VAN KAMPEN AMERICAN CAPITAL TRUST, 485BPOS, 1997-10-28

VAN KAMPEN AMERICAN CAPITAL TRUST
485BPOS, 1997-10-28

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997

REGISTRATION NOS. 33-4410

811-4629
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<CAPTION>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 42 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 43 [X]
</TABLE>

VAN KAMPEN AMERICAN CAPITAL 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) (Zip Code)

(630) 684-6000

Registrant's Telephone Number, Including Area Code

RONALD A. NYBERG, ESQ.

Executive Vice President,
General Counsel and Secretary
Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)
------------------------

Copies to:

WAYNE W. WHALEN, ESQ.

THOMAS A. HALE, ESQ.

Skadden, Arps, Slate, Meagher & Flom (Illinois)

333 W. Wacker Drive

Chicago, Illinois 60606
(312) 407-0700
------------------------

Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.

It is proposed that this filing will become effective:

[X] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 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

If appropriate check the following box:

[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share

================================================================================
<PAGE> 2

EXPLANATORY NOTE

This Post-Effective Amendment No. 42 to the Registrant's Registration
Statement contains three Prospectuses and three Statements of Additional
Information describing three series of the Registrant (the "Applicable Series").
The Registration Statement is organized as follows:

Facing Page

Cross Reference Sheet with respect to the Applicable Series

Prospectuses with respect to the Applicable Series in the following order:

Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund

Statements of Additional Information with respect to the Applicable Series
in the following order:

Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund

Part C Information

Exhibits
<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND

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

<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
----------------------- -----------------------------------------------------------
<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 SERVICES; ADDITIONAL INFORMATION
Item 4. General Description of
Registrant........... THE FUND; INVESTMENT OBJECTIVES AND POLICIES; INVESTMENT
PRACTICES; DESCRIPTION OF SHARES OF THE FUND; ADDITIONAL
INFORMATION
Item 5. Management of the
Fund................. ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; SHAREHOLDER
SERVICES; ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF
SHARES
Item 6. Capital Stock and Other
Securities........... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS; ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; DESCRIPTION OF SHARES OF THE FUND; ADDITIONAL
INFORMATION
Item 7. Purchase of Securities
Being Offered........ SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; THE DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or
Repurchase........... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
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...................... Trustees and Officers
Item 15. Control Persons and
Principal Holders of
Securities................ Trustees and Officers
Item 16. Investment Advisory and
Other Services............ Investment Advisory and Other Services; Trustees and
Officers; The Distributor; Legal Counsel; Notes to the
Financial Statements
Item 17. Brokerage Allocation and
Other Practices........... 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; The Fund and the Trust
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered................... Contained in the Prospectus under captions: SHAREHOLDER
TRANSACTION EXPENSES; ALTERNATIVE SALES ALTERNATIVES;
PURCHASE OF SHARES; SHAREHOLDER SERVICES; REDEMPTION OF
SHARES
Item 20. Tax Status.................. Contained In the Prospectus under the caption: TAX STATUS;
Tax Status of the Fund
Item 21. Underwriters................ The Distributor; Notes to Financial Statements
Item 22. Calculations 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; Independent Accountants Report; Financial
Statements; Notes to Financial Statements
PART C
</TABLE>

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

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital High Yield Fund (the "Fund") is a diversified,
open-end management investment company, commonly known as a mutual fund. The
Fund's primary investment objective is to provide a high level of current
income. As a secondary objective, the Fund seeks capital appreciation. The Fund
will attempt to achieve its investment objectives primarily through investment
in a diversified portfolio of medium and lower grade domestic corporate debt
securities. The Fund also may invest up to 35% of its assets in foreign
government and foreign corporate debt securities of similar quality. The Fund
may invest in debt securities rated between BB and D (inclusive) by Standard &
Poor's Ratings Group, Ba and C (inclusive) by Moody's Investors Service, Inc.,
comparably rated short-term debt obligations and unrated debt securities
determined by the Fund's investment adviser to be of comparable quality, which
securities are commonly referred to as "junk bonds."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS 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 October 28, 1997, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge, by calling (800) 421-5666 or for
Telecommunication Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1997.

<PAGE> 6

(Continued from previous page)

invest. See "Investment Objective and Policies." Investment in the Fund may not
be appropriate for all investors. Purchasers should carefully assess the risks
associated with an investment in this Fund.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp (the "Adviser"). The Fund is a series of Van Kampen American
Capital Trust. This Prospectus sets forth the information about the Fund that a
prospective investor should know before investing. Please read and retain this
Prospectus for future reference. The address of the Fund is One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, and its telephone number is (800) 421-5666.

2
<PAGE> 7

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 7
Annual Fund Operating Expenses and Example.................. 8
Financial Highlights........................................ 10
The Fund.................................................... 12
Investment Objectives and Policies.......................... 12
Investment Practices........................................ 18
Investment Advisory Services................................ 23
Alternative Sales Arrangements.............................. 24
Purchase of Shares.......................................... 26
Shareholder Services........................................ 36
Redemption of Shares........................................ 40
Distribution and Service Plans.............................. 43
Distributions from the Fund................................. 45
Tax Status.................................................. 46
Fund Performance............................................ 49
Description of Shares of the Fund........................... 50
Additional Information...................................... 51
Appendix A: Ratings of Corporate Obligations................ A-1
</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

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

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

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").

INVESTMENT OBJECTIVE. The Fund's primary investment objective is to provide a
high level of current income. As a secondary objective, the Fund seeks capital
appreciation. There is no assurance the Fund will achieve its investment
objectives. See "Investment Objective and Policies."

INVESTMENT POLICIES. The Fund seeks to achieve its investment objectives by
investing in a diversified portfolio of medium and lower grade domestic
corporate debt securities. The Fund also may invest up to 35% of its assets in
foreign government and foreign corporate debt securities of similar quality as
determined by the Fund's investment adviser, Van Kampen American Capital
Investment Advisory Corp. (the "Adviser").

