portfolio turnover in the Fund will not be in excess
of 200%. Portfolio turnover is calculated by dividing the lesser of purchases or
sales of portfolio securities by the monthly average value of the securities in
the portfolio

22
<PAGE> 27

during the year. Securities, including options, whose maturity or expiration
date at the time of acquisition were one year or less are excluded from such
calculation. A high rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. The Fund's ability to engage in active
short-term trading may be limited by the general requirements for qualification
as a regulated investment company for federal tax purposes that less than 30% of
the annual gross income of the Fund be derived from the sale or disposition of
securities and certain other assets held by the Fund for less than three months.
See "Tax Status."

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

PURCHASING SHARES OF THE FUND

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

The Fund has designated three classes of shares for sale 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") who are acting as securities dealers ("dealers") and NASD members or
eligible non-NASD members who are acting as brokers or agents for investors
("brokers"). The Fund reserves the right to suspend or terminate the continuous
public offering at any time and without prior notice.

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 aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.

The Fund 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 $1,000,000,
"Class B Shares" and "Class C Shares"). Class A Share accounts over $1,000,000
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 of the Class A Shares, the
Class B Shares and the Class C Shares is $500. The minimum subsequent investment
with respect to each class of shares is $25. It is presently the policy of the
Distributor of each class of shares, not to accept any order for Class B Shares
or Class C Shares in an amount of

23
<PAGE> 28

$1,000,000 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 Shares
accounts under $1,000,000, 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 period 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 (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 the
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 such 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 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 this Prospectus under "Net Asset Value."

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

24
<PAGE> 29

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.

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
securities 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
Fund 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 Fund 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 public offering price is equal to the net asset value
plus a sales charge which is a variable percentage of the offering price
depending upon the amount of the sale. Investors will be entitled to begin
receiving dividends on such shares on the next business day after the Fund
receives good funds for such order. See "Net Asset Value."

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 intermediaries at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for 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 the Distributor, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediaries
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 with respect to the Fund will not exceed in the
aggregate 1.25% of

25
<PAGE> 30

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. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.

INITIAL SALES CHARGE ALTERNATIVE.

Investors choosing the initial sales charge alternative purchase 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 an 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
brokers, dealers or financial intermediaries 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.

<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>
$25 but less than $25,000..................... 3.25% 3.36% 3.00%
$25,000 but less than $250,000................ 2.75 2.83 2.50
$250,000 but less than $500,000............... 1.75 1.78 1.50
$500,000 but less than $1,000,000............. 1.50 1.52 1.25
$1,000,000 or more............................ * * *
</TABLE>

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

* No sales charge is payable at the time of purchase on investments of
$1,000,000 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 $1,000,000 or more as follows: 1.00% on sales to
$2,000,000, plus 0.80% on the next $1,000,000, plus 0.20% on the next
$2,000,000 and 0.08% on the excess over $5,000,000. See "Purchasing Shares Of
The Fund -- Deferred Sales Charge Alternatives" for additional information
with respect to contingent deferred sales charges.

QUANTITY DISCOUNTS. Purchasers of Class A Shares may be entitled to reduced
sales charges through a combination of investments, rights of accumulation or a
letter of intent (even if an investor is not currently making an investment of a
size that normally would qualify for a quantity discount).

26
<PAGE> 31

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.

For purposes of determining whether a purchase qualifies for a reduced initial
sales charge, the term "any person" is defined as any one of the following:

(i) an individual, their spouse and children under the age of 21, trust or
custodial accounts established for any of their sole benefit(s) and any
corporation, partnership or sole proprietorship which is 100% owned,
either alone or in combination, by any of the foregoing; or

(ii) a trustee or other fiduciary purchasing for a single trust estate
(including a pension, profit- sharing or other employee benefit trust
created pursuant to a plan qualified under Section 401 of the Code, as
amended); or

(iii) a "company" as defined in Section 2(a)(8) of the Investment Company Act.

1. Combination of Investments. Purchases of Class A Shares of the Fund, or
shares of other Van Kampen American Capital funds distributed by the Distributor
subject to an initial sales charge ("ISC Shares"), which are made at any one
time by "any person" may be combined to receive a quantity discount.

2. Rights of Accumulation. Under the rights of accumulation, in determining
the sales charge to be paid for a current purchase of Class A Shares, "any
person" may combine their current purchase with the current public offering
price of Class A Shares of the Fund or ISC Shares, which are owned by such
person. If the account an investor is combining for rights of accumulation
differs from the account into which the investor's current purchase is placed,
the investor must indicate on the account application to the Transfer Agent the
account number (and, if applicable, fund name) of such other account.

3. Letter of Intent. Purchasers of Class A Shares may qualify immediately for
a reduced sales charge by stating their intention to purchase an amount of Class
A Shares, during a 13 month period, that would qualify the investor for a
reduced sales charge. An investor may do this by signing a nonbinding Letter of
Intent (included as part of the account application), which may be signed at any
time within 90 days after the first investment to be included under the Letter
of Intent. Class A Shares purchased under the "Rights of Accumulation" described
above (including investments in ISC Shares) may be, at the time of the signing
of the Letter of Intent, applied towards completion of an investor's Letter of
Intent. In addition, if an investor's broker, dealer or financial intermediary
and the Distributor agree to refund the appropriate portion of their respective
concessions to the Fund, the sales charge on an investor's previous purchases
made within 90 days may be adjusted to the reduced sales charge under the Letter
of Intent, and the refunded concession will be used to purchase Class A Shares
of the designated Fund or ISC Shares at the public offering price next
determined after receipt of such monies. Each investment made after signing the
Letter of Intent will be entitled to the sales charge applicable to the

27
<PAGE> 32

total investment indicated in the Letter of Intent. If an investor does not
complete the necessary purchases under the Letter of Intent within 13 months
from the date of the first purchase included thereunder, the sales charge will
be adjusted upward, corresponding to the amount actually purchased.

When an investor signs a Letter of Intent, Class A Shares of the Fund
purchased with a value of 5% of the amount specified in the Letter of Intent
will be restricted; that is, these Class A Shares cannot be sold or redeemed
until the Letter of Intent is satisfied or the additional sales charges have
been paid. If the total purchases made under the Letter of Intent, less
redemptions, equal or exceed the amount specified in the Letter of Intent, these
Class A Shares will no longer be restricted. If the total purchases, less
redemptions, exceed the amount so specified, and qualify an investor for a
further quantity discount, the Distributor and the investor's securities broker,
dealer or financial intermediary will, upon request, remit their respective
portions of the sales concession and with that amount, purchase additional Class
A Shares of the Fund for the investor's account at the next determined public
offering price. If an investor does not complete the necessary purchases under
the Letter of Intent, the sales charges will be adjusted upward and if, after
written notice, the investor does not pay the increased sales charge, sufficient
restricted Class A Shares will be redeemed to pay such charge.

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.

1. 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 or ISC Shares with no minimum initial or subsequent investment
requirement, and with a lower initial 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 initial 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 securities broker, dealer, 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.

28
<PAGE> 33

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. The Fund reserves the right to
modify or terminate this program at any time.

2. NAV Purchase Options

The classes of investors entitled to purchase shares of the Fund at net asset
value are as follows:

(a) Current or retired Trustees/Directors of funds advised by Van Kampen
American Capital Investment Advisory Corp., Van Kampen American Capital
Asset Management, Inc. or John Govett & Co. Limited and such persons'
families and their beneficial accounts. The term "families" includes a
person's spouse, children and grandchildren, parents, and a person's
spouse's parents.

(b) 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 such fund or an affiliate of
such subadviser; and such persons' families and their beneficial accounts.

(c) Directors, officers, employees and registered representatives of financial
institutions that have a selling 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.

(d) 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 the Fund alone, or in any combination of
Class A Shares of the Fund and ISC Shares of other funds distributed by
the Distributor as described herein under "Purchasing Shares Of The Fund
-- Initial Sales Charge Alternative -- Quantity Discounts," during the
13 month period commencing with the first investment pursuant hereto
equals at least $1,000,000. The Distributor may pay such entities through
which purchases are made an amount up to 0.50% of the amount invested,
over a twelve month period following such transaction.

(e) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $10,000,000 or more. The
Distributor may pay commissions of up to 1.00% for such purchases.

(f) Accounts as to which a selling firm charges an account management fee
("wrap accounts"), provided the selling firm has executed a supplemental
agreement to their existing selling agreement with the Distributor.

(g) 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

29
<PAGE> 34

was subject to a deferred sale charge, whether or not paid, if such
redemption has occurred no more than 30 days prior to such purchase.

DEFERRED SALES CHARGE ALTERNATIVES.

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1,000,000 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 other 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) 1.00% with respect to
Class A Shares in an amount of $1,000,000 or more; (ii) 3.00% 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. Sales compensation with respect to
Class A Shares subject to a CDSC is set forth under "Purchasing Shares of the
Fund -- Initial Sales Charge Alternative."

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 fee 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

30
<PAGE> 35

sales charge no longer is applicable to such shares, third of Class A Shares of
the Fund in the shareholder's 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 2.00% (the applicable rate in the second year after
purchase).

The contingent deferred sales charge is waived (i) on a redemption of shares
following the death of a shareholder, or (ii) to the extent that the redemption
represents a minimum required distribution from an IRA or other retirement plan
to a shareholder who has attained the age of 70 1/2.

CLASS A SHARE PURCHASES OF $1,000,000 OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1,000,000 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 $1,000,000 or more as follows: 1% on sales to $2,000,000, plus
0.80% on the next million, plus 0.20% on the next $2,000,000 and 0.08% on the
excess over $5,000,000.

CLASS B SHARES. Class B Shares redeemed within three 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 subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- -------------------- -------------------
<S> <C>
First.............................. 3.00%
Second............................. 2.00%
Third.............................. 1.00%
Fourth and after................... 0.00%
</TABLE>

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

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

31
<PAGE> 36

amount subject thereto. Class C Shares redeemed thereafter will not be subject
to a contingent deferred sales charge.

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 applicable to
Class B Shares. 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 and service
expenses.

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 Class B Shares 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 and service fees 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.

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

DISTRIBUTIONS FROM THE FUND

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

The Fund's present policy,which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or a portion
of net investment income of the Fund attributable to each class of shares. Net
investment income consists of all interest income, dividends, other ordinary
income earned by the Fund on its portfolio assets and net short-term capital
gains, less all expenses of the Fund attributable to the class of shares in
question. Expenses of the Fund are accrued each day. Net realized long-term
capital gains, if any, are expected to be distributed, to the extent permitted
by

32
<PAGE> 37

applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

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 accompanying account application
or available from Van Kampen American Capital Funds, c/o ACCESS, P.O. Box
418256, Kansas City, MO 64141-9256 (the "Transfer Agent"). After the Transfer
Agent 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 automatically will
credit dividend distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the same class
valued at net asset value, without a sales charge, unless a shareholder elects
otherwise to the Transfer Agent. This election may be made by telephone by
calling 1-800-341-2911 or in writing to the Transfer Agent. For inquiries
through Telecommunications Device for the Deaf (TDD), dial 1-800-772-8889. If a
shareholder elects to change the method of distribution, such change will be
effective only with regard to distributions for which the record date is seven
or more business days after the Transfer Agent has received the request.

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

REDEMPTION OF SHARES

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

WRITTEN REDEMPTION REQUEST. Shareholders may sell shares without charge (other
than, with respect to the CDSC Shares, any applicable contingent deferred sales
charge) at any time by mailing a written redemption request in proper form to
the Transfer Agent at Van Kampen American Capital Funds, c/o ACCESS, P.O. Box
418256, Kansas City, MO 64141-9256. The request should indicate the number of
shares to be redeemed by a particular fund, the class designation of such
shares, identify the account number and be signed exactly as the shares are
registered. If the amount being redeemed is in excess of $50,000 or if the
redemption proceeds will be sent to an address other than the address of record,
the signature(s) must be guaranteed by a member firm of a principal stock

33
<PAGE> 38

exchange or by a commercial bank or trust company which is a member of the
Federal Deposit Insurance Corporation, a credit union or a savings association.
The guarantee must state the words "Signature Guaranteed" along with the name of
the granting institution. Shareholders should verify with the institution that
it is an eligible guarantor prior to signing. A guarantee from a notary public
is not acceptable. If certificates are held for the shares being redeemed, such
certificates must be sent and endorsed for transfer or accompanied by an
endorsed stock power. Share certificates should be sent by registered mail to
Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256, Kansas City, MO
64141-9256. Shareholders will receive the net asset value per share next
computed after the Transfer Agent receives the redemption request and
certificates (if any) in proper form. Any applicable contingent deferred sales
charge with respect to CDSC Shares redeemed will be deducted from the redemption
proceeds prior to transmittal of such proceeds to the shareholder.

TELEPHONE REDEMPTIONS. Investors may sell shares by calling the Fund at
1-800-341-2911 before 3:00 p.m. Central Standard Time to request a redemption by
the Fund. For inquiries through Telecommunications Device for the Deaf (TDD),
dial 1-800-772-8889. There is a $500 minimum and a $1,000,000 maximum per
request if the redemption proceeds are to be mailed to the investor. If the
redemption proceeds are to be wired to a bank there is a minimum of $5,000 and a
$1,000,000 maximum per request. Prior to redeeming shares by telephone the
appropriate section of the account application or an Expedited Telephone
Redemption and Exchange Request Form (the "Authorization") must be completed and
on file with the Transfer Agent. The signature(s) on the Authorization must be
guaranteed by a member firm of a principal stock exchange or by a commercial
bank or trust company which is a member of the Federal Deposit Insurance
Corporation, a credit union or a savings association, unless the Authorization
is completed at the time an account is originally established. The guarantee
must state the words "Signature Guaranteed" along with the name of the granting
institution. Shareholders should verify with the institution that it is an
eligible guarantor prior to signing. A guarantee from a notary public is not
acceptable. A redemption requested by telephone will be processed at the net
asset value next determined after receipt of the request. Any applicable
contingent deferred sales charge with respect to CDSC Shares redeemed will be
deducted from the redemption proceeds prior to transmittal of such proceeds to
the shareholder. The proceeds will then be made payable to the registered
shareowner(s) and mailed to the address registered on the account or wired to a
bank, as requested on the Authorization. Investors cannot redeem shares by
telephone if certificates are held for those shares. This service is not
available with respect to shares held in an Individual Retirement Account for
which American Capital Trust Company Acts, as affiliate of Van Kampen American
Capital, as custodian. In addition, this service is not available with respect
to shares purchased by check until 15 days after purchase.

By establishing the telephone redemption service, an investor authorizes the
Fund or the Transfer Agent to act upon the instructions of any person by
telephone to redeem shares for any account for which such service has been
authorized to the address of record of such account or such other address as is
listed in the Authorization. The Fund, the Distributor and the Transfer Agent
seek to employ procedures reasonably believed to

34
<PAGE> 39

confirm that instructions communicated by telephone are genuine. Such procedures
include requiring a person attempting to redeem shares by telephone to provide,
on a recorded line, the name on the account, a social security or tax
identification number and such additional information as may be included in the
Authorization. An investor agrees that no such person will be liable for any
loss, liability, cost or expense arising out of any request reasonably believed
to be genuine, including any fraudulent or unauthorized request. This service
may be amended or terminated at any time by the Transfer Agent or the Fund. If
an investor is unable to reach the Fund by telephone, he or she may redeem
shares pursuant to the procedures set forth above under the caption "Written
Redemption Request." During periods of extreme economic or market changes, it
may be difficult for investors to reach the Fund by telephone and to effect
telephone redemptions.

REDEMPTION THROUGH DEALERS. Investors may sell shares (whether in certificate
or book-entry form) through their securities dealer, who will transmit the
request to the Distributor. Shareholders will receive the net asset value next
determined after an investor places the sell order. Any applicable contingent
deferred sales charge with respect to CDSC Shares redeemed will be deducted from
the redemption proceeds prior to transmittal of such proceeds to the
shareholder. It is the responsibility of the shareholder's broker, dealer or
financial intermediary to transmit the redemption order to the Distributor.
Because the Fund generally will determine net asset value once each business day
as of the close of business, sell 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 redemption price due to the failure of
the Distributor to receive a sell order prior to such time must be settled
between the investor and the broker, dealer or financial intermediary submitting
the order. The Fund does not charge for this transaction (other than any
contingent deferred sales charge applicable to CDSC Shares). Shareholders must
submit a written redemption request in proper form to their securities dealer
within five business days after calling the dealer with the sell order. The
request should indicate the number of shares to be redeemed, the class
designation of such shares, identify the account number and the order or
confirmation number assigned to the trade, and be signed by the investor exactly
as the shares are registered. If the amount of the redemption exceeds $50,000 or
if the redemption will be sent to an address other than the address of record,
signature(s) must be guaranteed by a member firm of a principal stock exchange
or by a commercial bank or trust company which is a member of the Federal
Deposit Insurance Corporation, a credit union or savings association. The
guarantee must state the words "Signature Guaranteed" along with the name of the
granting institution. Shareholders should verify with the institution that it is
an eligible guarantor prior to signing. A guarantee from a notary public is not
acceptable. If certificates are held for the shares being redeemed, such
certificates must be sent endorsed for transfer or accompanied by an endorsed
stock power. Certificates should be sent by registered mail to Van Kampen
American Capital Funds, c/o ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256.
Shareholders whose shares are held in an Individual Retirement Account (IRA) for
which American Capital Trust Company acts as custodian may not sell their shares
through securities dealers.

35
<PAGE> 40

REDEMPTION UPON DISABILITY. The Fund will waive the CDSC on Class B Share or
Class C Share redemptions following the disability of a Class B or Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in 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 Fund will require satisfactory
proof of disability before it determines to waive the CDSC.

In cases of disability, the CDSC on Class B Shares or 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 CDSC applies
to a total or partial redemption, but only to redemptions of shares held at the
time of the initial determination of disability.