Medium grade debt securities are those rated BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investor Services, Inc. ("Moody's"), comparably
rated short-term debt obligations and unrated debt securities determined by the
Adviser to be of comparable quality. Debt securities rated BBB by S&P generally
are regarded by S&P as having an adequate capacity to pay interest and repay
principal; adverse economic conditions or changing circumstances are, however,
more likely in S&P's view to lead to a weakened capacity to pay interest and
repay principal as compared with higher rated debt securities. Debt securities
rated Baa by Moody's generally are considered by Moody's as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured. In
Moody's view, interest payments 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. In Moody's view,
such securities lack outstanding investment characteristics and have speculative
characteristics as well.

Lower grade debt securities are those rated between BB and D (inclusive) by
S&P, Ba and C (inclusive) by Moody's, comparably rated short-term debt
obligations and unrated debt securities determined by the Adviser to be of
comparable quality, which securities sometimes are referred to as "junk bonds."
Debt securities rated BB, B, CCC, CC and C by S&P generally are regarded by S&P,
on balance, as significantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, in S&P's view

4
<PAGE> 9

these are outweighed by large uncertainties or major risk exposures to adverse
conditions. Debt securities rated C by S&P may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are
continued. Debt securities rated D by S&P are in payment default, and payment of
interest or repayment of principal is in arrears. Debt securities rated Ba by
Moody's are judged to have speculative elements, their future cannot be as
well-assured. In Moody's view, 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. Debt securities rated B by Moody's are viewed by
Moody's as generally lacking characteristics of the desirable investment. In
Moody's view, assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Debt
securities which are rated Caa by Moody's are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest. Bonds which are rated Ca by Moody's represent obligations
which are speculative in a high degree. Such issues are often in default or have
other market shortcomings. Bonds which are rated C by Moody's 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. A complete
description of the various S&P and Moody's rating categories is included as
Appendix A to this Prospectus.

Investment in medium and lower grade securities involves special risks as
compared with investment in higher grade securities, including potentially
greater sensitivity to a general economic downturn or a significant increase in
interest rates, greater market price volatility and less liquid secondary market
trading, among others. Investment in securities that are in default, or with
respect to which payment of interest or principal are in arrears, presents
additional special risk considerations. Investment in foreign securities
involves certain risks in addition to those associated with the domestic
securities in which the Fund may invest. There is no assurance that the Fund
will achieve its investment objective. The Fund may not be an appropriate
investment for all investors. The net asset value per share of the Fund can be
expected to increase or decrease depending on real or perceived changes in the
credit risks associated with its portfolio investments, changes in interest
rates and other factors affecting the credit markets generally. See "Investment
Objectives and Policies" and "Appendix A."

INVESTMENT PRACTICES. Subject to certain limitations, the Fund may enter into
strategic transactions, write covered call options, lend its portfolio
securities, enter into when issued or delayed delivery transactions, and enter
into repurchase and reverse repurchase agreements. These investment practices
entail certain risks. See "Investment Practices."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

PURCHASE OF SHARES. Investors may elect to purchase Class A Shares, Class B
Shares or Class C Shares, each with different sales charges and expenses. The

5
<PAGE> 10

different classes of shares permit an investor to choose the method of
purchasing shares that is most beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances. See "Purchase of Shares."

REDEMPTION. Class A Shares generally may be redeemed at net asset value,
without charge, subject to conditions set forth herein. Shares sold subject to a
contingent deferred sales charge ("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 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 $500 or less. See "Redemption of Shares".

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.

DISTRIBUTIONS FROM THE FUND. The Fund will declare distributions on a daily
basis and will pay such distributions from net investment income, net recognized
short-term capital gains and principal on a monthly basis. Long-term capital
gains, if any, are 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 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."

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

6
<PAGE> 11

- ------------------------------------------------------------------------------
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 percentage of
the offering price).......... 4.75%(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 original purchase price
or redemption proceeds)...... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed).................... None None None
Exchange fees.................. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class A Share Purchases of $1 Million or More."

(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 "Distribution and Service Plans."

7
<PAGE> 12

- ------------------------------------------------------------------------------
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; after fee waiver)(1)... 0.66% 0.66% 0.66%
12b-1 Fees(2) (as a percentage of average
daily
net assets).............................. 0.24%(3) 1.00%(4) 1.00%(4)
Other Expenses (as a percentage of average
daily
net assets; after expense
reimbursement)........................... 0.27% 0.27% 0.27%(4)
Total Expenses (as a percentage of average
daily
net assets; after fee waiver and expense
reimbursement)........................... 1.17% 1.93% 1.93%(4)
</TABLE>

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

(1) In the absence of expense reimbursement, "Management Fees" would have been
0.75%, 0.75% and 0.75%, "Other Expenses" would have been 0.27%, 0.27% and
0.28% for Class A, B and C Shares, respectively. "Total Expenses" would have
been 1.26%, 2.02% and 2.03% for Class A, B and C Shares, respectively.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund 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 for distribution-related expenses. The
asset based sales charge with respect to Class C Shares includes an amount
of 0.75% (as a percentage of net asset value) paid to investors'
broker-dealers as sales compensation. See "Distribution and Service Plans."

(3) The Fund's distribution and service plans with respect to Class A Shares
provide that 12b-1 and service fees are charged only with respect to Class A
Shares of the Fund sold after the implementation date of such plans. Due to
the incremental "phase-in" of the Fund's 12b-1 and service plans with
respect to Class A Shares, it is anticipated that 12b-1 and service fees
attributable to Class A Shares will increase in accordance with such plans
to a maximum aggregate amount of 0.25% of the net assets attributable to the
Fund's Class A Shares. Accordingly, it is unlikely that future expenses will
remain consistent with those disclosed in the fee table. See "Distribution
and Service Plans."

(4) Long-term shareholders may pay more than the economic equivalent of the
maximum Front-end sales charges permitted as a Fund-level expense by NASD
Rules.