GENERAL. Whether shares are redeemed by the Fund or sold through a securities
dealer, a check for the proceeds (net of any required tax withholding and, with
respect to CDSC Shares, any applicable contingent deferred sales charges)
ordinarily will be mailed to investors or their dealer, as the case may be,
within seven calendar days after a redemption request or repurchase order and
stock certificates (if any) are received in proper form as set forth above. Wire
transfers from the Fund of redemption proceeds, in the manner described above,
ordinarily will be transmitted to the investor within one business day. If any
shares are redeemed or repurchased shortly after purchase, the Fund will not
mail the proceeds until checks received for the purchase of shares have cleared,
which may take 10 days or more. The proceeds, of course, may be more or less
than the cost of the shares.

The right of redemption or resale to the Fund may be suspended or the date of
payment postponed during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), when an emergency exists as
defined by rules and regulations of the SEC, or during any period when the SEC
has by order permitted such suspension or postponement.

The Fund reserves the right to redeem any investment if the value of an
account falls below $50. Before the Fund makes such redemption it will provide
the shareholder with written notice and 30 days in which to make an additional
investment sufficient to increase the value of the account to at least $50.

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

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 its total liabilities
attributable to such class of shares, and dividing the result by

36
<PAGE> 41

the number of shares of such class outstanding. The net asset value for the Fund
is computed once daily as of 5:00 p.m. Eastern time Monday through Friday,
except on customary business holidays, or except on any day on which no purchase
or redemption orders are received, or there is not a sufficient degree of
trading in the Fund's portfolio securities such that the Fund's net asset value
per share might be materially affected. The Fund reserves the right to calculate
the net asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable. The net asset value per share of
the different classes of shares are expected to be substantially the same; from
time to time, however, the per share net asset value of the different classes of
shares may differ.

Securities and other portfolio investments traded in the OTC or interbank
market are valued at the last available bid price or yield equivalents obtained
from one or more dealers in the OTC or interbank market prior to the time of
valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last asked price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the average of the last asked price as obtained from one or more
dealers. Options purchased by the Fund are valued at their last bid price in the
case of exchange-traded options or in the case of options traded in the OTC
market, the average of the last bid price as obtained from two or more dealers.
Portfolio securities which are traded on stock exchanges are valued at the last
sale price on the principal market on which such securities are traded, as of
the close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Short-term securities with maturities of
less than 60 days are valued at amortized cost when amortized cost is determined
in good faith by or under the direction of the Board of Trustees of the Trust to
be representative of the fair value at which it is expected such securities may
be resold. Other investments, including futures contracts and related options,
are stated at market value or otherwise at the fair value at which it is
expected they may be resold, as determined in good faith by or under the
direction of the Board of Trustees of the Trust, of which the Fund is a series.
Any assets or liabilities expressed in terms of foreign currencies are
translated into United States dollars at the prevailing market rates as obtained
from one or more dealers.

Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Trustees.

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

INVESTMENT ADVISORY SERVICES

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

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

37
<PAGE> 42

two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and nearly $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 Americal Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. Van Kampen American Capital Distributors, Inc., the distributor of the Fund
and the sponsor of the funds mentioned above, is also a wholly-owned subsidiary
of Van Kampen American Capital, Inc. VK/AC Holding, Inc. 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. 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. 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, Inc. and its subsidiaries (some of whom are officers or
trustees of the Fund) own, in the aggregate, not more than 6% of the common
stock of VK/AC Holding, Inc. and have the right to acquire, upon the exercise of
options, approximately an additional 10% 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. The address of the Adviser is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.

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 officers of the
Fund will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser an annual fee equal to 0.55% of the average daily net assets of
the Fund.

Under its investment advisory agreement with the Adviser, the Fund has agreed
to assume and pay the charges and expenses of the Fund's operations, including:
the compensation of the Trustees (other than those who are affiliated persons,
as defined in the Investment Company 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, excluding state securities
registration expenses.

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<PAGE> 43

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 MANAGEMENT. Thomas J. Slefinger is a First Vice President of the
Adviser and has been primarily responsible for the day to day management of the
Fund's portfolio since the Fund's commencement of investment operations. Mr.
Slefinger has been employed by the Adviser since 1989. Prior to 1989, Mr.
Slefinger served as Director of Fixed Income Investments at Midwest Financial
Investment Management Company in Chicago, where he was responsible for fixed
income policy, strategy and the development and management of a family of fixed
income funds.

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

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 U.S. securities in
which the Fund invests are traded principally in the over-the-counter market. In
the over-the-counter market, securities generally are 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 managers, underwriters and dealers. The
Fund may also purchase certain money market instruments directly from an issuer,
in which case no commissions or discounts are paid. Purchases and sales of bonds
on a stock exchange are effected through brokers who charge a commission for
their services.

The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. 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. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services. The Fund also will purchase and sell securities in
foreign financial markets, which markets present certain risks. See "Investment
Objective and Policies."

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,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a

39
<PAGE> 44

particular transaction, the Adviser and the Fund may take into account whether
the firm has sold or is selling shares of the Fund. See "Portfolio Transactions
and Brokerage Allocation" in the Statement of Additional Information for more
information.

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THE 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 Investment
Company 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 the distribution of the
respective class of shares and in connection with the provision of ongoing
services to shareholders of each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor,
distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers, and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance. Brokers, dealers and
financial intermediaries that have entered into Selling Agreements with the
Distributor and sell shares of the Fund are referred to herein as "financial
intermediaries."

CLASS A SHARES. The Fund may spend an aggregate amount of 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. From such amount, the
Fund may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by financial intermediaries and in connection with the
maintenance of such shareholders' accounts. The Fund pays the Distributor the
lesser of the balance of the 0.25% not paid to such financial intermediaries or
the amount of the Distributor's actual distribution related expense.

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 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 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
financial intermediary's customers. The Fund pays the

40
<PAGE> 45

Distributor the lesser of the balance of the 0.75% not paid to such 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 holders of such shares by the Distributor and by
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, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.

The Distributor's actual expenses with respect to a class of CDSC Shares 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. In such
event, with respect to any such class of CDSC Shares, 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 (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts 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, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of December 31, 1994, there were $363,876
and $314 of unreimbursed distribution expenses with respect to Class B Shares
and Class C Shares respectively, representing 0.13% and 0.00% 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

41
<PAGE> 46

from providing such services described above, the Fund would seek alternate
providers and expects that shareholders would not experience any disadvantage.

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TAX STATUS

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

TAXATION OF THE FUND.

The Fund intends to qualify each year and to elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (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 the diversification of its assets. Included
among such requirements is the requirement that the Fund must derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks,
securities or foreign currencies or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stocks, securities or currencies. For purposes of
this requirement, the Treasury Department is authorized to issue (but has not
yet issued) regulations excluding from qualifying income foreign currency gains
that are not directly related to a regulated investment company's principal
business of investing in stocks or securities (or options and futures with
respect to stocks or securities). The Fund expects that all of its foreign
currency gains will be directly related to its principal business of investing
in securities.

If the Fund qualifies as a regulated investment company and distributes 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) in each year, it
will not be required to pay federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the distribution requirement. The Fund
will not be subject to federal income tax on any net capital gains distributed
to its shareholders. As a Delaware business trust, the Fund will not be subject
to any excise or income taxes in Delaware as long as it qualifies as a regulated
investment company for federal income tax purposes.

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 capital gains net income (the latter of which is computed on
the basis of the one-year period ending on October 31 of such year), plus any
amounts that were not distributed in previous taxable years. For purposes of the
excise tax, any ordinary income or capital gains net income retained by, and
subject to federal income tax in the hands of, the Fund will be treated as
having been distributed.

If the Fund failed to satisfy the 90% distribution requirement or otherwise
failed to qualify as a regulated investment company in any taxable year, the
Fund would be taxed as an ordinary corporation on all of its taxable income
(even if such income were

42
<PAGE> 47

distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year the Fund would be required to
distribute to shareholders its earnings and profits attributable to
non-regulated investment company years (less any interest charge described
below) and may be required to pay an interest charge on 50% of such amount. In
addition, if the Fund failed to qualify as a regulated investment company for
its first taxable year or if immediately after qualifying as a regulated
investment company for any taxable year, it failed to qualify for a period
greater than one taxable year, the Fund would be required to recognize any net
built-in gains (the excess of aggregate gains over aggregate losses that would
have been realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.

Some of the Fund's investment practices, including those involving certain
risk management transactions and foreign currency transactions, may be subject
to special provisions of the Code that, 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 the 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 cash with which to make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
federal income and excise taxes. Thus, these provisions could affect the amount,
timing and character of distributions to shareholders. 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.

The Fund's ability to liquidate portfolio securities may be limited by the
requirement for qualification as a regulated investment company that the Fund
derive less than 30% of its annual gross income from the sale or disposition of
any of the following assets held for less than three months: (i) stocks or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies), but only if
such currencies (or such options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities).

DISTRIBUTIONS.

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net capital gains ("capital gain dividends"), if
any, are taxable to a shareholder as long-term capital gains regardless of the
length of time the shares have been held by such holder. Distributions in excess
of the Fund's earnings and profits will first 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).

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<PAGE> 48

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 a month and paid during January of the
following year, will be treated as having been distributed by the Fund and
received by the shareholders on the December 31 prior to the date of payment. 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 will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Distributions from
the Fund will not be eligible for the dividends received deduction for
corporations. Shareholders receiving distributions in the form of additional
shares issued by the Fund will be treated for federal income tax purposes as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the distribution date.

FOREIGN TAXES.

It is expected that a portion of the interest earned by the Fund from non-U.S.
resident issuers and in certain circumstances gains realized by the Fund will be
subject to foreign withholding taxes. The tax rate to which such interest and
gains will be subject will vary depending on the country or countries having
taxing jurisdiction over a particular non-U.S. resident issuer and may be
affected by the existence of an income tax treaty with the United States. If
more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stocks or securities of "foreign corporations," the
Fund may elect and currently intends to elect, for United States federal income
tax purposes, to treat any foreign taxes paid by the Fund that can be treated as
foreign income taxes under United States federal income tax principles as paid
by its shareholders. The Fund expects that it will be able to treat some, but
not necessarily all, of the foreign taxes it will have to pay as foreign income
taxes for United States federal income tax purposes. In addition, the Fund
currently intends to treat investments in securities that are issued by, or that
are treated under relevant United States federal income tax principles as issued
by, foreign governments as not constituting securities of "foreign corporations"
for purposes of meeting the 50% test described above. Accordingly, the Fund may
not qualify for this election in all of its taxable years. For any year that the
Fund so qualifies and makes such an election, the amount of foreign taxes paid
by the Fund that can be treated as foreign income taxes for United States
federal income tax purposes would be included in the income of its shareholders
(in addition to other taxable dividends received) and (subject to certain
limitations) shareholders would be entitled to credit their portions of these
amounts against their United States federal income tax due, if any, or to deduct
their portions from their United States taxable income, if any. A shareholder
who does not itemize deductions may not claim a deduction for foreign taxes. The
Fund will notify each shareholder within 60 days after the close of the Fund's
taxable year as to whether the foreign income taxes paid by the Fund will
qualify for "pass-through" treatment for that year and, if so, such notification
will designate (i) each shareholder's pro rata portion of the foreign income

44
<PAGE> 49

taxes paid and (ii) the portion of distributions that represents income derived
from foreign sources.

Generally, a foreign tax credit is subject to the limitation that it may not
exceed the shareholder's United States tax (before the credit) attributable to
the shareholder's total taxable income from foreign sources. For this purpose,
the shareholder's proportionate share of dividends paid by the Fund that
represent income derived from foreign sources will be treated as foreign source
income. The Fund's gains and losses from the sale of securities and certain
currency gains and losses generally will be treated as derived from United
States sources. The limitation on the foreign tax credit applies separately to
specific categories of foreign source income, including "passive income," a
category that includes the portion of dividends received from the Fund that
qualifies as foreign source income. The foregoing limitation may prevent a
shareholder from claiming a credit for the full amount of his proportionate
share of the foreign income taxes paid by the Fund.

SALE OF SHARES.

Redeeming shareholders will recognize gain or loss in an amount equal to the
difference between the basis in their redeemed shares and the amount received.
If such shares are held as a capital asset, the gain or loss will be a capital
gain or loss and will be long-term if such shares have been held for more than
one year. Any loss realized upon a taxable disposition of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains dividends received with respect to such shares.

GENERAL.

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

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SHAREHOLDER PROGRAMS

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

SHARE CERTIFICATES. As a rule, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued for any or all of the full shares credited to a shareholder's account.
Share certificates which have been issued to a shareholder may be returned at
any time. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must request as "affidavit of loss" by writing to Van Kampen American Capital
Funds, c/o ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256 and obtain a
Surety Bond in a form acceptable to the Transfer Agent. On the date the letter
is received the Transfer Agent will calculate no more than 2.00% of the net
asset value of the issued shares, and bill the party to whom the certificate was
mailed.

SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account is valued at
$10,000 or more, such shareholder's dividends are being reinvested, a requested
dollar amount may

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<PAGE> 50

be paid from such account to any person monthly, quarterly, semiannually or
annually. The minimum amount that may be withdrawn each period is $50;
withdrawals will be made on the seventh business day of the month in which they
are scheduled to occur. Depending upon the size of the payments requested and
the fluctuations in the net asset value of the shares redeemed, redemptions for
the purpose of making such payments may reduce or even exhaust the amounts in
such account. If an investor acquires additional shares of the Fund after
joining the Systematic Withdrawal Program, the investor must inform the Fund if
he or she wants the new shares to be subject to the Systematic Withdrawal
Program by telephoning the Fund at 1-800-341-2911.

With respect to redemptions of Class B Shares and Class C Shares made pursuant
to the Systematic Withdrawal Program, an investor may annually redeem up to 12%
of the net asset value of the investor's initial investment in Class B Shares
or, if the investor does not join the program on the date of his or her initial
investment, the net asset value of the investor's Class B Shares on the date the
investor elects to participate in the Systematic Withdrawal Program. The Fund
will waive the contingent deferred sales charge applicable to Class B Shares and
Class C Shares redeemed pursuant to the Fund's Systematic Withdrawal Program.

It will ordinarily be disadvantageous to purchase shares (except through
reinvestment of distributions) while participating in a systematic withdrawal
program because an investor will be paying a sales charge, or will become
subject to a contingent deferred sales charge, in order to purchase shares at
the same time that shares are being redeemed upon which a sales charge may
already have been paid. Therefore, the Fund will not knowingly permit an
investor to make additional investments in shares of less than $5,000 if at the
same time such investor is making systematic withdrawals at a rate greater than
the distribution being paid on such investor's shares. The Fund reserves the
right to amend or terminate the systematic withdrawal program on thirty days'
notice, and an investor may withdraw from the program at any time.

EXCHANGE PRIVILEGE. Any Class A Shares of the Fund which have been registered
in a shareholder's name for at least 15 days may be exchanged for ISC Shares of
other Van Kampen American Capital mutual funds distributed by the Distributor
that offer an exchange privilege. Under the exchange privilege, the Fund offers
to exchange its Class A Shares for ISC Shares on the basis of relative net asset
value per share. Any ISC Shares that have been charged a sales load lower than
the sales load applicable to Class A Shares of the Fund will be charged the
applicable sales load differential upon exchange into the Fund. Shares of the
Van Kampen American Capital Money Market Fund and Van Kampen American Capital
Tax Free Money Fund which have not previously been charged a sales load (except
for shares purchased via the reinvestment option) will be charged the sales load
applicable to Class A Shares of the Fund upon exchange into the Fund.

Class B Shareholders of the Fund may exchange their Class B Shares
("Outstanding Class B Shares") for Class B Shares of other Van Kampen American
Capital mutual funds sponsored by the Distribution that offer an exchange
privilege ("New Class B Shares") on the basis of relative net asset values of
the Outstanding Class B Share and

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<PAGE> 51

New Class B Share, without the payment of any contingent deferred sales charge
that might otherwise be due on redemption of the Outstanding Class B Shares. New
Class B Shares of a fund acquired through use of the exchange privilege will be
subject to the deferred sales charge schedule relating to the Class B Shares of
the fund from which the purchase of Class B Shares was originally made.

Class C Shares of the Fund are exchangeable for Class C Shares of other Van
Kampen American Capital mutual funds distributed by the Distributor that offer
an exchange privilege on the same terms set forth in the preceding paragraph
with respect to Class B Shares. The exchange privilege with respect to any Van
Kampen American Capital money market fund sponsored by the Distributor is not
available for Class C Shareholders.

In order to qualify for the exchange privilege, it is required that the shares
being exchanged have a net asset value of at least $1,000 (unless prior approval
has been obtained from the Fund). Shareholders will be able to effect an
exchange by telephone by calling the Fund at 1-800-341-2911 prior to 3:00 p.m.
Central Standard Time and requesting the exchange. For inquiries through
Telecommunications Device for the Deaf (TDD), dial 1-800-772-8889. The exchange
will be processed at the net asset value next determined after receipt of such
request. By utilizing the telephone exchange service, a shareholder authorizes
the Fund or the Transfer Agent to act upon the instructions of any person by
telephone to exchange shares from any account for which such service has been
authorized to any identically registered account(s) with any Van Kampen American
Capital fund distributed by the Distributor that offers an exchange privilege.
The Fund, the Distributor and the Transfer Agent seek to employ procedures
reasonably believed to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring a person attempting to exchange
shares by telephone to provide, on a recorded line, the name on the account, a
social security or tax identification number and such additional information as
may be deemed necessary or appropriate. An investor agrees that no such person
will be liable for any loss, liability, cost or expense arising out of any
request reasonably believed to be genuine, including any fraudulent or
unauthorized request. This service may be amended or terminated at any time by
the Transfer Agent or the Fund. If a shareholder has certificates for any shares
being exchanged, such certificates must be surrendered prior to the exchange in
the same manner as in redemption of such shares. See "Redemption of Shares." Any
shares exchanged between the Fund and any of the other funds will begin earning
dividends on the next business day after the exchange is effected. 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 FOR SALE IN THEIR STATE.

An exchange between funds pursuant to the exchange privilege is treated as a
sale for federal income tax purposes, and depending upon the circumstances, a
short- or long-term capital gain or loss may be realized.

The exchange privilege may be modified or terminated at any time, subject to
the requirement that the Fund give prominent notice thereof at least 60 days
prior to the effective date of the modification or termination in certain
circumstances. The Fund

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<PAGE> 52

reserves the right to limit the number of times an investor may exercise the
exchange privilege.

AUTOMATED MULTIPLE ACCOUNT SHAREHOLDER SERVICES (AMASSSM).

1. 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
the Transfer Agent 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 the Transfer
Agent.

2. Automated Dividend Programs. The Fund will, upon the election of a
shareholder, automatically invest distributions from a shareholder's account
directly into a shareholder's bank account.

3. Dividend Diversification. Dividend distributions and any net long-term
capital gain distributions to a shareholder's account may be invested upon the
election of the shareholder in the same class of shares of any other Van Kampen
American Capital mutual fund distributed by the Distributor at the then current
net asset value, WITHOUT A SALES CHARGE, upon election by a shareholder. This
election may be made on the account application, by written notice to the
Transfer Agent or by calling the Fund directly at 1-800-341-2911 during the
hours of 7:00 a.m. to 7:00 p.m. Central Standard Time. For inquiries through
Telecommunications Device for the Deaf (TDD) dial 1-800-772-8889. In order to
qualify for this privilege, a shareholder must have established an account in
the other mutual fund prior to electing this privilege. This privilege may be
modified or terminated by the Fund at any time.

4. Easy Account Savings Enhancement Plan (EASESM). Once a shareholder has
opened an account with the minimum $1,000 investment, the automatic investment
option may be utilized to make regular electronic monthly investments of $100 or
more into such shareholder's account with the Fund. In order to utilize this
option, a shareholder must fill out and sign the appropriate section of the
account application or the EASESM application which is available from the
Transfer Agent, the Fund, such shareholder's broker or dealer or the
Distributor. Once the Transfer Agent has received this application, such
shareholder's checking account at his or her designated local bank will be
debited each month in the amount authorized by such shareholder to purchase
shares of the Fund. Once enrolled in the EASESM program, a shareholder may
change the monthly amount or terminate participation at any time by writing the
Transfer Agent. Shareholders in the EASESM program will receive a confirmation
of these transactions from the Fund

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<PAGE> 53

monthly, and their regular bank account statements will show the debit
transaction each month.

By electing to utilize any of the foregoing services, a shareholder authorizes
the Transfer Agent or its agent to act upon the instructions indicated in the
appropriate section of the account application in performing such services by
either withdrawing funds for deposit in the Fund pursuant to the EASESM Plan or
depositing distributions and redemptions in the bank account indicated by the
voided check or deposit slip accompanying the shareholder's election and/or by
depositing the shareholder's distributions in the Van Kampen American Capital
fund account indicated. A shareholder also agrees that neither the Fund, the
Distributor nor the Transfer Agent will be liable for any loss, liability, cost
or expense arising out of any request, including any fraudulent request. This
service may be amended or terminated at any time by the Transfer Agent or by the
Fund.

REINSTATEMENT PRIVILEGE. A shareholder who has redeemed Class A Shares or
Class B Shares may, within 120 days, repurchase Class A Shares of the Fund, or
shares of other Van Kampen American Capital funds distributed by the
Distributor, in an amount of at least $500 and not exceeding the redemption
proceeds received, at a purchase price equal to the net asset value next
determined after the reinstatement request is received by the Transfer Agent or
the Distributor. A Class C Shareholder who has redeemed shares of the Fund may
repurchase Class C Shares of the Fund, or shares of other Van Kampen American
Capital funds distributed by the Distributor with credit given for any
contingent deferred sales charge paid upon such redemption.

Exercising the reinstatement privilege will not affect the character of any
gain or loss realized on the redemption for federal income tax purposes, except
that if the redemption resulted in a loss, the reinstatement may result in the
loss being disallowed under the "wash sale" rules.

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INVESTMENTS BY TAX-SHELTERED RETIREMENT PLANS

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Shares of the Fund are available for purchase in connection with certain types
of tax-sheltered retirement plans, including:

- Individual Retirement Accounts (IRA's) for individuals.

- Simplified Employee Pension Plans (SEP's) for employees.

- Qualified plans for self-employed individuals.

- Qualified corporate pension and profit-sharing plans for employees.

The purchase of shares of the Fund may be limited by the plans' provisions and
does not itself establish such plans. A reduced minimum initial investment,
available for purchase of Class A Shares, Class B Shares and Class C Shares only
in connection with a tax-sheltered retirement plan is $250.

IRA's are available for individuals under age 70 1/2 whether or not they are
active participants in any other tax-qualified employer plan. Generally,
individuals who are not

49
<PAGE> 54

active participants in a tax-qualified employer plan may deduct from gross
income their IRA contributions which do not exceed 100% of compensation received
during a year or $2,000 ($2,250 for a spousal account), whichever is less. If an
employee or the employee's spouse is an active participant in a tax-qualified
employer plan, the IRA deduction is phased out above certain income levels.
Individuals may, however, make non-deductible contributions to their IRA up to
the lesser of 100% of annual compensation or $2,000 ($2,250 for a spousal
account) without being subject to an excise tax on excessive contributions.

All contributions to an IRA made to the Fund through a broker must be settled
by April 15 in any year in order to be deemed a valid contribution for the
preceding year. Contributions made directly to the Fund via the mail must be
postmarked by April 15 in any year in order to be deemed a valid contribution
for the preceding year. Generally, earnings on investments held in an IRA are
not taxable until withdrawn. Subject to certain exceptions, substantial tax
penalties apply to withdrawals before age 59 1/2. A request for distributions
from an IRA for which American Capital Trust Company acts as custodian must be
made in writing.

A SEP is a retirement program established by an employer (including
individuals) for the benefit of its eligible employees. Generally, any employee
who has attained age 21, worked for the employer during three of the past five
years and earned a specified amount from the employer in the current year will
be eligible to participate. Under a SEP, each participant establishes an IRA to
which the sponsoring employer makes annual calendar year contributions.
Generally, those contributions cannot exceed the lesser of $30,000 or 15% of the
participant's compensation for the year. A participating employee may also make
his or her IRA contribution to the same account. Generally, earnings on accounts
held in an IRA established pursuant to a SEP are not taxable until withdrawn.
Subject to certain exceptions, substantial tax penalties apply to withdrawals
before age 59 1/2.

Shares of the Fund may also be purchased by all types of employer sponsored
tax-qualified retirement plans which allow for investments in mutual funds. A
standardized Van Kampen American Capital plan is available through securities
brokers, dealers, financial intermediaries, the Fund, or the Distributor for
employers (including individuals) who desire to start or amend a retirement
plan. The form of this standardized plan has been determined to be "qualified"
under the Internal Revenue Code. An employer may use this prototype to establish
a profit sharing plan, a money purchase pension plan or both for its eligible
employees. The cost for the use of the prototype plan is $50, and there are no
annual fees. The adopting employer determines within the prescribed limits the
eligibility standards, rate of contributions and other significant provisions of
the prototype plan. The Distributor, as sponsor of this prototype plan, reserves
the right to amend such plan from time to time to assure its continued
qualification under the Internal Revenue Code or for other reasons. Employers
adopting this prototype plan will be bound by such amendments.

Investors considering establishing a retirement plan or purchasing shares of
the Fund in connection with a retirement plan should consult with their attorney
or tax advisor with respect to plan requirements and tax aspects pertaining to
them.

50
<PAGE> 55

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

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. In lieu of or in addition to total return and
yield calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications.

The Fund's yield quotation is determined on a monthly basis with respect to
the immediately preceding 30 day period, and is computed by 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 initial 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 such class of shares
accrued for the period (net of any reimbursements), and dividing the result by
the average daily number of the shares of such 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 the Fund's shares. Class B Shares redeemed during the first
three years after their issuance may be subject to a contingent deferred sales
charge in a maximum amount equal to 3% 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 initial 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 fluctuate over time, and
accordingly upon redemption a shareholder's shares may be worth more or less
than their original cost.

51
<PAGE> 56

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, deducting the
maximum initial sales charge, if any, 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 Shares imposed at the time of redemption were reflected, it would reduce
the performance quoted.

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. Distribution rate is, therefore, not intended to be a complete measure
of the Fund's performance. Distribution rate may sometimes be greater than yield
since, for instance, it may not include the effect of amortization of bond
premiums, and may include non-recurring short-term capital gains and premiums
from futures transactions engaged in by the Fund. Distribution rates will be
computed separately for each class of the Fund's shares.

From time to time the Fund may compare its performance to certain securities
and unmanaged indices which may have different risk/reward characteristics than
the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal and/or return.
In addition, from time to time sales materials and advertisements for the Fund
may include hypothetical information.

Please consult the Statement of Additional Information for more information
regarding the Fund's performance.

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

SHAREHOLDER SERVICES

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

ACCESS Investor Services, Inc., P.O. Box 418256, Kansas City, MO 64141-9256,
transfer agent for the Fund, performs bookkeeping, data processing and
administrative services related to the maintenance of shareholder accounts. When
an initial investment is made in the Fund, an account will be opened for each
shareholder on the Fund's books and shareholders will receive a confirmation of
the opening of the account. Shareholders will receive monthly statements giving
details of all activity in their account and will also receive a statement
whenever an investment or withdrawal is made in or from their account.
Information for federal income tax purposes will be provided at the end of the
year. Such statements will present separately information with respect to each
class of the

52
<PAGE> 57

Fund's shares. It is expected that the transfer agency costs attributable to the
Class B Shares and Class C Shares will be higher than the transfer agency costs
attributable to the Class A Shares.

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

DESCRIPTION OF SHARES OF THE FUND

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

The Fund is a series of the Van Kampen American Capital Trust, a Delaware
business trust (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 authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, without par value, divided into classes. The Fund
currently offers three classes, 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 generally are identical in all respects except that each class
bears certain distribution expenses and has exclusive voting rights with respect
to its distribution fee. See "The Distribution and Service Plans."

Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of shares. Each class of share 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
Class B Shareholders and Class C Shareholders are likely to be lower than to
other shareholders.

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 Trust will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
Investment Company Act. More detailed information concerning the Trust is set
forth in the Statement of Additional Information.

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

SHAREHOLDER REPORTS AND INQUIRIES

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

The Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by independent public
accountants, is sent to shareholders each year. After the end of each year,
shareholders will receive federal income tax information regarding dividends and
capital gains distributions.

53
<PAGE> 58

Shareholder inquiries should be directed to Van Kampen American Capital
Short-Term Global Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois
60181, Attn: Correspondence. Its telephone number is 1-800-341-2911.

For inquiries through Telecommunications Device for the Deaf (TDD) dial 1-800-
772-8889.

For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial 1-800-542-4344.

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

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 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.

54
<PAGE> 59

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--1-800-341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR 1-800-341-2911.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--1-800-225-2222.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL 1-800-772-8889

FOR AUTOMATED TELEPHONE
SERVICES DIAL 1-800-542-4344

VAN KAMPEN AMERICAN CAPITAL

SHORT-TERM GLOBAL INCOME 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

STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
P.O. Box 419001
Kansas City, MO 64141-6001

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> 60

VAN KAMPEN AMERICAN CAPITAL
SHORT-TERM GLOBAL INCOME FUND

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

PROSPECTUS
, 1995

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 61

Information contained herein is subject to completion or amendment. An
amendment to the registration statement relating to these securities has
been filed with the Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time such
amendment to the registration statement becomes effective. This statement
of additional information shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

SUBJECT TO COMPLETION -- DATED JUNE 2, 1995

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND

Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is a
non-diversified separate series of an open-end management investment company.
The Fund's investment objective is to seek a high level of current income,
consistent with prudent investment risk.

The Fund seeks to achieve its investment objective by investing in a global
portfolio of high-quality debt securities denominated in various currencies and
multi-national currency units and having remaining maturities of not more than
three years. The portfolio will consist of debt securities issued by foreign
governments or supranational organizations or their agencies, instrumentalities
or subdivisions, high-quality debt securities issued by corporations,
certificates of deposit or bankers acceptances issued or guaranteed by large
U.S. or foreign banks, high-quality commercial paper and debt securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Investments in securities denominated in currencies other than the U.S. dollar
involve foreign currency exchange risks. The Fund may engage in hedging and risk
management transactions to seek to reduce or eliminate such risks.

The Fund is designed for the investor who seeks a higher yield than a money
market fund and less fluctuation in net asset value than a longer-term global
bond fund. There is no assurance that the Fund will achieve its investment
objective. The Fund is a separate series of Van Kampen American Capital Trust, a
Delaware business trust (the "Trust"). The Fund's portfolio is managed by Van
Kampen American Capital Investment Advisory Corp. (the "Adviser").

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated , 1995 (the
"Prospectus"). This Statement of Additional Information does not include all
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 1-800-225-2222, ext. 6504. This Statement of Additional Information
incorporates by reference the entire Prospectus.

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. These items may be obtained
from the Commission upon payment of the fee prescribed, or inspected at the
Commission'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
Additional Investment Considerations................................................... B-4
Description of Securities Ratings...................................................... B-11
Officers and Trustees.................................................................. B-16
Legal Counsel.......................................................................... B-21
Investment Advisory and Other Services................................................. B-21
Portfolio Transactions and Brokerage Allocation........................................ B-23
Tax Status of the Fund................................................................. B-24
The Distributor........................................................................ B-24
Performance Information................................................................ B-25
Unaudited Financial Statements......................................................... B-27
Notes to Unaudited Financial Statements................................................ B-32
Independent Auditors' Report........................................................... B-37
Audited Financial Statements........................................................... B-38
Notes to Audited Financial Statements.................................................. B-43
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED , 1995.

B-1
<PAGE> 62

THE FUND AND THE TRUST

The Fund is a separate non-diversified series of the Trust, an open-end
management investment company. At present, the Fund, Van Kampen American Capital
High Yield Fund, Van Kampen American Capital Adjustable Rate U.S. Government
Fund, Van Kampen American Capital Strategic Income Fund and Van Kampen American
Capital Emerging Markets Income Fund, each a diversified separate series of the
Trust, are the only series of the Trust, although other series may be organized
and offered in the future.

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust (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. Each share in a series 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 outstanding shares of each affected
series entitled to vote (or such higher vote as may be required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or other applicable
law).

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 set forth in the Prospectus under the
caption "Investment Objectives and Policies." There can be no assurance that the
Fund will achieve its investment objective.

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 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 any single issuer;
provided that, with respect to 50% of the Fund's assets, the Fund may
invest up to 25% of its assets in the securities of any one issuer.

2. Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage,
pledge, or hypothecate any assets except in connection with a borrowing
and in amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests

B-2
<PAGE> 63

where liquidation of portfolio securities is considered disadvantageous or
inconvenient. In this connection, the Fund will not purchase portfolio
securities during any period that such borrowings, including the Fund's
commitments pursuant to reverse repurchase agreements, exceed 5% of the
total asset value of the Fund (after giving effect to the amount
borrowed). Notwithstanding this investment restriction, the Fund may enter
into when issued and delayed delivery transactions as described in the
Prospectus.

3. Make loans, except to the extent the obligations the Fund may invest in
are considered to be loans, through loans of portfolio securities or the
acquisition of securities subject to repurchase agreements.

4. Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with transactions described under the
caption "Investment Practices" in the Prospectus nor short term credits in
connection with the clearance of transactions are considered the purchase
of a security on margin.

5. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures contracts or
related options, except to the extent that the hedging transactions
described under the heading "Investment Practices" in the Prospectus would
be deemed to be any of the foregoing transactions.

6. 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.

7. Make investments for the purpose of exercising control or participation in
management.

8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition and except that the Fund may
invest up to 10% of its assets in investment companies that invest in
securities comparable to those in which the Fund may invest so long as the
Fund does not own more than 3% of the outstanding voting stock of any
investment company or securities of any investment company aggregating in
value more than 5% of the total assets of the Fund.

9. Invest in oil, gas or mineral leases or in equity interests in oil, gas or
other mineral exploration or development programs.

10. Purchase or sell real estate, commodities or commodities contracts except
to the extent that hedging instruments the Fund may invest in are
considered to be commodities or commodities contracts.

The Fund may not change any of these investment restrictions or any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
outstanding 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 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (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

B-3
<PAGE> 64

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.

In connection with certain state securities law requirements, the Fund has a
policy of limiting its investment in warrants, valued at the lower of cost or
market, to not more than 5.0% of the value of the Fund's net assets and,
within such amount, to not more than 2.0% of the value of its net assets in
warrants not listed on the New York Stock Exchange or on the American Stock
Exchange; provided however, that warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.

ADDITIONAL INVESTMENT CONSIDERATIONS

REVERSE REPURCHASE AGREEMENTS

The Fund may enter into reverse repurchase agreements with respect to debt
obligations which could otherwise be sold by the Fund. A reverse repurchase
agreement is an instrument under which the Fund may sell an underlying debt
instrument and simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker or dealer) to sell the security back to the Fund at
an agreed upon price on an agreed upon date. The value of underlying securities
will be at least equal at all times to the total amount of the resale
obligation, including the interest factor. The Fund receives payment for such
securities only upon physical delivery or evidence of book entry transfer by its
custodian. Regulations of the Securities and Exchange Commission (the "SEC")
require either that securities sold by the Fund under a reverse repurchase
agreement be segregated pending repurchase or that the proceeds be segregated on
the Fund's books and records pending repurchase. Reverse repurchase agreements
could involve certain risks in the event of default or insolvency of the other
party, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. An additional risk is that the market
value of securities sold by the Fund under a reverse repurchase agreement could
decline below the price at which the Fund is obligated to repurchase them.
Reverse repurchase agreements will be considered borrowings by the Fund and as
such would be subject to the restrictions on borrowing described under
"Investment Policies and Restrictions" in the Statement of Additional
Information. The Fund will not hold more than 5% of the value of its total
assets in reverse repurchase agreements.