8
<PAGE> 13

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 1.17% for Class A Shares,
1.93% for Class B Shares, and 1.93% for the
Class C Shares, (ii) a 5.00% annual return and
(iii) redemption at the end of each time
period.
Class A Shares........................... $59 $ 83 $109 $183
Class B Shares........................... $60 $ 96 $119 $206*
Class C Shares........................... $30 $ 61 $104 $226
You would pay the following expenses on the
same $1,000 investment assuming no redemption
at the end of each period:
Class A Shares........................... $59 $ 83 $109 $183
Class B Shares........................... $20 $ 61 $104 $206*
Class C Shares........................... $20 $ 61 $104 $226
</TABLE>

- -------------------------------------------------------------------------------
* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table 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 and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. 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. Fees currently waived or expenses
reimbursed by the Adviser may not continue; accordingly, future expenses as
projected may increase. Class B Shares acquired through the exchange privilege
are subject to the CDSC 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 CDSC.
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 "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

9
<PAGE> 14

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (for one share outstanding throughout the periods
indicated)
- --------------------------------------------------------------------------------

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund outstanding throughout the
periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent accountants, for each of the periods 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
-------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $ 9.493 $ 9.398 $ 9.643 $10.380 $ 9.896 $ 9.202 $ 9.960 $12.980 $13.650 $14.570
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income........ .857 .878 .844 .908 1.118 1.169 1.256 1.608 1.650 1.586
Net Realized and Unrealized
Gain/Loss.................. .384 .147 (.099) (.595) .566 .813 (.604) (2.970) (.610) (.747)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations................... 1.241 1.025 .745 .313 1.684 1.982 .652 (1.362) 1.040 .839
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .865 .880 .815 .950 1.129 1.189 1.297 1.608 1.650 1.619
Distributions from Net
Realized Gain on
Investments................ .000 .000 .000 .000 .000 .000 .000 .000 .000 .029
Return of Capital
Distributions.............. .015 .050 .175 .100 .071 .099 .113 .050 .060 .111
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions........... .880 .930 .990 1.050 1.200 1.288 1.410 1.658 1.710 1.759
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380 $ 9.896 $ 9.202 $ 9.960 $12.980 $13.650
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return* (a)............. 13.60% 11.26% 8.50% 2.92% 18.08% 22.85% 8.22% (10.88%) 7.96% 6.26%
Net Assets at End of the
Period (In millions)......... $ 288.0 $ 271.1 $ 253.3 $ 260.7 $ 251.5 $ 221.4 $ 199.5 $ 220.5 $ 353.8 $ 248.6
Ratio of Expenses to Average
Net Assets*.................. 1.17% 1.31% 1.31% 1.32% 1.20% 1.42% 1.41% 1.28% 1.27% 1.23%
Ratio of Net Investment Income
to Average Net Assets*....... 8.83% 9.16% 9.13% 8.85% 11.13% 12.12% 14.00% 13.68% 12.47% 11.36%
Portfolio Turnover............ 125% 102% 152% 203% 198% 174% 158% 67% 120% 126%
* If certain expenses had not been waived or reimbursed by the Adviser, total return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to
Average Net Assets....... 1.26% 1.31% N/A N/A N/A N/A N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................... 8.73% 9.15% N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

See Financial Statements and Notes Thereto

10
<PAGE> 15

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued (for one share outstanding throughout the
periods indicated)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B SHARES
-------------------------------------------------------------------
YEAR ENDED MAY 17, 1993
JUNE 30, (COMMENCEMENT
--------------------------------------------- OF DISTRIBUTION)
1997 1996 1995 1994 TO JUNE 30, 1993(A)
---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 9.497 $ 9.398 $ 9.638 $ 10.382 $10.190
------- ------- ------- -------- ------
Net Investment Income............. .777 .797 .788 .889 .117
Net Realized and Unrealized
Gain/Loss....................... .388 .160 (.115) (.665) .217
------- ------- ------- -------- ------
Total from Investment Operations... 1.166 .957 .673 .224 .334
------- ------- ------- -------- ------
Less:
Distributions from and in Excess
of Net Investment Income........ .794 .812 .751 .877 .128
Return of Capital Distributions... .014 .046 .162 .091 .014
------- ------- ------- -------- ------
Total Distributions................ .808 .858 .913 .968 .142
------- ------- ------- -------- ------
Net Asset Value, End of the
Period............................ $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
======= ======= ======= ======== ======
Total Return*(b)................... 12.64% 10.55% 7.61% 2.11% 3.27%**
Net Assets at End of the Period (In
millions)......................... $ 128.7 $ 97.1 $ 55.9 $ 33.2 $ 2.7
Ratio of Expenses to Average Net
Assets*........................... 1.93% 2.07% 2.04% 2.13% 2.06%
Ratio of Net Investment Income to
Average Net Assets*............... 8.03% 8.39% 8.35% 7.94% 7.17%
Portfolio Turnover................. 125% 102% 152% 203% 198%**
* If certain expenses had not been waived or reimbursed by the Adviser, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets........................ 2.02% 2.07% N/A N/A N/A
Ratio of Net Investment Income
to Average
Net Assets.................... 7.94% 8.38% N/A N/A N/A

<CAPTION>
CLASS C SHARES
-------------------------------------------------------
AUGUST 13, 1993
YEAR ENDED JUNE 30, (COMMENCEMENT
------------------------------ OF DISTRIBUTION)
1997 1996 1995 TO JUNE 30, 1994(A)
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 9.495 $ 9.396 $ 9.643 $ 10.340
------- ------- ------- -------
Net Investment Income............. .780 .828 .745 .761
Net Realized and Unrealized
Gain/Loss....................... .384 .129 (.079) (.605)
------- ------- ------- -------
Total from Investment Operations... 1.164 .957 .666 .156
------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income........ .794 .812 .751 .763
Return of Capital Distributions... .014 .046 .162 .090
------- ------- ------- -------
Total Distributions................ .808 .858 .913 .853
------- ------- ------- -------
Net Asset Value, End of the
Period............................ $ 9.851 $ 9.495 $ 9.396 $ 9.643
======= ======= ======= =======
Total Return*(b)................... 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of the Period (In
millions)......................... $ 8.1 $ 7.0 $ 2.0 $ 2.2
Ratio of Expenses to Average Net
Assets*........................... 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*............... 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover................. 125% 102% 152% 203%**
* If certain expenses had not been
lower and the ratios would have
Ratio of Expenses to Average Net
Assets........................ 2.03% 2.07% N/A N/A
Ratio of Net Investment Income
to Average
Net Assets.................... 7.99% 8.38% N/A N/A
</TABLE>

** Non-Annualized.

(a) Based on average shares outstanding.

(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable.

See Financial Statements and Notes Thereto

11
<PAGE> 16

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital High Yield Fund (the "Fund") is a separate,
diversified series of Van Kampen American Capital Trust (the "Trust"). The Trust
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 act as investment adviser to 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 this Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------

The Fund's primary investment objective is to provide a high level of current
income. As a secondary objective, the Fund seeks capital appreciation. These
investment objectives are fundamental and cannot be changed without shareholder
approval. The Fund will attempt to achieve its investment objectives primarily
through investment in a diversified portfolio of medium and lower grade domestic
corporate debt securities. The Fund also may invest up to 35% of its assets in
foreign government and foreign corporate debt securities of similar quality as
determined by the Adviser. The Fund will invest in a broad range of issues
representing various companies and industries and traded on various markets.

Medium grade debt securities are those rated BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), comparably
rated short-term debt obligations and unrated debt securities determined by the
Adviser to be of comparable quality. Debt securities rated BBB by S&P generally
are regarded by S&P as having an adequate capacity to pay interest and repay
principal; adverse economic conditions or changing circumstances are, however,
more likely in S&P's view to lead to a weakened capacity to pay interest and
repay principal as compared with higher rated debt securities. Debt securities
rated Baa by Moody's generally are considered by Moody's as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured. In
Moody's view, interest payments 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. In Moody's view,
such securities lack outstanding investment characteristics and have speculative
characteristics as well.

12
<PAGE> 17

S&P, on balance, as significantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Debt Securities rated BB indicates the lowest degree of speculation and C the
highest degree of speculation with respect to such securities. While such debt
will likely have some quality and protective characteristics, in S&P's view
these are outweighed by large uncertainties or major risk exposures to adverse
conditions. Debt securities rated C by S&P may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are
continued. Debt securities rated D by S&P are in default, and payment of
interest or repayment of principal is in arrears. The D rating 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. Debt securities rated Ba by Moody's are
judged to have speculative elements, their future cannot be as well-assured. In
Moody's view, 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. Debt securities rated B by Moody's are viewed by Moody's as
generally lacking characteristics of the desirable investment. In Moody's view,
assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Debt securities which
are rated Caa by Moody's are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca by Moody's represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings. Bonds which are rated C by Moody's 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. A complete description of the
various S&P and Moody's rating categories is included as Appendix A to this
Prospectus.

Investment in medium and lower grade securities involves special risks as
compared with investment in higher grade securities, including potentially
greater sensitivity to a general economic downturn or a significant increase in
interest rates, greater market price volatility and less liquid secondary market
trading, among others. Investment in securities that are in default, or with
respect to which payment of interest or repayment of principal is in arrears,
presents special risk considerations. The Fund may incur additional expenses to
the extent that it is required to seek recovery of interest or principal, and
the Fund may be unable to obtain full recovery thereof. See "Special Risk
Considerations Regarding Medium and Lower Grade Debt Securities." Investment in
foreign government and foreign corporate debt securities entails risks in
addition to those associated with the domestic securities in which the Fund may
invest. See "Foreign Securities." There can be no assurance that the Fund will
achieve its investment objective. An investment in the Fund may not be
appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a

13
<PAGE> 18

long-term investment and should not be used as a trading vehicle. The net asset
value per share of the Fund can be expected to increase or decrease depending on
real or perceived changes in the credit risks associated with its portfolio
investments, changes in interest rates and other factors affecting the credit
markets generally.

The table below sets forth the percentages of the Fund's assets invested as of
June 30, 1997 in the various Moody's and S&P rating categories and in unrated
securities determined by the Adviser to be of comparable quality. The
percentages are based on the dollar-weighted average of credit ratings of all
debt securities held by the Fund during the 1997 fiscal year computed on a
monthly basis.

<TABLE>
<CAPTION>
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING (AS A PERCENTAGE OF (AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
-------- ------------------- ---------------------
<S> <C> <C>
AAA/Aaa.............................. 8.5% 0.0%
AA/Aa................................ 0.6% 0.0%
A/A.................................. 0.2% 0.0%
BBB/Baa.............................. 3.2% 0.0%
BB/Ba................................ 31.9% 0.8%
B/B.................................. 52.3% 0.9%
CCC/Caa.............................. 1.6% 0.0%
CC/Ca................................ 0.0% 0.0%
C/C.................................. 0.0% 0.0%
D.................................... 0.0% 0.0%
------ -----
Percentage of Rated and Unrated
Debt Securities.................... 98.3% 1.7%
====== =====
</TABLE>

There is no limitation with respect to the maturities of the securities in
which the Fund may invest.

SPECIAL RISK CONSIDERATIONS REGARDING MEDIUM AND LOWER GRADE DEBT SECURITIES.
The Fund invests in medium and lower grade debt securities. Debt securities
which are in the medium and lower grade categories generally offer a higher
current yield than is offered by higher grade debt securities, but they also
generally involve greater price volatility and greater credit and market risk.
Credit risk relates to the issuer's ability to make timely payment of interest
and principal when due. Market risk relates to the changes in market value that
occur as a result of variation in the level of prevailing interest rates and
yield relationships in the debt securities market and as a result of real or
perceived changes in credit risk. Debt securities rated BB or below by S&P and
Ba or below by Moody's commonly are referred to as "junk bonds." Although the
Fund primarily will invest in medium and lower grade debt securities, the Fund
may invest in higher grade debt securities for temporary defensive purposes.
Such investments may result in a lower current income than if the Fund were
fully invested in medium and lower grade debt securities.