OTHER INVESTMENT STRATEGIES

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 currency exchange rates), to manage the effective maturity or duration
of securities or portfolios 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.

STRATEGIC TRANSACTIONS. In the course of pursuing these investment strategies,
the Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
interest rate indices and other financial instruments, purchase and sell
financial futures contracts, enter into various interest rate transactions such
as swaps, caps, floors or collars, and enter into various currency transactions
such as currency forward contracts, currency futures contracts, currency swaps
or options on currency or currency futures (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 or
currency exchange rate 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 as a temporary substitute for
purchasing or selling particular securities. The Fund may sell options on
securities the Fund owns or has the right to purchase without additional
payments, up to a maximum of 25% of the Fund's net assets, for non-hedging
purposes.

B-4
<PAGE> 65

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.

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 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 currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. 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
contemplated use of these futures contracts and options thereon 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.

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, currency 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, currency 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

B-5
<PAGE> 66

and Eurodollar instruments are cash settled for the net amount, if any, to the
extent 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 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, guaranties and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty to buy back the option 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, currency 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 the 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 in
New York as "primary dealers", broker dealers, domestic or foreign banks or
other financial institutions 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 any equivalent rating from any other nationally
recognized statistical rating organization ("NRSRO"). The staff of the SEC
currently takes the position that the amount of the Fund's obligation pursuant
to an OTC option is illiquid, and is subject to the Fund's limitation on
investing no more than 10% of its assets in illiquid instruments.

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 for hedging purposes call options on U.S.
Treasury and agency securities, foreign sovereign debt, mortgage-backed
securities, corporate debt securities and foreign debt securities that are
traded on U.S. and foreign securities exchanges and in the over-the-counter
markets and related futures on such securities other than futures on individual
corporate debt securities. All calls sold by the Fund must be "covered" or must
meet the asset segregation requirements described below as long as the call is
outstanding (i.e., the Fund must own the securities or futures contract subject
to the call). Even though the Fund will

B-6
<PAGE> 67

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 and may require the Fund to hold a security which it might otherwise
have sold. The Fund may sell options on securities the Fund owns or has the
right to purchase without additional payments, up to a maximum of 25% of the
Fund's net assets, for non-hedging purposes.

The Fund may purchase and sell for hedging purposes put options that relate to
U.S. Government Securities, Mortgage-Backed Securities, corporate debt
securities, foreign sovereign debt and foreign debt securities (whether or not
it holds the above securities in its portfolio) or futures on such securities
other than futures on individual corporate debt and individual equity
securities. 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 purchase and sell financial
futures contracts or purchase put and call options on such futures as a hedge
against anticipated interest rate, currency market changes, for duration
management and for risk management purposes. Futures generally are bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver 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.

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 5% 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 will be offset prior
to settlement and that delivery will not 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 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

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<PAGE> 68

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.

CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties rated A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
options) are determined to be of equivalent credit quality by the Adviser.

The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.

The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency
other than with respect to proxy hedging as described below.

The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which Fund expects to
have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Adviser considers the Austrian schilling is
linked to the German deutschemark (the "D-mark"), the Fund holds securities
denominated in Austrian schillings and the Adviser believes that the value of
schillings will decline against the U.S. dollar, the Adviser may enter into a
contract to sell D-marks and buy dollars, hedging involves some of the same
risks and considerations as other transactions with similar instruments.
Currency transactions can result in losses to the Fund if the currency being
hedged fluctuates in value to a degree or in a direction that is not
anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.

RISKS OF CURRENCY TRANSACTIONS. Currency transactions are subject to risks
different from other transactions. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be
negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is

B-8
<PAGE> 69

relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and any combination
of futures, options and currency 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, currency 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, to protect against currency
fluctuations, 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. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and 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 may enter into swaps, caps, floors or collars on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities, and 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
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 will 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 as 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.

RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act

B-9
<PAGE> 70

upon economic events occurring in foreign markets during non-business hours in
the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (v)
lower trading volume and liquidity.

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

Except when the Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.

OTC options entered into by the Fund, including those on securities, currency,
financial instruments or indices, OCC issued and exchange listed index options,
swaps, caps, floors and collars will generally provide for cash settlement. As a
result, with respect to these instruments the Fund 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 put, or the in-the-money
amount in the case of a 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. Other 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, if any, 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.

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

DESCRIPTION OF SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by S&P) follows:

1. DEBT

An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.

The ratings are based, in varying degrees, on the following considerations:

1. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors's rights;

INVESTMENT GRADE

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
</TABLE>

SPECULATIVE GRADE

<TABLE>
<S> <C>
BB Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having predominantly
B speculative characteristics with respect to capacity to pay interest and repay
CCC principal. 'BB' indicates the least degree of speculation and 'C' the highest.
CC While such debt will likely have some quality and protective characteristics,
C these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
</TABLE>

B-11
<PAGE> 72

<TABLE>
<S> <C>
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC The rating 'CC' typically is applied to debt subordinated to senior debt that is
assigned an actual or implied 'CCC' rating.
C The rating 'C' typically is applied to debt subordinated to senior debt which is
assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI The rating 'CI' is reserved for income bonds on which no interest is being paid.
D Debt rated 'D'; is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
C The letter 'c' indicates that the holder's option to tender the security for
purchase may be canceled under certain prestated conditions enumerated in the
tender option documents.
I The letter 'i' indicates the rating is implied. Such ratings are assigned only
on request to entities that do not have specific debt issues to be rated. In
addition, implied ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings on governments
represent the sovereign ceiling or upper limit for ratings on specific debt
issues of entities domiciled in the country.
L The letter 'L' indicates that the rating pertains to the principal amount of
these bonds in the extent that the undersigning deposit collateral is federally
insured and interest is adequately collateralized. In the case of certificates
of deposit, the letter 'L' indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
P The letter 'p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
* Continuance of the rating is contingent upon S&P's receipt of an executed copy
of the escrow agreement or closing documentation confirming investments and cash
flows.
NR Not rated
</TABLE>

B-12
<PAGE> 73
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate
and municipal issues. The ratings measure the creditworthiness of
the obligor but do not take into account currency exchange and
related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated
in the top four categories ("AAA," "AA," "A," and "BBB")
(commonly known as "investment grade" ratings) are generally
regarded as eligible for bank investment. In addition, the laws of
various states governing legal investments impose certain rating
or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies, and
fiduciaries generally.

2. COMMERCIAL PAPER

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from 'A-1' for the highest
quality obligations to 'D' for the lowest. These categories are as follows:

<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety regarding timely payment
is strong. Those issues determined to possess extremely safe characteristics are
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
A-3 Issues carrying this designation have adequate capacity for timely payment. They
are, however, more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
B Issues rated 'B' are regarded as having only a speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity
for payment.
D Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
</TABLE>

A commercial paper rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

3. VARIABLE RATE DEMAND BONDS

S&P assigns "dual" ratings to all debt issues that have a put or demand
feature as part of their structure.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, 'AAA/A-1+'). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, 'SP-1+/A-1+').

B-13
<PAGE> 74

MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as
published by Moody's) follows:

1. LONG-TERM BONDS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

B-14
<PAGE> 75

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

2. SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters-of-credit and bonds of indemnity are excluded unless explicitly rated.

Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:

Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings,
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternative liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

3. COMMERCIAL PAPER

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:

Issuers rated PRIME-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

- Board margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated PRIME-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

B-15
<PAGE> 76

Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

OFFICERS AND TRUSTEES

The officers and trustees of the Trust (of which the Fund is a separate
series), 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., Van Kampen American Capital Management, Inc., McCarthy, Crisanti & Maffei,
Inc., MCM Asia Pacific Company, Limited, Van Kampen American Capital
Distributors, Inc., Van Kampen American Capital, Inc. or VK/AC Holding, Inc.,
are as follows:

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<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: 62 equipment. A director or 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. A
director or trustee of each of the Van Kampen American
Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co. A
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. A director or trustee of
Lyme, CT 06371 each of the Van 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. A trustee
of each of the Van Kampen American Capital Funds.
</TABLE>

B-16
<PAGE> 77

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
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 and Van Kampen American Capital. Director of McCarthy,
Crisanti & Maffei, Inc. and Chairman and a Director of
MCM Asia Pacific Company, Ltd. President, Chief Executive
Officer and a trustee of each of the Van Kampen American
Capital Funds. He also is President, Chief Executive
Officer and a trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies 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. Chairman of the Board and a trustee of each
of the Van Kampen American Capital Funds.
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). A trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital and
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of Van
Age: 55 Kampen American Capital Distributors, Inc., 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 Corpo-
ration, ACCESS Investor Services, Inc., Van Kampen
American Capital Services, Inc. and Van Kampen American
Capital Trust Company; Director of McCarthy, Crisanti &
Maffei, Inc.; Director, Trustee or Managing General
Partner of each of the AC Funds and other open-end
investment companies and closed-end investment companies
advised by the AC Adviser. He is also Chairman of the
Board and a trustee 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. A director or 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. A trustee of each
of the Van Kampen American Capital Funds.
</TABLE>

B-17
<PAGE> 78

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
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 AC Funds. Director, FPA Capital Fund, Inc.; FPA New
Los Angeles, CA 90067 Income Fund, Inc.; FPA Perennial Fund, Inc.; Source
Age: 62 Capital, Inc.; and TCW Convertible Security Fund, Inc. A
director or 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. Chairman of the Board and a director or trustee
Age: 70 of each of the Van Kampen American Capital Funds.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to the VK Funds. A trustee of each
Chicago, IL 60606 of the Van Kampen American Capital Funds. He also is a
Age: 55 trustee of the Van Kampen Merritt Series Trust and
closed-end investment companies advised by the VK
Adviser.
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. A director or trustee of each
of the Van Kampen American Capital Funds.
</TABLE>

OFFICERS

B-18
<PAGE> 79

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Edward C. Wood III... Vice President, Treasurer Senior Vice President of the 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.
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. Prior to May
1992, attorney for Cantwell & Cantwell, a
Chicago law firm.
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
Adviser and the Distributor. Assistant
Secretary of each of the Van Kampen American
Capital Funds and closed-end Funds.
Weston B. Assistant Secretary Vice President, Associate General Counsel and
Wetherell.......... Assistant Secretary of Van Kampen American
Age: 38 Capital, the Adviser and the Distributor and
an Assistant Secretary of McCarthy, Crisanti
& Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end Funds.
John L. Sullivan..... Controller First Vice President of the Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end Funds.
Steven M. Hill....... Assistant Treasurer Assistant Vice President of the Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end Funds.
</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 principal cost
associated with the combination of the two boards would be the added expense of
compensating the additional trustees. Seven of the eight additional trustees are
not affiliated persons of the VK Adviser, the Distributor or Van Kampen American
Capital and such persons are eligible for compensation from the Fund. In order
to alleviate such additional expense, the trustees approved a reduction in the
compensation per trustee and agreed to an aggregate annual compensation cap from
the combined fund complex of $84,000 per trustee 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 34 closed-end
funds advised by the VK Adviser would receive an additional $119,000 for serving
as a trustee of such funds). In addition, the VK Adviser has agreed to reimburse
the Fund through

B-19
<PAGE> 80

December 31, 1996, for any increase in the aggregate trustees' compensation over
the aggregate compensation paid by the Fund in its 1994 fiscal year. It is
anticipated that reductions in the number of trustees on the combined board will
reduce the aggregate compensation paid by the Fund to the combined board to
approximately the current amount.

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT AND
COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
NAME FROM REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
- -------------------------------- ------------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy................ $ 14,849 $0 $2,500 $62,362
Philip G. Gaughan............... 13,757 0 2,500 63,250
Donald C. Miller................ 18,172 0 2,500 62,178
Jack A. Nelson.................. 18,228 0 2,500 62,362
Jerome L. Robinson.............. 18,198 0 2,500 58,475
Wayne W. Whalen................. 4,078 0 2,500 49,875
</TABLE>

- ---------------
(1) Messrs. Merritt and McDonnell, Trustees of the Registrant during fiscal year
1994, are affiliated persons of the Adviser and are not eligible for
compensation or retirement benefits from the Registrant.

(2) The Registrant is Van Kampen American Capital Trust (the "Trust") which
currently is comprised of 5 series, including the Fund. The amounts shown in
this column are accumulated from the Aggregate Compensation of each of these
5 series during such series' 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
Registrant's last fiscal year ended June 30, 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 consisted of 20 mutual funds
advised by the Adviser that have 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 such investment companies
do not have the same trustees as the Fund Complex. Combining the Fund
Complex with other investment companies advised by the Adviser, Mr. Whalen
received Total Compensation of $161,850.

As of May 19, 1995, the trustees and officers as a group owned less than 1% of
the shares of the Fund.

No officer or trustee of the Fund owns or would be able to acquire 5% or more
of the common stock of VK/AC Holding, Inc.

As of May 19, 1995, the following persons owned of record or beneficially 5%
or more of the Fund's Class A Shares: [Xerox Financial Services Life Insurance
Company, 1 Tower Lane #3000, Villa Park, IL 60181-4644, 11%; and Nationsbank
Trust, U/A 11-09-89, Incarnate Word Health Services Self Insurance Trust, Attn
SAS/30063003071479, P.O. Box 831575, Dallas, TX 75283, 7%.]

B-20
<PAGE> 81

To the knowledge of the Fund, as of April 13, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class B Shares.

As of April 13, 1995, the following persons owned of record or beneficially 5%
or more of the Fund's Class C Shares: Principal Financial Cust. FBO, Mary A.
Murphy, P.O. Box 508, Dallas, TX 75221-0508, 43%; Principal Financial IRA Cust.
FBO, Mary Alice Murphy, P.O. Box 215132, Dallas, TX 75221-5132, 15%; Edward D.
Jones & Co. F/A/O, Gaines Electric Co. Inc., EDJ# 306-05079-1-4, P.O. Box 2500,
Maryland Heights, MO 63043-8500, 13%; Raymond James & Assoc. Inc. CSDN, Hugh D.
McPherson IRA, 1217 Denton Road, Winter Park, FL 32792-2774, 9%; The Ohio
Company C/F, Wright RM, 86-97868-1-4, 155 East Broad Street, Columbus, OH
43215-3609, 7%; and Matthew Chapman, 5771 Royal Ave., Eugene, OR 97402-9335, 5%.

LEGAL COUNSEL

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

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 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, Inc., 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., 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, Inc. own, in the aggregate, not more than 6% of the common
stock of VK/AC Holding, Inc. and have the right to acquire, upon exercise of
options, approximately an additional 10% of the common stock of VK/AC Holding,
Inc. Presently, and after giving effect to the exercise of stock options, no
officer or trustee of the Fund owns or would own 5% or more 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 trustees of the Trust and officers of the Fund 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
trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.

The investment advisory agreement for the Fund was approved by the
shareholders of the Fund at a shareholders meeting held on January 14, 1993.
Accordingly the agreement will remain in effect from year to

B-21
<PAGE> 82

year if specifically approved by the trustees of the Trust, of which the Fund is
a separate sub-trust (or by the Fund's shareholders), and by the disinterested
trustees in compliance with the requirements of the 1940 Act. The agreement may
be terminated without penalty upon 60 days' written notice by either party
thereto and will automatically terminate in the event of assignment.

The investment advisory agreement specifies that the Adviser will reimburse
the Fund for annual expenses of the Fund which exceed the most stringent limit
prescribed by any state in which the Fund's shares are offered for sale.
Currently, the most stringent limit in any state would require such
reimbursement to the extent that aggregate operating 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.

The Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
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 June 30, 1994, 1993 and 1992, the Fund recognized advisory
expenses of $3,008,248, $3,207,882 and $1,232,107, respectively.

OTHER AGREEMENTS.

[SUPPORT SERVICES AGREEMENT. Under a support services agreement with the
Distributor, the Fund receives support services for shareholders, including the
handling of all written and telephonic communications, except initial order
entry and other distribution related communications. Upon entering into such
agreement, the Fund realized a reduction in the fee which would have been paid
to the Transfer Agent if the Transfer Agent had provided such services. Payment
by the Fund for such services is 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, share such costs proportionately among themselves based upon their
respective net asset values.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $278,000, $248,700 and $92,720, 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 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 funds based proportionally on their respective net assets.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $21,000, $11,000 and $7,900, respectively, representing the
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund has entered into a Legal Services Agreement
pursuant to which Van Kampen American Capital, Inc. 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 Fund. It is expected that Van Kampen American
Capital, Inc. can render such legal services on a more cost

B-22
<PAGE> 83

effective basis than other providers of such services. Payment by the Fund for
such services is made on a cost basis for the employment of personnel as well as
the overhead and the equipment necessary to render such services. The Fund, and
the other mutual funds from whom the Adviser acts as investment adviser, share
one half (50%) of such costs equally. The remaining one half (50%) of such costs
are allocated to specific funds based on specific time allocations, or in the
event services are attributable only to types of funds (i.e. closed-end or
open-end), the relative amount of time spent on each type of fund and then
further allocated between funds of that type based upon their respective net
asset values.

For the years ended June 30, 1994, 1993 and 1992, the Fund recognized expenses
of approximately $17,000, $16,500, and $3,300, respectively, representing Van
Kampen American Capital, Inc.'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, Chicago,
Illinois. 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 or the 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 Adviser. Since statistical and other
research information is only supplementary to the research efforts of the
Adviser to the Fund 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 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 set
forth above to the Fund and 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 Fund and other
investment companies and clients 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 of
the Trust, of which the Fund is a separate series.