14
<PAGE> 19

The value of the Fund's portfolio securities can be expected to fluctuate over
time. When interest rates decline, the value of a portfolio invested in fixed
income securities generally can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested in fixed income securities
generally can be expected to decline. However, the secondary market prices of
medium and lower grade debt securities are less sensitive to changes in interest
rates and are more sensitive to adverse economic changes or individual
developments than are the secondary market prices of higher grade debt
securities. A significant increase in interest rates or a general economic
downturn could severely disrupt the market for lower grade debt securities and
adversely affect the market value of such securities. Such events also could
lead to a higher incidence of default by issuers of lower grade debt securities
as compared with historical default rates. In addition, changes in interest
rates and periods of economic uncertainty can be expected to result in increased
volatility in the market price of the debt securities in the Fund's portfolio
and thus in the net asset value of the Fund. Also, adverse publicity and
investor perceptions, whether or not based on rational analysis, may affect the
value and liquidity of medium and lower grade debt securities. The secondary
market value of debt securities structured as zero coupon securities and
payment-in-kind securities may be more volatile in response to changes in
interest rates than debt securities which pay interest periodically in cash.

Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium and lower grade debt securities to pay interest
and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal or interest and such
issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the Fund may be
unable to obtain full recovery thereof.

To the extent that there is no established retail market for some of the
medium or lower grade debt securities in which the Fund may invest, trading in
such securities may be relatively inactive. The Adviser is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Trustees of the Trust. During periods of reduced market liquidity and
in the absence of readily available market quotations for medium and lower grade
debt securities held in the Fund's portfolio, the ability of the Adviser to
value the Fund's securities becomes more difficult and the Adviser's use of
judgment may play a greater role in the valuation of the Fund's securities due
to the reduced availability of reliable objective data. The effects of adverse
publicity and investor perceptions may be more pronounced for securities for
which no established retail market exists as compared with the effects on
securities for which such a market does exist. Further, the Fund may have more
difficulty selling such securities in a timely manner and at their stated

15
<PAGE> 20

value than would be the case for securities for which an established retail
market does exist. To the extent that the Fund purchases illiquid debt
securities or securities which are restricted as to resale, the Fund may be
required to incur costs in connection with the registration of restricted
securities in order to dispose of such securities.

Legislation has been and may be adopted which may have an adverse impact on
the market for medium and lower grade debt securities. For example, the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 required
savings and loan associations to dispose of their high yield bonds no later than
July 1, 1994 which adversely affected the marketplace for medium and lower grade
debt. Participation by banks in highly leveraged transactions may subject banks
to increased regulatory scrutiny. Other legislation may be proposed which, if
enacted, could have an adverse impact on the market for medium and lower grade
debt securities.

The Fund may invest in zero coupon and payment-in-kind debt securities. Zero
coupon securities are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount from their face amounts or par value, which discount varies depending
on the time remaining until cash payments begin, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
Internal Revenue Code of 1986, as amended (the "Code"), requires that regulated
investment companies distribute at least 90% of their net investment income each
year, including tax-exempt and non-cash income. Although the Fund will receive
no coupon payments on zero coupon securities prior to their maturity, the Fund
is required to include in its income for distribution to shareholders in each
year any income attributable to zero coupon securities. The Fund may be required
to borrow or to liquidate portfolio securities to generate cash for
distributions at a time that it otherwise would not have done so in order to
make distributions that satisfy applicable tax law. As of June 30, 1997,
approximately 0.43% of the Fund's total assets were invested in zero coupon
securities.

Payment-in-kind securities are securities that pay interest through the
issuance of additional securities. They are issued by companies that have
significant amounts of debt outstanding and are seeking to raise additional
funds without incurring additional periodic cash interest payment obligations.
Although payment-in-kind securities generally offer the opportunity for higher
returns than securities that pay interest periodically in cash, they also
generally are more volatile in response to changes in interest rates and are
more speculative investments than such securities. The Fund is required to
include in its income for distribution to shareholders in each year any income
attributable to securities received as interest on payment-in-kind securities.
The Fund may be required to borrow or to liquidate portfolio securities in order
to generate cash for distributions at a time that it otherwise would not have
done so in order to make distributions that satisfy applicable tax law. As of

16
<PAGE> 21

June 30, 1997, approximately 1.83% of the Fund's total assets were invested in
payment-in-kind securities.

The Adviser seeks to minimize the risks involved in investing in medium and
lower grade debt securities through portfolio diversification, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on the Adviser's
judgment, analysis and experience in evaluating the creditworthiness of an
issue. In its analysis, the Adviser will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulatory matters. The Adviser may consider the credit ratings of Moody's and
S&P in evaluating debt securities although it does not rely primarily on these
ratings. Such ratings evaluate only the safety of principal and interest
payments, not market value risk. Additionally, because the creditworthiness of
an issuer may change more rapidly than is able to be timely reflected in changes
in credit ratings, the Adviser continuously monitors the issuers of debt
securities held in the Fund's portfolio.

Many medium and lower grade debt securities are not listed for trading on any
national securities exchange, and many issuers of medium and lower grade debt
securities choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. As a result, the Fund's
portfolio may consist of a relatively high proportion of unlisted or unrated
securities as compared with an investment company that invests primarily in
higher grade securities. The amount of information available about the financial
condition of an issuer of unrated or unlisted securities generally is not as
extensive as that which is available with respect to issuers of listed or rated
securities. Because of the nature of medium and lower rated debt securities,
achievement by the Fund of its investment objective may be more dependent on the
credit analysis of the Adviser than is the case for an investment company which
invests primarily in higher grade securities.

FOREIGN SECURITIES. The Fund may invest up to 35% of its assets in foreign
government and foreign corporate debt securities of similar quality as the
securities described above as determined by the Adviser. These investments
generally will be limited to securities issued by foreign companies with at
least three years of operations in developed countries or by foreign
governments. Investments in foreign securities present certain risks not
ordinarily found in investments in securities of United States issuers. These
risks include fluctuations in foreign exchange rates, political and economic
developments (including war or other instability, expropriation of assets,
nationalization and confiscatory taxation), the imposition of foreign exchange
limitations, withholding taxes on income or capital transactions or other
restrictions, higher transaction costs and difficulty in taking judicial action.
Generally, a significant factor affecting the performance of the Fund's
investments in foreign securities is the fluctuation in the relative values of
the currencies in which such securities are denominated. In addition, there
generally is less publicly available information about many foreign issuers, and
auditing, accounting and

17
<PAGE> 22

financial reporting requirements are less stringent and less uniform in many
foreign countries and accordingly, their securities markets may be less liquid
than those in the United States. Because there is usually less supervision and
governmental regulation of exchanges and brokers and dealers in many foreign
countries than there is in the United States, the Fund may experience settlement
difficulties or delays not usually encountered in the United States.

- ------------------------------------------------------------------------------
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 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.

18
<PAGE> 23

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.

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 "1940 Act"), repurchase
agreements may be considered collateralized loans by the Fund, and the
difference between the amount the Fund pays for the securities and the amount it
receives upon resale is accrued as interest and reflected in the Fund's net
income. When the Fund enters into repurchase agreements, it relies on the seller
to repurchase the securities. Failure to do so may result in a loss for the Fund
if the market value of the securities is less than the repurchase price. At the
time the Fund enters into a repurchase agreement, the value of the underlying
security including accrued interest will be equal to or exceed the value of the
repurchase agreement and, for repurchase agreements that mature in more than one
day, the seller will agree that the value of the underlying security including
accrued interest will continue to be at least equal to the value of the
repurchase agreement. In determining whether to

19
<PAGE> 24

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. Repurchase
agreements that mature in more than seven days are treated as illiquid
securities and are subject to Fund's limitation on "illiquid" securities.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account
and to protect the amounts in that account.

SECURITIES LENDING. The Fund may lend its portfolio securities to brokers or
dealers, banks or other recognized institutional borrowers of securities to a
maximum of 25% of the net assets of the Fund, provided that the borrower at all
times maintains cash or liquid securities or secures a letter of credit in favor
of the Fund in an amount equal to at least 100% of the market value of the
securities loaned. During the time portfolio securities are on loan, the
borrower will pay the Fund an amount equivalent to any dividend or interest paid
on such securities and the Fund may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest income
from the borrower who has delivered equivalent collateral or secured a letter of
credit. Loans are subject to termination at the option of the Fund or the
borrower. The Fund may pay reasonable administration and custodial fees in
connection with a loan.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in securities the disposition of which is subject to substantial legal or
contractual restrictions or the markets for which are illiquid. The sale of such
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 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

20
<PAGE> 25

as trading activities and the availability of price quotations) will not be
treated as restricted or illiquid securities for purposes of the Fund's
limitations on restricted and illiquid securities.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may purchase and
sell portfolio securities on a "when issued" and "delayed delivery" basis. No
income accrues to the Fund on securities in connection with such purchase
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price, and
yields generally available on comparable securities when delivery occurs may be
higher or lower than yields on the securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or liquid 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
purpose of investment leverage.

PORTFOLIO TURNOVER. 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 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. The Fund anticipates that the annual
portfolio turnover rate for the Fund's portfolio will generally be less than
200%, and may be significantly less in a period of stable or rising interest
rates. If the turnover rate for the Fund reaches or exceeds this percentage, the
Fund may have higher brokerage costs and may have higher short-term capital
gains that if the Fund had lower portfolio turnover. The turnover rate will not
be a limiting factor, however, if the Adviser deems portfolio changes are
appropriate. The Fund's annual portfolio turnover rate is shown in the table of
"Financial Highlights."

TEMPORARY DEFENSIVE POSITIONS. When the Adviser determines that market
conditions warrant and deems it to be in the best interest of the Fund, the Fund
may, for temporary defensive purposes, invest up to 100% of its total assets in
(i) cash, (ii) U.S. Government securities and (iii) money market instruments.
When maintaining such a temporary defensive position, the Fund's yield may be

21
<PAGE> 26

lower and, therefore, it may be more difficult to achieve the Fund's primary
investment objective of high current income.

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 1940 Act. See "Investment
Policies and Restrictions" in the Statement of Additional Information.

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

In effecting purchases and sales of the Fund's portfolio securities, the
Adviser may place portfolio transactions, to the extent permitted by law, with
brokerage firms be affiliated with the Fund, the Adviser or the Distributor or
with firms participating in the offering of the Fund's shares if they reasonably
believe that the quality of execution and the commissions are comparable to that
available from other qualified firms. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.

22
<PAGE> 27

- ------------------------------------------------------------------------------
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 two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $60 billion under management or
supervision. Van Kampen American Capital's more than 50 open-end and 37
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. 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. Van Kampen American Capital is a wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. The address of the Adviser is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.

Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley Asset Management Inc.,
an investment adviser, Morgan Stanley & Co. Incorporated, a registered broker-
dealer and investment adviser, and Morgan Stanley International are engaged in a
wide range of financial services. Their principal businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring and
other corporate finance advisory activities; merchant banking; stock brokerage
and research services; credit services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

ADVISORY AGREEMENT. The business and affairs of the Fund are managed under the
direction of the Board of Trustees of the Trust of which the Fund is a separate
series. Subject to the Trustees' authority, the Adviser and the officers of the
Fund supervise and implement the Fund's investment activities and are
responsible for overall management of the Fund's business affairs. The Fund pays
the Adviser a fee computed based on an annual rate applied to the average daily
net assets of the Fund as indicated below. This fee is higher than that paid by
most mutual funds.

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
------------------------ --------------------
<S> <C>
First $500 million.............. 0.75 of 1.00%
Over $500 million............... 0.65 of 1.00%
</TABLE>

23
<PAGE> 28

(ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned subsidiary of Van
Kampen American Capital) 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,
costs of reports and notices to shareholders, costs of registering shares of the
Fund under federal and state securities laws, miscellaneous expenses and all
taxes and fees to federal, state or other governmental agencies. The Adviser
reserves the right in its sole discretion from time-to-time to waive all or a
portion of its management fee or to reimburse the Fund for all or a portion of
its other expenses.