B-23
<PAGE> 84

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 for the Fund 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 federal income tax purposes. The Fund will 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 DISTRIBUTOR

Shares of the Fund are offered through the Distributor, One Parkview Plaza,
Oakbrook Terrace, IL 60181. The Distributor is a wholly owned subsidiary of Van
Kampen American Capital, Inc., 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 6% of
the common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 10% 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 with
the Fund, the Distributor will purchase shares of the Fund for resale to the
public, either directly or through securities dealers and brokers, and is
obligated to purchase only those shares for which it has received purchase
orders. A discussion of how to purchase and redeem shares of the Fund and how
such 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 the Service Plan sometimes
are referred to herein 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, distributor of each
class of the Fund's shares, sub-agreements between the Distributor and members
of the NASD who are acting as securities dealers and NASD members or eligible
non-members who are acting as brokers or agents and similar agreements between
the Fund and banks who are acting as brokers (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 banks 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

B-24
<PAGE> 85

(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.

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 June 30, 1994, the Fund has recognized expenses under the
Plans of $540,613, $3,563,969 and $1,364 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $471,049 and $872,003 represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares and Class B Shares, respectively. For the year ended June 30, 1994, the
Fund has reimbursed the Distributor $48,070 and $90,367 for advertising
expenses, and $21,958 and $26,247 for compensation of the Distributor's sales
personnel for the Class A Shares and Class B Shares, respectively.

PERFORMANCE INFORMATION

CLASS A SHARES

The Fund's yield with respect to the Class A Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 6.44%. In determining the Fund's net
investment income for a stated 30 day period, the Fund calculates yield to
maturity on each portfolio security on a daily basis. The Fund's current
distribution rate with respect to the Class A Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 7.71%.

The Fund's average total return with respect to the Class A Shares for the (i)
the one year period ended June 30, 1994 was (6.50%), and (ii) the approximately
45 month period from September 28, 1990 (the commencement of the sale of Class A
Shares) through June 30, 1994 was 3.17%.

The Fund's cumulative non-standardized total return with respect to the Class
A Shares from September 28, 1990 (the commencement of the sale of Class A
Shares) through June 30, 1994 (as calculated in the manner described in the
Prospectus under the heading "Fund Performance") was 15.89%.

CLASS B SHARES

The Fund's yield with respect to the Class B Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 5.91%. In determining the Fund's net
investment income for a stated 30 day period, the Fund calculates yield to
maturity on each portfolio security on a daily basis. The Fund's current
distribution rate with respect to the Class B Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 7.14%.

B-25
<PAGE> 86

The Fund's average total return with respect to the Class B Shares for (i) the
one year period ended June 30, 1994 was (6.90%), and (ii) the approximately 36
month period from July 22, 1991 (the commencement of the sale of Class B Shares)
through June 30, 1994 was 2.31%.

The Fund's cumulative non-standardized total return with respect to the Class
B Shares from July 22, 1991 (the commencement of the sale of Class B Shares)
through June 30, 1994 (as calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 7.94%.

CLASS C SHARES

The Fund's yield with respect to the Class C Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 5.91%. In determining the Fund's net
investment income for a stated 30 day period, the Fund calculates yield to
maturity on each portfolio security on a daily basis. The Fund's current
distribution rate with respect to the Class C Shares for the 30-day period
ending June 30, 1994 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 7.13%.

The Fund's average total return with respect to the Class C Shares for the
approximately 11 month period from August 13, 1993 (the commencement of the sale
of Class C Shares) through June 30, 1994 was (7.83%).

The Fund's cumulative non-standardized total return with respect to the Class
C Shares from August 13, 1993 (the commencement of the sale of Class C Shares)
through June 30, 1994 (as calculated in the manner described in the Prospectus
under the heading "Fund Performance") was (6.32%).

B-26
<PAGE> 87
Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
- --------------------------------------------------------------------------------
Portfolio of Investments
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Par
Amount
In Local
Currency S & P Moody's
(000) Description Rating Rating Coupon Maturity U.S. $ Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australia 6.1% AU$
Government/Agency 6.1%
16,000 Queensland Treasury Corp......... AAA Aaa 8.000% 5/14/97 $ 11,851,388
6,500 Treasury Corp of Victoria........ NR Aa3 12.500 9/15/97 5,291,165
------------------
17,142,553
------------------
Canada 4.9% CA$
Government/Agency 4.9%
5,000 Alberta Municipal Finance Corp... NR NR 8.000 3/23/95 3,569,647
15,000 Canadian Government.............. NR Aaa 6.500 8/01/96 10,350,727
------------------
13,920,374
------------------
Germany 0.0% Deutsche Mark
Currency 0.0%
63 Deutsche Mark.................... 40,656
------------------
Italy 8.0% Lira
Currency 0.0%
48,800 Italian Lira..................... 30,091
Government/Agency 8.0%
37,500,000 Italian BTPS..................... AA A1 10.000 8/01/96 22,753,425
------------------
Total Italian Securities......... 22,783,516
------------------
Mexico 24.2% US$
Government/Agency 24.2%
47,513 Mexican Tesobonos................ A1 NR * 5/04/95 45,612,480
10,000 Mexican Tesobonos................ A1 NR * 7/27/95 9,349,000
10,000 Mexican Tesobonos................ A1 NR * 10/19/95 9,110,000
5,000 Mexican Tesobonos................ A1 NR * 10/26/95 4,545,500
------------------
68,616,980
------------------
Spain 3.9% Peseta
Government/Agency 3.9%
1,470,000 Kingdom of Spain ................ AA Aa2 11.000 6/15/97 11,096,594
Currency 0.0%
6,720 Spanish Peseta .................. 51,049
------------------
Total Spanish Securities ....... 11,147,643
------------------
Sweden 3.7% Krona
Government/Agency 3.7%
65,000 Swedish Government............... AA+ Aa2 * 12/20/95 8,031,139
17,500 Swedish Government............... AA+ Aa2 10.750 1/23/97 2,384,661
Currency 0.0%
1,036 Swedish Krona.................... 139,396
------------------
Total Swedish Securities......... 10,555,196
------------------
</TABLE>

See Notes to Financial Statements

B-27

<PAGE> 88

Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
- --------------------------------------------------------------------------------
Portfolio of Investments (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Par
Amount
In Local
Currency S & P Moody's
(000) Description Rating Rating Coupon Maturity U.S. $ Market Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thailand 3.0% Baht
Banks 3.0%
50,000 ABN/AMRO Bank <F2>.................... AA- Aa1 9.100% 8/05/97 $ 1,918,144
170,000 Deutsche Bank CD...................... NR NR 8.750 9/19/96 6,627,325
------------------
8,545,469
------------------
United Kingdom 0.0% Pound
Currency 0.0%
37 British Pound Sterling ............... 58,423
------------------
United States 44.4% US$
Government/Agency 39.1%
45,000 U.S. T-Note .......................... AAA Aaa 4.750 2/15/97 42,377,344
40,000 U.S. T-Note .......................... AAA Aaa 6.500 8/15/97 38,787,500
30,000 U.S. T-Note .......................... AAA Aaa 7.375 11/15/97 29,685,938
Currency Indexed Debt Obligations 5.3%
Chilean Peso Indexed 3.5%
5,000 Citibank Time Deposits ............... NR Aa3 11.500 11/06/95 5,031,500
5,000 Citibank Time Deposits ............... NR Aa3 11.500 11/14/95 5,033,500
Indonesian Rupiah Indexed 1.8%
5,000 Citibank Time Deposits ............... NR Aa3 14.750 12/05/95 4,990,000
------------------
Total United States Securities ....... 125,905,782
------------------

Repurchase Agreements 1.7%
JP Morgan, US T-Note, $4,975,000 par, 3.875% coupon, due 09/30/95,
dated 12/30/94, to be sold on 01/03/95 at $4,810,805 ................................... 4,808,000
--------------
Total Investments 99.9%
(Cost $291,000,765) <F1> ............................................................... 283,524,592
Other Assets in Excess of Liabilities 0.1% ............................................. 213,255
--------------
Net Assets 100.0% ...................................................................... $ 283,737,847
--------------

*Zero coupon bond
<FN>
<F1>At December 31, 1994, the cost for federal income tax purposes is $291,000,765; the aggregate
gross unrealized appreciation is $1,203,782 and the aggregate gross unrealized depreciation is
$12,171,144, resulting in net unrealized depreciation on investments, foreign currency and open
option transactions of $10,967,362.
<F2>Assets segregated for open option transactions.
</TABLE>

See Notes to Financial Statements

B-28

<PAGE> 89

Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $291,000,765) <F1>................................. $ 283,524,592
Cash.................................................................................. 25,337
Receivables:
Interest.............................................................................. 4,913,872
Fund Shares Sold...................................................................... 4,448
Unamortized Organizational Expenses and Initial Registration Costs <F1>............... 37,379
Other................................................................................. 1,964
---------------
Total Assets.......................................................................... 288,507,592
---------------
Liabilities:
Payables:
Fund Shares Repurchased............................................................... 2,219,745
Income Distributions.................................................................. 866,760
Forward Contracts <F5>................................................................ 452,029
Investment Advisory Fee <F2>.......................................................... 138,431
Accrued Expenses...................................................................... 881,572
Options at Market Value (Net premiums paid of $1,244,511) <F5>........................ 208,663
Other................................................................................. 2,545
---------------
Total Liabilities..................................................................... 4,769,745
---------------
Net Assets............................................................................ $ 283,737,847
---------------
Net Assets Consist of:
Paid in Surplus <F3> ................................................................. $ 369,457,020
Accumulated Distributions in Excess of Net Investment Income <F1>..................... (8,406,518)
Net Unrealized Depreciation on Investments and Foreign Currency....................... (10,967,362)
Accumulated Net Realized Loss on Investments ......................................... (66,345,293)
---------------
Net Assets............................................................................ $ 283,737,847
---------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $98,221,643 and
12,575,822 shares of beneficial interest issued and outstanding) <F3>................. $ 7.81
Maximum sales charge (3.00%* of offering price)....................................... .24
---------------
Maximum offering price to public ..................................................... $ 8.05
---------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $185,324,896 and
23,733,700 shares of beneficial interest issued and outstanding) <F3>................. $ 7.81
---------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $190,338 and
24,326 shares of beneficial interest issued and outstanding) <F3>..................... $ 7.82
---------------
Class D Shares:
Net asset value and offering price per share (Based on net assets of $970 and
124 shares of beneficial interest issued and outstanding) <F3> ....................... $ 7.82
---------------
</TABLE>

*On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

B-29

<PAGE> 90

Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Investment Income:
<S> <C>
Interest........................................................................................................... $ 13,769,985
Amortization of Discount (Premium) - Net........................................................................... 794,268
Net Realized Loss on Foreign Currency and Foreign Currency Forward Contracts....................................... (1,445,157)
--------------
Total Income....................................................................................................... 13,119,096
--------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $161,269, $1,150,502, $1,037 and $2,
respectively) <F6> ............................................................................................. 1,312,810
Investment Advisory Fee <F2> ...................................................................................... 979,324
Shareholder Services .............................................................................................. 421,179
Legal <F2>......................................................................................................... 29,050
Amortization of Organizational Expenses and Initial Registration Costs <F1> ....................................... 25,191
Trustees Fees and Expenses <F2>.................................................................................... 14,840
Other.............................................................................................................. 256,835
--------------
Total Expenses..................................................................................................... 3,039,229
--------------
Net Investment Income.............................................................................................. $ 10,079,867
-------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments (Including realized loss on closed and expired option transactions of $2,889,200). $ (13,038,419)
--------------
Net Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period............................................................................................ (12,555,624)
End of the Period (Including unrealized depreciation on foreign currency translation and open option transactions
of $2,038,015 and $1,453,174, respectively)........................................................................ (10,967,362)
--------------
Net Unrealized Appreciation on Investments and Foreign Currency During the Period.................................. 1,588,262
--------------
Net Realized and Unrealized Loss on Investments and Foreign Currency............................................... $ (11,450,157)
--------------
Net Decrease in Net Assets from Operations......................................................................... $ (1,370,290)
--------------
</TABLE>

See Notes to Financial Statements

B-30

<PAGE> 91

Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Six Months Ended December 31, 1994
and the Year Ended June 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
December 31, 1994 June 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................................................ $ 10,079,867 $ 17,216,607
Net Realized Loss on Investments................................................................. (13,038,419) (28,926,494)
Net Unrealized Appreciation/Depreciation on Investments and Foreign Currency During the Period... 1,588,262 (5,827,126)
----------------- ----------------
Change in Net Assets from Operations ............................................................ (1,370,290) (17,537,013)
----------------- ----------------
Distributions from Net Investment Income*........................................................ (10,079,867) (17,216,607)
Distributions in Excess of Net Investment Income* <F1>........................................... (3,373,975) (4,433,220)
----------------- ----------------
Distributions from and in Excess of Net Investment Income*....................................... (13,453,842) (21,649,827)
Return of Capital Distribution*.................................................................. -0- (16,378,081)
----------------- ----------------
Total Distributions.............................................................................. (13,453,842) (38,027,908)
----------------- ----------------
Net Change in Net Assets from Investment Activities.............................................. (14,824,132) (55,564,921)
----------------- ----------------
From Capital Transactions <F3>:
Proceeds from Shares Sold........................................................................ 4,552,330 48,354,257
Net Asset Value of Shares Issued Through Dividend Reinvestment................................... 7,524,685 21,920,768
Cost of Shares Repurchased....................................................................... (133,206,030) (193,990,293)
----------------- ----------------
Net Change in Net Assets from Capital Transactions .............................................. (121,129,015) (123,715,268)
----------------- ----------------
Total Decrease in Net Assets..................................................................... (135,953,147) (179,280,189)
Net Assets:
Beginning of the Period.......................................................................... 419,690,994 598,971,183
----------------- ----------------
End of the Period (Including undistributed net investment income of
$(8,406,518) and $(5,032,543), respectively) .................................................... $ 283,737,847 $ 419,690,994
----------------- ----------------
</TABLE>

<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class December 31, 1994 June 30, 1994
Distributions from and in Excess of
Net Investment Income:
<S> <C> <C>
Class A Shares...................... $ (5,086,169) $ (8,004,201)
Class B Shares...................... (8,360,297) (13,642,774)
Class C Shares...................... (7,334) (2,850)
Class D Shares...................... (42) (2)
----------------- ----------------
$ (13,453,842) $ (21,649,827)
----------------- ----------------
Return of Capital Distribution:
Class A Shares...................... $ -0- $ (6,158,141)
Class B Shares...................... -0- (10,214,511)
Class C Shares...................... -0- (5,407)
Class D Shares...................... -0- (22)
----------------- ----------------
$ -0- $ (16,378,081)
----------------- ----------------
</TABLE>

See Notes to Financial Statements

B-31

<PAGE> 92
Van Kampen Merritt Short-Term Global Income Fund

- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen Merritt Short-Term Global Income Fund (the "Fund") is organized as a
sub-trust of Van Kampen Merritt Trust (the "Trust"), a Massachusetts business
trust, and is registered as a non-diversified open-end management investment
company under the Investment Company Act of 1940 as amended. The Fund commenced
investment operations on September 28, 1990. On July 22, 1991, the Fund
commenced distribution of Class B shares. The distribution of the Fund's Class
C and Class D shares commenced on August 13, 1993 and March 14, 1994,
respectively.

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 the last available
bid price or yield equivalents obtained from dealers in the OTC or interbank
market. 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. At December 31, 1994, there were no
when issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. Currency Translation-Assets and liabilities denominated in foreign currencies
and commitments under forward foreign exchange currency contracts are translated
into U.S. dollars at the mean of the quoted bid and ask prices of such
currencies against the U.S. dollar. Purchases and sales of portfolio securities
are translated at the rate of exchange prevailing when such securities were
acquired or sold. Income and expenses are translated at rates of exchange
prevailing when accrued. For financial reporting purposes, realized gain/loss on
foreign currency and foreign currency forward contracts are included in net
investment income.

E. Organizational Expenses and Initial Registration Costs-The Fund has
reimbursed Van Kampen American Capital Distributors, Inc. or its affiliates
("VKAC") for costs incurred in connection with the Fund's organization and
initial registration in the amount of $250,000. These costs are being
amortized on a straight line basis over the 60 month period ending September
28, 1995. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed during the amortization period, the Fund will
be reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.

F. 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 the loss and offset such losses against any future realized capital
gains. At June 30, 1994, the Fund had an accumulated capital loss carryforward
for tax purposes of $10,010,730, which will expire on June 30, 2001. Net
realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year.

G. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in options on
foreign currencies. These realized gains and losses are included as net realized
gains or losses for financial reporting purposes.

B-32
<PAGE> 93

Van Kampen Merritt Short-Term Global Income Fund

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------

Net realized gains on securities, if any, are distributed annually.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included in ordinary income for tax purposes.

For tax purposes, the determination of a return of capital distribution is made
at the end of the Fund's fiscal year. Therefore, while it is likely that a
portion of the Fund's distributions will ultimately be characterized as a return
of capital for tax purposes, no such designation has been made for the six
months ended December 31, 1994.

2. Investment Advisory Agreement and Other Transactions with Affiliates

Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly of .55% of the Fund's average net assets.

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 six months ended December 31, 1994, the Fund recognized expenses of
approximately $107,600 representing VKAC's cost of providing accounting, legal
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 1,263, 1,298, 100 and 100 shares of beneficial
interest of Classes A, B, C and D, respectively.