The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit trustees, directors, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. Anne K. Lorsung, a Vice President of the Adviser, has
been primarily responsible for the day-to-day management of the Fund's portfolio
since May 1995. Prior to January 1994, Ms. Lorsung was employed as a Group Vice
President in the high yield research area at Duff & Phelps, MCM.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares of the Fund that is most beneficial to the investor, taking
into account the amount of the purchase, the length of time the investor expects
to hold the shares, whether the investor wishes to receive dividends in cash or
to reinvest them in additional shares of the Fund, and other circumstances.
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 currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (Class A
Share accounts under $1 million) or (b) on a contingent deferred basis (Class A
Share accounts over $1 million, Class B Shares and Class C Shares). Shares
purchased subject to a

24
<PAGE> 29

contingent deferred sales charge (a "CDSC") sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

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

Each class of shares represents an interest in the same portfolio of
investments 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
arrangements, (ii) generally, each class of shares has exclusive voting rights
with respect to those provisions of the Fund's Rule 12b-1 distribution plan
which relate only to such class, (iii) each class of shares has different
exchange privileges, (iv) certain classes of shares have a conversion feature
and (v) certain classes of shares have different shareholder service options
available. Generally, a class of shares subject to a higher ongoing distribution
and services fee or subject to the conversion feature will have a higher expense
ratio and pay lower dividends than a class of shares subject to a lower ongoing
distribution and services 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

25
<PAGE> 30

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 "Purchase of
Shares -- 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 a specific class;
(iii) securities 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. All such expenses incurred by a class will be borne on a pro rata
basis by the outstanding shares of such class. All allocations of administrative
expenses to a particular class of shares will be limited to the extent necessary
to preserve the Fund's qualification as a regulated investment company under the
Code.

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

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

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

26
<PAGE> 31

settled between the investor and the broker, dealer or financial intermediary
submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, 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 it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediary for certain services
or activities which are primarily intended to result in sales of shares of the
Fund. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. In some instances additional
compensation or promotional incentives may be offered to brokers', dealers or
financial intermediaries that have sold or may sell significant amounts of
shares during specified periods of time. The Distributor may provide additional
compensation to Edward D. Jones & Co. or an affiliate thereof based on a
combination of its sales of shares and increases in assets under management.
Such payments to brokers, dealers and financial intermediaries for sales
contests, other sales programs and seminars are made by the Distributor out of
its own assets and not out of the assets of the Fund. Such fees paid for such
services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor will pay for shares
or the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. 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 1933, as amended.

27
<PAGE> 32

SALES CHARGE TABLE

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

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid by the Distributor to brokers, dealers and financial
intermediaries who initiate and are responsible for purchases of $1 million
or more. See "Purchase of Shares -- Deferred Sales Charge Alternatives."

QUANTITY DISCOUNTS

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

Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund at the time of the purchase order 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.

A person eligible for a reduced sales charge includes an individual, his or
her spouse and children under 21 years of age and any corporation, partnership,
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or a single fiduciary account; or a "company" as defined in section
2(a)(8) of the 1940 Act.

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser or Van Kampen American Capital Asset
Management, Inc. and distributed by the Distributor as determined from time to
time by the Fund's Board of Trustees.

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

28
<PAGE> 33

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

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

OTHER PURCHASE PROGRAMS

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

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund at net asset value with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this

29
<PAGE> 34

amount, the Distributor will pay to the broker, dealer or financial
intermediary, if any, through which such participation in the qualifying program
was initiated 0.50% of the offering price as a dealer concession or agency
commission. Persons desiring more information with respect to this program,
including the applicable terms and conditions thereof, should contact their
broker, dealer, 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 ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.

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.

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

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(2) Current or retired directors, officers and employees of Morgan Stanley,
Dean Witter, Discover & Co. or any of its subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an affiliate
of such subadviser, and such persons' families and their beneficial
accounts.

(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age 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.

30
<PAGE> 35

described herein under "Purchase of Shares -- Class A Shares -- Quantity
Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs.

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

(7) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital Trust Company served as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million and 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million and 0.25%
on the excess over $50 million.

31
<PAGE> 36

similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified
group does not include one whose sole organizational nexus, for example,
is that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar groups.
Shares purchased in each group's participants account in connection with
this privilege will be subject to a CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with ACCESS, the investment adviser, trust company or bank trust
department, provided that ACCESS receives federal funds for the purchase by the
close of business on the next business day following acceptance of the order. An
authorized broker, dealer or financial intermediary may charge a transaction fee
for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or 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.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC 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
CDSC will be assessed

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<PAGE> 37

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.
The CDSC schedule and holding period applicable to a CDSC Share acquired through
the exchange privilege is determined by reference to the Participating Fund from
which such share originally was purchased.

In determining whether a CDSC 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 CDSC no longer
is applicable to such shares, third of Class A Shares in the shareholder's Fund
account that have converted from Class B Shares or Class C Shares, if any, and
fourth of CDSC Shares held longest during the period of time that a CDSC 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 at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B Shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3.75% (the
applicable rate in the second year after purchase).

Proceeds from the CDSC and the distribution fee 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 CDSC 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. The Distributor compensates brokers, dealers and financial
intermediaries participating in the continuous public offering of the CDSC
Shares out of its own assets, and not out of the assets of the Fund, at a
percentage rate of the dollar value of the CDSC Shares purchased from the Fund
by such brokers, dealers and financial intermediaries, which percentage rate is
equal to (i) with respect to Class A Shares, 1.00% on sales to $2 million, plus
0.80% on the next $1 million and 0.50% on the excess over $3 million; (ii) 4.00%
with respect to Class B Shares and (iii) 1.00% with respect to Class C Shares.
Such compensation does not change the price an investor pays for CDSC Shares or
the amount that the Fund receives from such sale.

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<PAGE> 38

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments of $1 million or more, although for such
investments the Fund imposes a CDSC of 1.00% on redemptions made within one year
of the purchase. Class A Shares redeemed thereafter will not be subject to a
CDSC.