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 $128,088,406, $241,153,334,
$214,229 and $1,051, for Classes A, B, C and D, respectively. For the six months
ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 102,105 $ 819,629
Class B....................... 464,394 3,714,701
Class C....................... 2,233 18,000
Class D....................... 1 -0-
------------- -----------------
Total Sales .................. 568,733 $ 4,552,330
------------- -----------------
Dividend Reinvestment:
Class A....................... 363,147 $ 2,897,669
Class B....................... 578,892 4,619,740
Class C....................... 911 7,270
Class D....................... -0- 6
------------- -----------------
Total Dividend Reinvestment... 942,950 $ 7,524,685
------------- -----------------
Repurchases:
Class A....................... (6,015,968) $ (47,969,720)
Class B....................... (10,665,038) (85,216,902)
Class C....................... (2,456) (19,408)
Class D....................... -0- -0-
------------- -----------------
Total Repurchases............. (16,683,462) $ (133,206,030)
------------- -----------------
</TABLE>

B-33

<PAGE> 94

Van Kampen Merritt Short-Term Global Income Fund

- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1994, paid in surplus aggregated $172,340,828, $318,035,795,
$208,367 and $1,045, for Classes A, B, C and D, respectively. For the year ended
June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 3,219,135 $ 29,120,587
Class B....................... 2,103,750 18,929,822
Class C....................... 33,998 302,784
Class D....................... 123 1,064
------------- -----------------
Total Sales .................. 5,357,006 $ 48,354,257
------------- -----------------
Dividend Reinvestment:
Class A....................... 931,309 $ 8,246,649
Class B....................... 1,543,949 13,668,730
Class C....................... 629 5,386
Class D....................... -0- 3
------------- -----------------
Total Dividend Reinvestment... 2,475,887 $ 21,920,768
------------- -----------------
Repurchases:
Class A....................... (8,636,073) $ (75,861,675)
Class B....................... (13,472,314) (118,034,222)
Class C....................... (10,989) (94,396)
Class D....................... -0- -0-
------------- -----------------
Total Repurchases............. (22,119,376) $ (193,990,293)
------------- -----------------
</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 three 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 ................ 3.00% 1.00% 0.75%
Second ................ 2.00% None None
Third ................. 1.00% None None
Fourth and Thereafter . None None None
</TABLE>

For the six months ended December 31, 1994, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of $35 and
received CDSC on the redeemed shares of Classes B, C and D of approximately
$654,100. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended December 31, 1994, were $428,072,913
and $514,865,516, respectively.

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, foreign currency
exposure, 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.

B-34

<PAGE> 95

Van Kampen Merritt Short-Term Global Income Fund

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Contracts Premium
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994....... 30 $ (4,152,667)
Options Written and
Purchased (Net).................... 26 (276,065)
Options Terminated in Closing
Transactions (Net)................. (36) 1,362,721
Options Expired (Net) ............. (7) 1,821,500
--------- ---------------
Outstanding at December 31, 1994... 13 $ (1,244,511)
--------- ---------------
</TABLE>

The descriptions and market values of the option contracts outstanding as of
December 31, 1994, are as follows:

Strike
Opening Expiration Price/ Market
Description Transaction Date Yield Value
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar Call .... Sell 1/10/95 .775 $ (25,500)
Australian Dollar Call .... Sell 1/13/95 .780 (16,500)
Australian Dollar Call .... Sell 1/13/95 .780 (16,500)
Australian Dollar Call .... Sell 1/13/95 .780 (16,500)
Australian Dollar Call .... Sell 1/18/95 .778 (14,100)
Italian BTPS Call ........ Buy 7/14/95 97.35 21,094
</TABLE>

<TABLE>
<CAPTION>
Receivers Options on Swaps:
<S> <C> <C> <C> <C>
3 year Japanese Swap. Sell 2/22/95 3.00% (229,000)
2 year German Swap .. Buy 6/01/95 6.36% 15,296
2 year Spanish Swap . Buy 6/05/95 9.63% 4,102
2 year Spanish Swap . Buy 6/05/95 9.71% 4,102
1 year Spanish Swap . Buy 10/11/95 11.38% 18,612
1 year German Swap .. Buy 10/13/95 7.10% 25,168
1 year French Swap .. Buy 10/13/95 7.74% 21,063
-----------
$ (208,663)
-----------
</TABLE>

B. Forward Currency Contracts-These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included in income as a component of
realized gain/loss on foreign currency and foreign currency forward contracts.

At December 31, 1994, the Fund has outstanding forward foreign exchange currency
contracts as follows:

Unrealized
Foreign Exchange Original Current Appreciation/
Currency Contracts Value Value Depreciation
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Buys to Open
Australian Dollar,
expiring 07/17/95 -
12/19/95 ............ $ 11,847,000 $12,161,411 $ 314,411
German Deutsche Mark,
expiring 01/09/95 -
07/17/95 .............. 50,182,297 50,045,314 (136,983)
British Pound Sterling,
expiring 01/12/95 -
07/20/95 .............. 18,499,872 18,504,985 5,113
Mexican Peso,
expiring 02/03/95 .... 5,000,000 4,855,775 (144,225)
Malaysian Ringitt,
expiring 07/17/95 ..... 2,000,000 2,008,225 8,225
New Zealand Dollar,
expiring 07/17/95 -
12/19/95 .............. 5,500,000 5,640,714 140,714
Swedish Krona,
expiring 07/14/95 .... 10,000,000 10,157,019 157,019

Sells to Open
Australian Dollar,
expiring 07/17/95 .... 3,827,500 3,903,993 (76,493)
Canadian Dollar,
expiring 07/17/95 .... 15,000,000 14,916,217 83,783
German Deutsche Mark,
expiring 01/12/95 -
07/17/95 .............. 69,533,856 70,814,566 (1,280,710)
Spanish Peseta,
expiring 01/19/95 -
07/17/95 .............. 9,348,342 9,379,845 (31,503)
Italian Lira,
expiring 07/14/95 -
01/19/96 .............. 24,410,632 24,656,793 (246,161)
Japanese Yen,
expiring 03/06/95 -
07/17/95 .............. 12,500,000 12,600,057 (100,057)
Mexican Peso,
expiring 02/03/95 .... 1,921,569 1,960,717 (39,148)
New Zealand Dollar,
expiring 01/09/95 .... 12,000,000 12,180,424 (180,424)
Swedish Krona,
expiring 01/17/95 -
12/14/95 .............. 21,824,024 22,140,979 (316,955)
---------------
$ (1,843,394)
---------------
</TABLE>

B-35

<PAGE> 96

Page: 19

Van Kampen Merritt Short-Term Global Income Fund
- --------------------------------------------------------------------------------

Notes to Financial Statements (Continued)
December 31, 1994 (Unaudited)

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

At December 31, 1994, the Fund had realized gains on closed but unsettled
forward currency contracts of $1,544,993 scheduled to settle between January 4
and December 14, 1995.

C. Forward Swap Transactions-These instruments represent a commitment to enter
into a swap agreement at a future date. The swap represents an agreement between
two parties to exchange a series of cash flows based upon various indices at
specified intervals.

The forward swap transactions outstanding as of December 31, 1994, and the
descriptions and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Description Depreciation
-------------
<S> <C>
JP Morgan, 6,750,000 AU$ notional amount,
effective 10/14/95, Fund receives 10.21% fixed,
Fund pays 6 month Australian LIBOR ........... $ (34,511)
JP Morgan, 5,000,000 AU$ notional amount,
effective 10/16/95, Fund receives 10.085% fixed,
Fund pays 3 month Australian LIBOR ........... (33,258)
JP Morgan, 15,000,000 DM notional amount,
effective 10/17/95, Fund receives 7.51% fixed,
Fund pays 6 month German LIBOR ............... (85,859)
-------------
$ (153,628)
-------------

</TABLE>

D. Indexed Securities-These instruments are identified in the portfolio of
investments.

Currency Indexed securities contain one or more embedded links to currency
indices or forward currency contracts which cause a security's valuation to
fluctuate based upon the value of the linked foreign currency or currencies.

6. 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 for Class A and Class D shares
and 1.00% each for Class B and Class C shares are accrued daily. Included in
these fees for the six months ended December 31, 1994, are payments to VKAC of
approximately $847,000.

B-36
<PAGE> 97

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------

Independent Auditors' Report
- ------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen Merritt Short-Term Global Income Fund:

We have audited the accompanying statement of assets and liabilities
of Van Kampen Merritt Short-Term Global Income Fund (the "Fund"),
including the portfolio of investments, as of June 30,1994, 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 responsibil-
ity 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 June 30,1994, 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 Short-Term Global Income Fund as of
June 30,1994, 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
August 23,1994

B-37
<PAGE> 98

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------

Portfolio of Investments
June 30, 1994
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
In Local
Currency S & P Moody's
(000) Description Rating Rating Coupon Maturity U.S. $ Market Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Bonds
Australia 4.9% AU$
Government/Agency 4.9%
28,500 Queensland Treasury Corp . ....................... AA Aaa 8.000% 05/14/97 $ 20,497,869
-----------
Canada 7.5% CA$
Government/Agency 7.5%
40,000 Canadian Government............................... AA Aaa 6.500 08/01/96 27,796,760
5,000 Alberta Municipal Finance Corp.................... AA Aa2 8.000 03/23/95 3,623,282
-----------
31,420,042
-----------
Finland 5.8% Markka
Government/Agency 5.8%
132,000 Republic of Finland.............................. AA Aa2 6.500 09/15/96 24,300,392
-----------
France 0.0% Franc
Currency 0.0%
432 French Franc ................................... 79,444
-----------
Italy 11.6% Lira
Government/Agency 11.6%
80,000,000 Republic of Italy............................... AA A1 8.500 01/01/97 48,767,200
Currency 0.0%
346,050 Italian Lira...................................... 219,050
-----------
Total Italian Securities.......................... 48,986,250
-----------
Mexico 24.8% Peso
Government/Agency 24.8%
19,700 Mexican Tesobonos................................ A1+ P1 * 09/29/94 19,434,050
27,500 Mexican Tesobonos................................ A1+ P1 * 10/20/94 27,013,250
61,128 Mexican Tesobonos................................ A1+ P1 * 05/04/95 57,692,606
-----------
104,139,906
-----------
Spain 4.9% Peseta
Government/Agency 4.9%
2,750,000 Kingdom of Spain................................. AA Aa2 9.000 02/28/97 20,766,432
-----------
Thailand 2.6% Baht
Government/Agency 2.6%
250,000 Thai Military Bank CD ........................... NR NR 6000 01/26/95 9,845,247
25,000 Thai Military Bank CD ........................... NR NR 7.250 11/29/96 961,262
----------
10,806,509
-----------
</TABLE>

See Notes to Financial Statements

B-38
<PAGE> 99

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Portfolio of Investments (Continued)
June 30, 1994
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
In Local
Currency S & P Moody's
(000) Description Rating Rating Coupon Maturity U.S. $ Market Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States 34.2% US$
Government/Agency 10.3%
45,000 U.S. T-Note...................................... AAA Aaa 4.750% 02/15/97 $ 43,228,125
------------
Currency Indexed Debt Obligations 7.7%
Chilean Peso Indexed 0.7%
3,000 Citibank Time Deposits ......................... A1 P1 10.000 12/12/94 3,041,700
------------
Indonesian Rupiah Indexed 2.3%
10,000 Morgan Guaranty CD............................... A1+ P1 10.000 11/05/96 9,544,143
------------
Malaysian Ringgit Indexed 1.1%
4,500 Morgan Guaranty CD............................... A1+ P1 8.000 11/13/95 4,813,641
------------
Thai Baht Indexed 3.6%
15,000 Caisse National de Credit Agricole CD .......... A1+ P1 9.000 07/24/95 14,979,000
------------
Interest Rate Indexed Debt Obligations 16.2%
Japan Interest Rate Indexed 0.3%
1,000 General Electric Capital Corp.................... AAA Aaa 8.568 07/17/95 1,020,000
------------
Multi-Country Interest Rate Indexed 10.4%
10,000 Bankers Trust Corp. - (Italy/Spain).............. A1+ P1 8.000 03/03/95 9,321,000
19,500 Bayerische Landesbank CD - (Germany/France) ..... A1+ P1 7.000 09/16/94 17,341,350
19,000 Royal Bank of Canada CD - (Germany/France)....... A1+ P1 8.250 09/29/94 16,886,250
------------
43,548,600
------------
United Kingdom Interest Rate Indexed 1.9%
10,000 Toyota Motor Corp ............................... AAA Aaa 10.100 02/01/95 8,161,000
United States Interest Rate Indexed 3.6%
15,000 Toyota Motor Corp................................ AAA Aaa 5.900 05/05/97 15,000,000
-----------
Total United States Securities................................................................... 143,336,209
-----------
Repurchase Agreements 0.4%
UBS Securities, US T-Note, $1,490,000 par, 9.500% coupon,
due 11/15/95, dated 06/30/94, to be sold on 07/01/94 at $1,579,184............................................. 1,579,000
---------
Total Investments 96.7%
(Cost $411,410,417) <F1>........................................................................................ 405,912,053

Other Assets in Excess of Liabilities 3.3%........................................................................ 13,778,941
----------
Net Assets 100.0%................................................................................................. $419,690,994
-----------
</TABLE>

*Zero coupon bond

<F1>At June 30,1994, the cost for federal income tax purposes is $411,410,417;
the aggregate gross unrealized appreciation is $3,425,371 and the aggregate
gross unrealized depreciation is $15,980,995, resulting in net unrealized
depreciation on investments, foreign currency and open option transactions
of $12,555,624.

See Notes to Financial Statements

B-39
<PAGE> 100

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities
June 30, 1994
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at Market Value (Cost $411,410,417) (Note 1)............................................................ $405,912,053
Cash................................................................................................................. 1,533
Receivables:
Investments Sold.................................................................................................... 35,094,671
Interest............................................................................................................ 10,542,660
Fund Shares Sold.................................................................................................... 245,299
Options at Market Value (Net premiums paid of $4,152,667) (Note 4)................................................... 1,367,903
Unamortized Organizational Expenses and Initial Registration Costs (Note 1).......................................... 62,570
Other................................................................................................................ 8,321
------------
Total Assets........................................................................................................ 453,235,010
------------
Liabilities:
Payables:
Investments Purchased............................................................................................... 25,951,125
Forward Currency Contracts (Note 4)................................................................................. 2,918,918
Fund Shares Repurchased............................................................................................. 2,228,125
Income Distributions................................................................................................ 1,145,594
Investment Advisory Fee (Note 2).................................................................................... 195,544
Accrued Expenses..................................................................................................... 1,104,710
------------
Total Liabilities................................................................................................... 33,544,016
------------
Net Assets........................................................................................................... 419,690,994
------------
Net Assets Consist of:
Paid in Surplus (Note 3)............................................................................................. $490,586,035
Accumulated Distributions in Excess of Net Investment Income (Note 1)................................................ (5,032,543)
Net Unrealized Depreciation on Investments and Foreign Currency...................................................... (12,555,624)
Accumulated Net Realized Loss on Investments......................................................................... (53,306,874)
------------
Net Assets........................................................................................................... $419,690,994
------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (based on net assets of $147,712,448 and
18,126,538 shares of beneficial interest issued and outstanding) (Note 3)......................................... $ 8.15
Maximum sales charge (3.00%* of offering price)..................................................................... .25
------------
Maximum offering price to public.................................................................................... $ 8.40
------------
Class B Shares:
Net asset value and offering price per share (based on net assets ot $271,784,617 and
33,355,542 shares of beneficial interest issued and outstanding) (Note 3)......................................... $ 8.15
------------
Class C Shares:
Net asset value and offering price per share based on net assets of $192,925 and
23,638 shares of beneficial interest issued and outstanding) (Note 3)............................................. $ 8.16
------------
Class D Shares:
Net asset value and offering price per share (based on net assets of $1,004 and
123 shares of beneficial interest issued and outstanding) (Note 3) ............................................... $ 8.16
------------
</TABLE>

*On sales of $100,000 or more, the offering price will be reduced.

See Notes to Financial Statements

B-40
<PAGE> 101

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Statement of Operations
For the Year Ended June 30, 1994
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ............................................................................................................ $ 41,417,652
Amortization of Discount (Premium) - Net ............................................................................ 726,588
Net Realized Loss on Foreign Currency and Foreign Currency Forward Contracts......................................... (16,256,117)
------------
Total Income........................................................................................................ 25,888,123
------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $540,613, $3,563,969, $1,364 and $1,
respectively) (Note 5)............................................................................................. 4,105,947
Investment Advisory Fee (Note 2)..................................................................................... 3,008,248
Shareholder Services................................................................................................. 845,364
Legal (Note 2) ...................................................................................................... 90,225
Amortization of Organizational Expenses and Initial Registration Costs (Note 1)...................................... 49,972
Trustees Fees and Expenses (Note 2).................................................................................. 25,340
Other................................................................................................................ 546,420
------------
Total Expenses ..................................................................................................... 8,671,516
------------
Net Investment Income................................................................................................ $ 17,216,607
------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments (Including realized loss on closed and expired option transactions of $727,202)..... $(28,926,494)
------------
Net Unrealized Appreciation/Depreciation on Investments and Foreign Currency -
Beginning of the Period ............................................................................................ (6,728,498)
End of the Period (Including unrealized depreciation on foreign currency translation and open option transactions
of $4,272,496 and $2,784,764, respectively)......................................................................... (12,555,624)
------------
Net Unrealized Depreciation on Investments and Foreign Currency During the Period.................................... (5,827,126)
------------
Net Realized and Unrealized Loss on Investments and Foreign Currency................................................. $(34,753,620)
------------
Net Decrease in Net Assets from Operations........................................................................... $(17,537,013)
------------
</TABLE>

See Notes to Financial Statements

B-41
<PAGE> 102

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended June 30, 1994 and 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From Investment Activities:
Operations:
<S> <C> <C>
Net Investment Income ..................................................................... $ 17,216,607 $ 34,896,910
Net Realized Loss on investments .......................................................... (28,926,494) (15,037,879)
Net Unrealized Depreciation on Investments and Foreign Currency During the Period.......... (5,827,126) (7,109,018)
------------ ------------
Change in Net Assets from Operations ...................................................... (17,537,013) 12,750,013
------------ ------------
Distributions from Net Investment Income* ................................................. (17,216,607) (35,495,354)
Distributions in Excess of Net Investment Income (Note 1) ................................. (4,433,220) (11,604,828)
------------ ------------
Distributions from and in Excess of Net Investment Income* ............................... (21,649,827) (47,100,182)
------------ ------------
Return of Capital Distribution * .......................................................... (16,378,081) -0-
------------ ------------
Total Distributions ...................................................................... (38,027,908) (47,100,182)
------------ ------------
Net Change in Net Assets from Investment Activities ........................................ (55,564,921) (34,350,169)
------------ ------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ................................................................. 48,354,257 332,806,970
Net Asset Value of Shares Issued Through Dividend Reinvestment ............................ 21,920,768 27,855,193
Cost of Shares Repurchased ................................................................ (193,990,293) (174,164,861)
------------ ------------
Net Change in Net Assets from Capital Transactions......................................... (123,715,268) 186,497,302
------------ ------------
Total Increase/Decrease in Net Assets...................................................... (179,280,189) 152,147,133

Net Assets:

Beginning of the Period ................................................................... 598,971,183 446,824,050
------------ ------------
End of the Period (Including undistributed net investment income of
$(5,032,543) and $(11,604,828), respectively),........................................... $419,690,994 $598,971,183
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1994 June 30, 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares ......................................... $ (8,004,201) $(17,978,193)
Class B Shares ......................................... (13,642,774) (29,121,989)
Class C Shares ......................................... (2,850) -0-
Class D Shares ......................................... (2) -0-
------------- ------------
$ (21,649,827) $(47,100,182)
------------- ------------
Return of Capital Distribution:
Class A Shares .......................................... $ (6,158,141) $ -0-
Class B Shares .......................................... (10,214,511) -0-
Class C Shares .......................................... (5,407) -0-
Class D Shares .......................................... (22) -0-
------------- ------------
$ (16,378,081) $ -0-
------------- ------------
</TABLE>

See Notes to Financial Statements

B-42
<PAGE> 103

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Notes to Financial Statements
June 30, 1994
- ------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen Merritt Short-Term Global Income Fund (the "Fund") is
organized as a sub-trust of Van Kampen Merritt Trust (the "Trust"), a
Massachusetts business trust, and is registered as a non-diversified
open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund commenced investment
operations on September 28, 1990. On July 22, 1991, 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 the
last available bid price or yield equivalents obtained from dealers in
the OTC or interbank market. 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 main-
tain 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. At
June 30,1994, there were no when issued or delayed delivery
purchase commitments.

C. Investment Income-Interest income is recorded on an
accrual basis. Bond premium and original issue discount are amor-
tized over the expected life of each applicable security.

D. Currency Translation-Assets and liabilities denominated in
foreign currencies and commitments under forward foreign exchange
currency contracts are translated into U.S. dollars at the mean of the
quoted bid and ask prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the
rate of exchange prevailing when such securities were acquired or
sold. Income and expenses are translated at rates of exchange
prevailing when accrued. For financial reporting purposes, realized
gain/loss on foreign currency and foreign currency forward contracts
are included in net investment income.

E. Organizational Expenses and Initial Registration
Costs-The Fund has reimbursed Van Kampen Merritt Inc. ("Van
Kampen Merritt") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $250,000. These
costs are being amortized on a straight line basis over the 60 month
period ending September 28, 1995. Van Kampen Merritt Investment
Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Fund originally purchased by Van Kampen
Merritt are redeemed during the amortization period, the Fund will be
reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares
redeemed bears to the number of initial shares held at the time of
redemption.

F. 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 eight years
following the year of the loss and offset such losses against any
future realized capital gains. At June 30, 1994, the Fund had an
accumulated capital loss carryforward for tax purposes of $10,010,730,
which will expire on June 30, 2001. Net realized gains or losses may
differ for financial and tax reporting purposes primarily as a result of
post October 31 losses which are not recognized for tax purposes
until the first day of the following fiscal year.

G. Distribution of Income and Gains-The Fund declares
daily and pays monthly dividends from net investment income. Net
Investment income for federal income tax purposes includes gains
and losses realized on transactions in options on foreign currencies.
These realized gains and losses are included as net realized gains or
losses for financial reporting purposes.

B-43
<PAGE> 104

Van Kampen Merritt Short-Term Global Income Fund
- ------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
June 30, 1994
- ------------------------------------------------------------------------------

Net realized gains on securities, if any, are distributed annually.
Distributions from net realized gains for book purposes may include
short-term capital gains which are included in ordinary income for
tax purposes.

During the current period, the Fund adopted Statement of Position
93-2 "Determination, Disclosure, and Financial Statement Presenta-
tion of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies." Accordingly, permanent book and tax basis
differences relating to shareholder distributions totaling $11,005,505
were reclassified from accumulated net realized gain/loss on invest-
ments to accumulated undistributed net investment income. Net
investment income, net realized gain/loss, and net assets were not
affected by this change.

H. Option and Futures Transactions-Premiums received
from call options written are recorded as deferred credits. The posi-
tion is marked to market daily with any difference between the
options' current market value and premiums received recorded as an
unrealized gain or loss. If the options are not exercised, premiums
received are realized as a gain at expiration date. If the position is
closed prior to expiration, a gain or loss is realized based on
premiums received less the cost of the closing transaction. When
options are exercised, premiums received are added to the proceeds
from the sale of the underlying securities and a gain or loss is
realized accordingly. These same principles apply to the sale of
put options.

Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through
the exercise of call options is increased by premiums paid. The pro-
ceeds from securities sold through the exercise of put options are
decreased by premiums paid.
Futures contracts are marked to market daily with fluctuations in
value settled daily in cash through a margin account. Gains or losses are
realized at the time the position is closed out or the contract expires.

2. Investment Advisory Agreement and Other Transactions
with Affiliates

Under the terms of the Fund's Investment Advisory Agreement, the
Adviser will provide investment advice and facilities to the Fund for
an annual fee payable monthly of .55% of average daily net assets.

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 June 30, 1994, the Fund recognized
expenses of approximately $316,000 representing Van Kampen
Merritt's or the Adviser's cost of providing accounting, legal and
certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and
directors of the Adviser and Van Kampen Merritt. The Fund does not
compensate its officers or trustees who are officers of the Adviser or
Van Kampen Merritt.

At June 30, 1994, Van Kampen Merritt owned 1,263, 1,251, 100
and 100 shares of beneficial interest of Classes A, B, C and D,
respectively.

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 June 30, 1994, paid in surplus
aggregated $172,340,828, $318,035,795, $208,367 and $1,045, for
Classes A, B, C and D, respectively. For the year ended June 30,
1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ........................ 3,219,135 $ 29,120,587
Class B ........................ 2,103,750 18,929,822
Class C ........................ 33,998 302,784
Class D ........................ 123 1,064
---------- ------------
Total Sales ..................... 5,357,006 $ 48,354,257
---------- ------------
Dividend Reinvestment:
Class A ........................ 931,309 $ 8,246,649
Class B ........................ 1,543,949 13,668,730
Class C ........................ 629 5,386
Class D ........................ 0 3
---------- ------------
Total Dividend Reinvestment...... 2,475,887 $ 21,920,768
---------- ------------
Repurchases:
Class A ........................ (8,636,073) $ (75,861,675)
Class B ........................ (13,472,314) (118,034,222)
Class C ........................ (10,989) (94,396)
Class D ........................ 0 0
---------- ------------
Total Repurchases ............... (22,119,376) $(193,990,293)
---------- ------------
</TABLE>

B-44
<PAGE> 105

At June 30, 1993, paid in surplus aggregated $216,993,408 and
$413,685,976 for Classes A and B, respectively. For the year ended
June 30, 1993, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ....................... 12,442,414 $ 116,919,535
Class B ....................... 22,808,403 215,887,435
----------- -------------
Total Sales .................... 35,250,817 $ 332,806,970
----------- -------------
Dividend Reinvestment:
Class A ....................... 1,164,840 $ 10,723,145
Class B ....................... 1,864,104 17,132,048
----------- -------------
Total Dividend Reinvestment 3,028,944 $ 27,855,193
----------- -------------
Repurchases:
Class A ....................... (12,252,085) $(114,602,713)
Class B ....................... (6,551,328) (59,562,148)
----------- -------------
Total Repurchases............... (18,803,413) $(174,164,861)
----------- -------------
</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 three
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 3.00% 1.00% 0.75%
Second 2.00% None None
Third 1.00% None None
Fourth and Thereafter None None None
</TABLE>

For the year ended June 30, 1994, Van Kampen Merritt, as
Distributor for the Fund, paid net commissions on sales of the Fund's
Class A shares of approximately $200 and received CDSC on the
redeemed shares of Classes B, C and D of approximately $1,413,000.
Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities,
excluding short-term notes, for the year ended June 30, 1994, were
$1,386,219,209 and $1,617,407,224, respectively.

Transactions in options for the year ended June 30, 1994, were
as follows:

<TABLE>
<CAPTION>
Contracts Premium
- --------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1993.......... 20,000 $ 210,000
Options Written
and Purchased (Net)................. 76 (5,529,922)
Options Terminated In Closing
Purchase Transactions (Net).......... (10,035) 1,394,744
Options Expired (Net)................. (10,011) (227,489)
------- -----------
Outstanding at June 30, 1994.......... 30 $ (4,152,667)
------- -----------
</TABLE>

B-45
<PAGE> 106

The descriptions and market values of the option contracts
outstanding at June 30, 1994 were as follows:

<TABLE>
<CAPTION>
Strike
Opening Expiration Price/ Market
Description Transaction Date Yield Value
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen Put................ Buy 12/07/94 100.77 $ 3,840
Binary Option Contracts
German LIBOR.................. Buy 06/05/95 6.00% 258,178
Japanese Yen.................. Buy 08/08/94 109.75 10,000
Japanese Yen.................. Buy 12/30/94 104.50 140,000
Japanese Yen.................. Buy 12/30/94 108.65 115,000
Japanese Yen.................. Buy 12/30/94 109.10 55,000
Japanese Yen.................. Buy 08/11/94 109.75 5,000
Japanese Yen.................. Buy 12/30/94 105.25 30,000
Japanese Yen.................. Buy 12/30/94 105.10 20,500
Japanese Yen.................. Buy 12/30/94 104.55 81,000
Receivers Option on Swaps
1 year French Swap........... Buy 06/12/95 6.73% 118,430
2 year French Swap........... Buy 06/05/95 6.97% 193,259
2 year French Swap........... Buy 06/05/95 7.21% 238,976
2 year French Swap........... Buy 06/21/95 7.37% 264,997
2 year French Swap........... Sell 06/26/95 7.75% (85,329)
1 year German Swap........... Buy 06/12/95 6.25% 39,369
2 year German Swap........... Buy 06/06/95 6.73% 168,644
2 year Italian Swap.......... Buy 06/05/95 10.48% 241,303
2 year Italian Swap.......... Sell 06/27/95 11.07% (189,119)
2 year Japanese
Swap....................... Sell 05/17/95 3.00% (210,000)
3 year Japanese
Swap....................... Sell 02/22/95 3.00% (370,000)
2 year Spanish Swap.......... Buy 06/05/95 9.63% 107,169
2 year Spanish Swap.......... Buy 06/05/95 9.71% 117,473
2 year Swedish Swap.......... Sell 06/07/95 12.00% (326,591)
2 year Swedish Swap.......... Sell 06/09/95 12.48% (151,642)
2 year United
Kingdom Swap............... Buy 06/05/95 8.75% 284,431
2 year United
Kingdom Swap............... Buy 06/05/95 8.89% 313,710
2 year United
Kingdom Swap .............. Sell 06/09/95 9.00% (154,918)
2 year United
Kingdom Swap............... Sell 06/05/95 10.00% (204,957)
Payers Option on Swaps
2 year German Swap .......... Buy 06/01/95 6.36% 254,180
----------
$1,367,903
----------
</TABLE>

The Fund may enter into forward exchange currency contracts
in order to hedge its exposure to changes in foreign currency
exchange rates on its foreign portfolio holdings. A forward exchange
contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The gain or loss arising from
the difference between the original contracts and the closing of such
contracts is included in income as a component of realized gain/loss
on foreign currency and foreign currency forward contracts.

At June 30. 1994, the Fund had outstanding forward exchange
currency contracts as follows:

<TABLE>
<CAPTION>
Unrealized
Foreign Exchange Current Appreciation/
Current Contracts Cost Value Depreciation
- -------------------------------------------------------------------
<S> <C> <C> <C>
Sells to Open
Australian Dollar,
expiring 07/29/94 ..........$ 7,201,000 $ 7,294,792 $ (93,792)
Australian Dollar,
expiring 08/05/94 .......... 3,561,588 3,608,086 (46,498)
Canadian Dollar,
expiring 07/21/94 .......... 21,440,057 21,684,871 (244,814)
Canadian Dollar,
expiring 07/29/94 .......... 10,815,488 10,815,488 -0-
Finnish Markka,
expiring 07/13/94 .......... 15,210,956 15,954,115 (743,159)
Finnish Markka,
expiring 07/14/94 .......... 9,300,295 9,750,493 (450,198)
German Deutsche Mark,
expiring 08/16/94 .......... 10,000,000 10,600,983 (600,983)
Italian Lira,
expiring 07/11/94 .......... 31,394,086 32,205,090 (811,004)
Italian Lira,
expiring 07/13/94 .......... 9,404,418 9,660,209 (255,791)
Italian Lira
expiring 08/05/94 .......... 10,000,000 10,000,000 -0-
Japanese Yen,
expiring 07/06/94 .......... 7,388,693 7,872,163 (483,470)
Spanish Peseta,
expiring 07/13/94 .......... 15,003,360 15,673,654 (670,294)
Buys to Open
Canadian Dollar,
expiring 07/29/94 .......... 21,688,837 21,677,788 (11,049)
German Deutsche Mark,
expiring 09/29/94 .......... 6,332,721 6,305,965 (26,756)
Japanese Yen,
expiring 08/01/94 .......... 10,144,045 10,176,009 31,964
------------
$(4,405,844)
------------
</TABLE>

B-46
<PAGE> 107

At June 30,1994, the Fund had realized gains on closed but
unsettled forward exchange currency contracts of $1,486,926,
scheduled to settle between July 8, 1994 and September 16, 1994.

5. 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," collec-
tively 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 for Class A
and Class D shares and 1.00% each for Class B and Class C shares
are accrued daily. Included in these fees for the year ended June 30,
1994, are payments to Van Kampen Merritt of approximately
$2,683,000.

B-47
<PAGE> 108

PART C: OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

List all financial statements and exhibits as part of the Registration
Statement.

(A) FINANCIAL STATEMENTS:

For Van Kampen American Capital Short-Term Global Income Fund:

Included in Part A of the Registration Statement:

Financial Highlights

Included in Part B of the Registration Statement:

Unaudited Financial Statements

Notes to Unaudited Financial Statements

Independent Auditors' Report

Audited Financial Statements

Notes to Audited Financial Statements

For Van Kampen Merritt High Yield Fund, Van Kampen Merritt Adjustable
Rate U.S. Government Fund and Van Kampen Merritt Strategic Income Fund
included in Post-Effective Amendment No. 30 to the Registration Statement
of the Registrant.

For Van Kampen Merritt Emerging Markets Income Fund are not included
herein because such fund is a new registrant.

(B) EXHIBITS:
(1)(a) Agreement and Declaration of Trust(1)
(b) Establishment and Designation of Subtrust
(i) Van Kampen Merritt High Yield Fund, as amended and
restated(22)
(ii) Van Kampen Merritt Short-Term Global Income Fund, as
amended and restated(22)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund, as amended and restated(22)
(iv) Van Kampen Merritt Strategic Income Fund(22)
(v) Form of Van Kampen Merritt Emerging Markets Income
Fund, as amended and restated(23)
(c) Form of Certificate of Vote creating Class B Shares(8)
(2) By-Laws (1)
(4) Specimen of Stock Certificates
(i) Van Kampen Merritt High Yield Fund
(a) Class A Shares(14)
(b) Class B Shares(14)
(c) Class C Shares(20)
(ii) Van Kampen Merritt Short-Term Global Income Fund
(a) Class A Shares(8)
(b) Class B Shares(8)
(c) Class C Shares(20)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(9)
(a) Class A Shares(9)
(b) Class B Shares(9)
(c) Class C Shares(22)
(iv) Van Kampen Merritt Strategic Income Fund
(a) Class A Shares(17)
(b) Class B Shares(17)
(c) Class C Shares(22)

C-1
<PAGE> 109

(v) Van Kampen Merritt Emerging Markets Income Fund
(a) Class A Shares(23)
(b) Class B Shares(23)
(c) Class C Shares(23)
(5)(a) Form of Investment Advisory Agreement, as amended
(i) Van Kampen Merritt High Yield Fund(13)
(ii) Van Kampen Merritt Short-Term Global Income Fund(13)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(13)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as
amended and restated(23)
(b) Form of Investment Sub-Advisory Agreement
(i) Van Kampen Merritt Emerging Markets Income Fund(23)
(6)(a) Form of Distribution and Service Agreement for
(i) Van Kampen Merritt High Yield Fund, as amended and
restated(14)
(ii) Van Kampen Merritt Short-Term Global Income Fund, as
amended and restated(14)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund, as amended and restated(14)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as
amended and restated(21)
(b) Form of Dealer Agreement, as amended(22)
(c) Form of Broker Agreement, as amended(22)
(d) Form of Bank Agreement, as amended(22)
(e) Form of Underwriting Agreement(2)
(f) Form of Selected Dealer Agreement(2)
(g) Form of Agreement Between Underwriters(2)
(8)(a) Form of Custodian Agreement
(i) Van Kampen Merritt High Yield Fund(1)
(ii) Van Kampen Merritt Short-Term Global Income Fund(5)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(9)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as
amended and restated(21)
(b) Form of Transfer Agency Agreement
(i) Van Kampen Merritt High Yield Fund(1)
(ii) Van Kampen Merritt Short-Term Global Income Fund(5)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(9)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as
amended and restated(21)
(9)(a) Form of Support Service Agreement(3)
(b) Fund Pricing Agreement(12)
(c) Form of Amended Accounting Service Agreement(12)
(d) Form of Amended Legal Services Agreement(12)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(a) Van Kampen Merritt High Yield Fund(14)
(b) Van Kampen Merritt Short-Term Global Income Fund(14)
(c) Van Kampen Merritt Adjustable Rate U.S. Government Fund(14)
(d) Van Kampen Merritt Strategic Income Fund(17)
(e) Van Kampen Merritt Merritt Emerging Markets Income Fund(23)

C-2
<PAGE> 110

(11) Consent of KPMG Peat Marwick LLP

(a) Van Kampen Merritt High Yield Fund(25)

(b) Van Kampen Merritt Short-Term Global Income Fund+

(d) Van Kampen Merritt Strategic Income Fund(25)

(e) Van Kampen Merritt Emerging Markets Income Fund(18)
(13) Letter of Understanding relating to initial capital(2)
(15) (a) Form of Distribution Plan Pursuant to Rule 12b-1, as
amended(22)
(b) Form of Shareholder Assistance Agreement(14)
(c) Form of Administrative Services Agreement(14)
(d) Form of Service Plan(22)
(16) (a) List of Affiliated Companies(1)
(b) Computation of Performance Quotations
(i) Van Kampen Merritt High Yield Fund(24)
(ii) Van Kampen Merritt Short-Term Global Income
Fund(24)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(24)
(iv) Van Kampen Merritt Strategic Income Fund(24)

(17) List of certain investment companies in response to Item
29(a)(25)

(18) List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b)(25)

(27) Financial Data Schedules+

Power of attorney(16)

- ---------------
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A, File Number 33-4410.

(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(4) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(5) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(6) Incorporated herein by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(7) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(8) Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(9) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(10) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(11) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(12) Incorporated herein by reference to Post Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(13) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(14) Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(15) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

C-3
<PAGE> 111

(16) Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(17) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(18) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(19) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(20) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(21) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(22) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(23) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(24) Incorporated herein by reference to Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(25) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

- ---------------
+ 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 April 13, 1995:

<TABLE>
<CAPTION>
(2)
NUMBER
(1) OF
RECORD
TITLE OF CLASS HOLDERS
--------------------------------------------------------- -------
<S> <C>
Shares of Beneficial Interest, without par value
(i) Van Kampen Merritt High Yield Fund*:
Class A Shares................................... 15,059
Class B Shares................................... 2,380
Class C Shares................................... 46
(ii) Van Kampen Merritt Short-Term Global Income
Fund*:
Class A Shares................................... 4,617
Class B Shares................................... 10,309
Class C Shares................................... 17
(iii) Van Kampen Merritt Adjustable Rate U.S.
Government Fund:
Class A Shares................................... 294
Class B Shares................................... 786
Class C Shares................................... 40
(iv) Van Kampen Merritt Strategic Income Fund:
Class A Shares................................... 1,880
Class B Shares................................... 3,158
Class C Shares................................... 58
(v) Van Kampen Merritt Emerging Markets Income Fund*:
Class A Shares................................... 4
Class B Shares................................... 3
Class C Shares................................... 2
</TABLE>

- ---------------
* Prior to May 1, 1995, the Fund offered Class D Shares.

C-4
<PAGE> 112

ITEM 27. INDEMNIFICATION.

Please see Article 5.3 of the Registrant's Declaration of Trust (Exhibit 1
(a)). Registrant's directors and officers are covered by an Errors and Omissions
Policy. Section 5 of the current Investment Advisory Agreement between each
sub-trust or the Registrant and Van Kampen American Capital Investment Advisory
Corp. (the "Adviser") provides that, in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of the obligations or duties under
the Investment Advisory Agreement on the part of the Adviser, the Adviser shall
not be liable to the Registrant or to any shareholder for any act or omission in
the course of or connected in any way with rendering services or for any losses
that may be sustained in the purchase, holding or sale of any security. The
Distribution Agreement provides that the Registrant shall indemnify the
Distributor and certain persons related thereto for any loss or liability
arising from any alleged misstatement of a material fact (or alleged omission to
state a material fact) contained in, among other things, the Registration
Statement or Prospectus except to the extent the misstated fact or omission was
made in reliance upon information provided by or on behalf of such Distributor.
(See Section 7 of the Distribution Agreement.)

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, directors, officers and controlling
persons of the Registrant and the investment advisor and distributor 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 a trustee,
director, officer, or controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such trustee, director,
officer or controlling person or the Distributor 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 "Investment Advisory Services" in the Prospectus and "Officers and
Trustees" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (File No.
801-18161) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.

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

(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 18. 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 to be maintained by the
Registrant by Section 31 (a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of the Registrant located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, or at the State Street Bank
and

C-5
<PAGE> 113

Trust Company, 1776 Heritage Drive, North Quincy, MA. All such accounts, books
and other documents required to be maintained by the principal underwriter will
be maintained at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

(a) Not Applicable.

(b) Not Applicable.

Registrant undertakes, if requested to do so by the holders of at least 10%
of the shareholders of the Van Kampen Merritt Emerging Markets Income Fund, a
sub-trust of the Registrant, to call a meeting of such shareholders for the
purpose of voting upon the question of removal of a trustee or trustees, and to
assist in communications with other shareholders to the extent required by
Section 16(c) of the Investment Company Act of 1940, as amended.

C-6
<PAGE> 114

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, VAN KAMPEN MERRITT TRUST, HAS
DULY CAUSED THIS AMENDMENT TO THIS 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 1ST DAY OF JUNE, 1995.

VAN KAMPEN MERRITT 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 JUNE 1, 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/ EDWARD C. WOOD, III* Vice President and Treasurer
- ------------------------------------------- (Chief Financial and Accounting Officer)
Edward C. Wood, III

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

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

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

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

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

- ---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney, a copy of which previously was
filed.

/s/ RONALD A. NYBERG
- -------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>

June 1, 1995

C-7
<PAGE> 115

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 31 TO FORM N-1A

SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON JUNE 2, 1995

(B) EXHIBITS:

(1)(a) Agreement and Declaration of Trust(1)
(b) Establishment and Designation of Subtrust
(i) Van Kampen Merritt High Yield Fund, as amended and
restated(22)
(ii) Van Kampen Merritt Short-Term Global Income Fund, as
amended and restated(22)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund,
as amended and restated(22)
(iv) Van Kampen Merritt Strategic Income Fund(22)
(v) Form of Van Kampen Merritt Emerging Markets Income Fund, as
amended and restated(23)
(c) Form of Certificate of Vote creating Class B Shares(8)
(2) By-Laws(1)
(4) Specimen of Stock Certificates
(i) Van Kampen Merritt High Yield Fund
(a) Class A Shares(14)
(b) Class B Shares(14)
(c) Class C Shares(20)
(ii) Van Kampen Merritt Short-Term Global Income Fund
(a) Class A Shares(8)
(b) Class B Shares(8)
(c) Class C Shares(20)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund(9)
(a) Class A Shares(9)
(b) Class B Shares(9)
(c) Class C Shares(22)
(iv) Van Kampen Merritt Strategic Income Fund
(a) Class A Shares(17)
(b) Class B Shares(17)
(c) Class C Shares(22)
(v) Van Kampen Merritt Emerging Markets Income Fund
(a) Class A Shares(23)
(b) Class B Shares(23)
(c) Class C Shares(23)
(5)(a) Form of Investment Advisory Agreement
(i) Van Kampen Merritt High Yield Fund(13)
(ii) Van Kampen Merritt Short-Term Global Income Fund(13)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government
Fund(13)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as amended
and restated(23)
(b) Form of Investment Sub-Advisory Agreement
(i) Van Kampen Merritt Emerging Markets Income Fund(23)
(6)(a) Form of Distribution and Service Agreement
(i) Van Kampen Merritt High Yield Fund, as amended and
restated(14)
(ii) Van Kampen Merritt Short-Term Global Income Fund, as
amended and
restated(14)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund as
amended and restated(14)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as amended
and restated(21)
(b) Form of Dealer Agreement as amended(22)
(c) Form of Broker Agreement as amended(22)
(d) Form of Bank Agreement as amended(22)
(e) Form of Underwriting Agreement(2)
(f) Form of Selected Dealer Agreement(2)
<PAGE> 116

(g) Form of Agreement Between Underwriters(2)
(8)(a) Form of Custodian Agreement
(i) Van Kampen Merritt High Yield Fund(1)
(ii) Van Kampen Merritt Short-Term Global Income Fund(5)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund(9)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as amended
and restated(21)
(b) Form of Transfer Agency Agreement
(i) Van Kampen Merritt High Yield Fund(1)
(ii) Van Kampen Merritt Short-Term Global Income Fund(5)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund(9)
(iv) Van Kampen Merritt Strategic Income Fund(17)
(v) Van Kampen Merritt Emerging Markets Income Fund, as amended
and restated(21)
(9)(a) Form of Support Service Agreement(3)
(b) Fund Pricing Agreement(12)
(c) Form of Amended Accounting Service Agreement(12)
(d) Form of Amended Legal Services Agreement(12)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(a) Van Kampen Merritt High Yield Fund(14)
(b) Van Kampen Merritt Short-Term Global Income Fund(14)
(c) Van Kampen Merritt Adjustable Rate U.S. Government Fund(14)
(d) Van Kampen Merritt Strategic Income Fund(17)
(e) Van Kampen Merritt Emerging Markets Income Fund(23)
(11) Consent of KPMG Peat Marwick LLP

(a) Van Kampen Merritt High Yield Fund(25)

(b) Van Kampen Merritt Short-Term Global Income Fund+

(d) Van Kampen Merritt Strategic Income Fund(25)

(e) Van Kampen Merritt Emerging Markets Income Fund(18)
(13) Letter of Understanding relating to initial capital(2)
(15)(a) Form of Distribution Plan pursuant to Rule 12b-1 as amended(22)
(b) Form of Shareholder Assistance Agreement(14)
(c) Form of Administrative Services Agreement(14)
(d) Form of Service Plan(22)
(16)(a) List of Affiliated Companies(1)
(b) Computation of Performance Quotations
(i) Van Kampen Merritt High Yield Fund(24)
(ii) Van Kampen Merritt Short-Term Global Income Fund(24)
(iii) Van Kampen Merritt Adjustable Rate U.S. Government Fund(24)
(iv) Van Kampen Merritt Strategic Income Fund(24)

(17) List of certain investment companies in response to Item 29(a)(25)

(18) List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b)(25)

(27) Financial Data Schedules+

Power of attorney(16)

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

(1) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A, File Number 33-4410.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(3) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(4) Incorporated herein by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(5) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(6) Incorporated herein by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(7) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
<PAGE> 117

(8) Incorporated herein by reference to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(9) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(10) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(11) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(12) Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(13) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(14) Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(15) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(16) Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(17) Incorporated herein by reference to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(18) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(19) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(20) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(21) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(22) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(23) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.
(24) Incorporated herein by reference to Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(25) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

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

+ Filed herewith.

<PAGE> 1

Exhibit 11(b)

[KPMG PEAT MARWICK LLP LETTERHEAD]

CONSENT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Van Kampen Merritt Short-Term Global Income 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.

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
May 30, 1995

<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> SHORT-TERM GLOBAL

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 291,000,765<F1>
<INVESTMENTS-AT-VALUE> 283,524,592<F1>
<RECEIVABLES> 4,918,320<F1>
<ASSETS-OTHER> 39,343<F1>
<OTHER-ITEMS-ASSETS> 25,337<F1>
<TOTAL-ASSETS> 288,507,592<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,769,745<F1>
<TOTAL-LIABILITIES> 4,769,745<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 128,088,406
<SHARES-COMMON-STOCK> 12,575,822
<SHARES-COMMON-PRIOR> 18,126,538
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (8,406,518)<F1>
<ACCUMULATED-NET-GAINS> (66,345,293)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,967,362)<F1>
<NET-ASSETS> 98,221,643
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 13,769,985<F1>
<OTHER-INCOME> (650,889)<F1>
<EXPENSES-NET> (3,039,229)<F1>
<NET-INVESTMENT-INCOME> 10,079,867<F1>
<REALIZED-GAINS-CURRENT> (130,384,419)<F1>
<APPREC-INCREASE-CURRENT> 1,588,262<F1>
<NET-CHANGE-FROM-OPS> (1,370,290)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,086,169)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 102,105
<NUMBER-OF-SHARES-REDEEMED> (6,015,968)
<SHARES-REINVESTED> 363,147
<NET-CHANGE-IN-ASSETS> (49,490,806)
<ACCUMULATED-NII-PRIOR> (5,032,543)<F1>
<ACCUMULATED-GAINS-PRIOR> (3,584,393)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 979,324<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,039,229<F1>
<AVERAGE-NET-ASSETS> 124,870,964
<PER-SHARE-NAV-BEGIN> 8.15
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> (.21)
<PER-SHARE-DIVIDEND> (.32)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.81
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This Item relates to refund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> SHORT-TERM GLOBAL

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 291,000,765<F1>
<INVESTMENTS-AT-VALUE> 283,524,592<F1>
<RECEIVABLES> 4,918,320<F1>
<ASSETS-OTHER> 39,343<F1>
<OTHER-ITEMS-ASSETS> 25,337<F1>
<TOTAL-ASSETS> 288,507,592<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,769,745<F1>
<TOTAL-LIABILITIES> 4,769,745<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 241,153,334
<SHARES-COMMON-STOCK> 23,733,700
<SHARES-COMMON-PRIOR> 33,355,452
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (8,406,518)<F1>
<ACCUMULATED-NET-GAINS> (66,345,293)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,967,362)<F1>
<NET-ASSETS> 185,324,896
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 13,769,985<F1>
<OTHER-INCOME> (650,889)<F1>
<EXPENSES-NET> (3,039,229)<F1>
<NET-INVESTMENT-INCOME> 10,079,867<F1>
<REALIZED-GAINS-CURRENT> (13,038,419)<F1>
<APPREC-INCREASE-CURRENT> 1,588,262<F1>
<NET-CHANGE-FROM-OPS> (1,370,290)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (8,360,297)<F1>
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 464,394
<NUMBER-OF-SHARES-REDEEMED> (10,665,038)
<SHARES-REINVESTED> 578,892
<NET-CHANGE-IN-ASSETS> (86,459,718)
<ACCUMULATED-NII-PRIOR> (5,043,542)<F1>
<ACCUMULATED-GAINS-PRIOR> (3,584,393)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 979,324<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,039,229<F1>
<AVERAGE-NET-ASSETS> 228,277,680
<PER-SHARE-NAV-BEGIN> 8.15
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> (.20)
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.81
<EXPENSE-RATIO> 2
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This Item relates to refund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> SHORT-TERM GLOBAL

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 291,000,765<F1>
<INVESTMENTS-AT-VALUE> 283,524,592<F1>
<RECEIVABLES> 4,918,320<F1>
<ASSETS-OTHER> 39,343<F1>
<OTHER-ITEMS-ASSETS> 25,337<F1>
<TOTAL-ASSETS> 288,507,592<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,769,745<F1>
<TOTAL-LIABILITIES> 4,769,745<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 214,229
<SHARES-COMMON-STOCK> 24,326
<SHARES-COMMON-PRIOR> 23,638
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (8,406,518)<F1>
<ACCUMULATED-NET-GAINS> (66,345,293)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,967,362)<F1>
<NET-ASSETS> 190,338
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 13,769,985<F1>
<OTHER-INCOME> (650,889)<F1>
<EXPENSES-NET> (3,039,229)<F1>
<NET-INVESTMENT-INCOME> 10,079,867<F1>
<REALIZED-GAINS-CURRENT> (13,038,419)<F1>
<APPREC-INCREASE-CURRENT> 1,588,262<F1>
<NET-CHANGE-FROM-OPS> (1,370,290)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,334)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,233
<NUMBER-OF-SHARES-REDEEMED> (2,456)
<SHARES-REINVESTED> 911
<NET-CHANGE-IN-ASSETS> (2,587)
<ACCUMULATED-NII-PRIOR> (5,032,543)<F1>
<ACCUMULATED-GAINS-PRIOR> (3,584,393)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 979,324<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,039,229<F1>
<AVERAGE-NET-ASSETS> 202,129
<PER-SHARE-NAV-BEGIN> 8.16
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.82
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This Item relates to refund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> SHORT-TERM GLOBAL

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995<F1>
<PERIOD-START> JUL-01-1994<F1>
<PERIOD-END> DEC-31-1994<F1>
<INVESTMENTS-AT-COST> 291,000,765<F1>
<INVESTMENTS-AT-VALUE> 283,524,592<F1>
<RECEIVABLES> 4,918,320<F1>
<ASSETS-OTHER> 39,343<F1>
<OTHER-ITEMS-ASSETS> 25,337<F1>
<TOTAL-ASSETS> 288,507,592<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,769,745<F1>
<TOTAL-LIABILITIES> 4,769,745<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1,051
<SHARES-COMMON-STOCK> 124
<SHARES-COMMON-PRIOR> 123
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (8,406,518)<F1>
<ACCUMULATED-NET-GAINS> (66,345,293)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,967,362)<F1>
<NET-ASSETS> 970
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 13,769,985<F1>
<OTHER-INCOME> (650,889)<F1>
<EXPENSES-NET> (3,039,229)<F1>
<NET-INVESTMENT-INCOME> 10,079,867<F1>
<REALIZED-GAINS-CURRENT> (13,038,419)<F1>
<APPREC-INCREASE-CURRENT> 1,588,262<F1>
<NET-CHANGE-FROM-OPS> (1,370,290)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 42
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 36
<ACCUMULATED-NII-PRIOR> (5,043,542)<F1>
<ACCUMULATED-GAINS-PRIOR> (3,584,393)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 979,324<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,039,229<F1>
<AVERAGE-NET-ASSETS> 990
<PER-SHARE-NAV-BEGIN> 8.16
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> (.46)
<PER-SHARE-DIVIDEND> (.32)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.82
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This Item relates to refund on a composite basis and not on a class basis.
</FN>

</TABLE>