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a CDSC 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
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
------------------- --------------------------------
<S> <C>
First..................................... 4.00%
Second.................................... 3.75%
Third..................................... 3.50%
Fourth.................................... 2.50%
Fifth..................................... 1.50%
Sixth..................................... 1.00%
Seventh and after......................... 0.00%
</TABLE>

The CDSC generally is waived on redemption of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

CLASS C SHARES. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a CDSC of 1.00% of the dollar amount
subject thereto. Class C Shares redeemed thereafter will not be subject to a
CDSC.

CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares eight years after the end of the calendar month in which the
shares were purchased. Class B shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares six years after the end of the calendar month in which the shares
were purchased. Class C shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to any share acquired through the
exchange privilege is determined by reference to the Participating Fund from
which such share originally was purchased.

34
<PAGE> 39

taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate fees applicable to such shares for an indefinite
period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 180 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

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 the number of
shares of such class of the Fund 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 when there is not sufficient 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.

Fixed income securities are valued by using market quotations, prices provided
by market makers, or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Trustees of the Trust, of which
the Fund is a series. Short-term securities with remaining 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 assets are valued at fair value as determined in good faith by or
under the direction of the Trustees.

35
<PAGE> 40

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

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

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

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

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 421-5666 ((800) 421-2833
for the hearing impaired) or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Fund."

36
<PAGE> 41

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

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

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of a Participating
Fund so long as the investor has a pre-existing account for such class of shares
of the other fund. Both accounts must be of the same type, either non-retirement
or retirement. If the accounts are retirement accounts, they must both be for
the same type of retirement plan (e.g. IRA, 403(b)(7), 401(k) or Keogh) and for
the benefit of the same individual. If the qualified pre-existing account does
not exist, the shareholder must establish a new account subject to minimum
investment and other requirements of the fund into which distributions would be
invested. Distributions are invested into the selected fund at its net asset
value as of the payable date of the distribution.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next completed net asset value
after requesting the exchanges without any sales charge, subject to certain
limitations. Shares of the Fund may be exchanged for shares of any Participating
Fund only if shares of the Participating Fund are available for sale; however,
during periods of suspension of sales, shares of a Participating Fund may be
available for sale only to existing shareholders of the Participating Fund.
Shareholders seeking an exchange with a Participating Fund should obtain and
read the current prospectus of such fund.

To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name for at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.

When Class B Shares and Class C Shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the

37
<PAGE> 42

date of the initial purchase of such shares from a Participating Fund (the
"original fund"). Upon redemption from the Participating Funds' complex of
funds. Class B Shares and Class C Shares are subject to the CDSC schedule
imposed by the original fund.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanying this Prospectus. Van Kampen American Capital and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. If the exchanging shareholder does not have an
account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, an exchanging shareholder must file a specific written
request. The Fund reserves the right to reject any order to acquire its shares
through exchange. In addition, the Fund may modify, restrict or terminate the
exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

A prospectus of any of these mutual funds may be obtained from any broker,
dealer or financial intermediary or the Distributor. An investor considering an
exchange to one of such funds should refer to the prospectus for additional
information regarding such fund prior to investing.

38
<PAGE> 43

entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which taxable gain or loss will
be recognized. The plan holder may arrange for monthly, quarterly, semi-annual,
or annual checks in any amount not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by the Fund. See "Shareholder Services
- --Retirement Plans."

Class B shareholders and Class C shareholders who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a CDSC. Initial account balance means the amount of the
shareholder's investment at the time the election to participate in the plan is
made.

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

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

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

39
<PAGE> 44

privilege may be terminated or suspended at any time by the Fund or State Street
Bank. Retirement plans and accounts that are subject to backup withholding are
not eligible for the privilege. A "stop payment" system is not available on
these checks.

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

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

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

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would exceed $50,000, or
if the proceeds are not to be paid to the record owner at the record address, or
if the record address has changed within the previous 30 days, signature(s) must
be guaranteed by one of the following: a bank or trust company; a broker-dealer;
a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next determined after the
request is received by ACCESS in proper form. Payment for

40
<PAGE> 45

shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order.

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

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 421-2833 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither VKAC nor the Fund will be liable for following
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's other redemption procedures previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
may rely on the instructions of any one owner.

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<PAGE> 46

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

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

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

GENERAL REDEMPTION INFORMATION. Redemption payments may be postponed or the
right of redemption suspended as provided by the rules of the SEC. If the shares
to be redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, which
may take up to 15 days. Any gain or loss realized on the redemption of shares is
a taxable event. The Fund may redeem any shareholder account with a net asset
value on the date of the notice of redemption less than the minimum investment
as specified by the Trustees. At least 60 days advance written notice of any
such involuntary redemption is required and the shareholder is given an
opportunity to purchase the required value of additional shares at the next
determined net asset value without sales charge. Any involuntary redemption may
only occur if the shareholder account is less than the minimum investment due to
shareholder redemptions.

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<PAGE> 47

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. Reinstatement at net asset
value is also offered to participants in those eligible retirement plans held or
administered by Van Kampen American Capital Trust Company for repayment of
principal (and interest) on their borrowings on such plans.

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

DISTRIBUTION AND SERVICE PLANS

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

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 brokers, dealers or 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 brokers,
dealers or financial intermediaries as a service fee or the amount of the
Distributor's actual distribution-related expense.

43
<PAGE> 48

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

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

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

The Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares (for purposes of this section, excluding any Class A Shares that
may be subject to a CDSC) for any given year may exceed the amounts payable to
the Distributor with respect to such class of CDSC Shares under the Distribution
Plan, the Service Plan and payments received pursuant to the CDSC. In such
event, with respect to any such class of CDSC Shares, any unreimbursed
distribution-related 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 June 30, 1997, there
were $3,797,265 and $6,149 of unreimbursed distribution-related expenses with
respect to Class B Shares and Class C Shares, respectively, representing 2.96%
and 0.08% of the Fund's net assets attributable to Class B Shares and Class C
Shares, respectively. If the Distribution

44
<PAGE> 49

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 CDSC.

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

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare distributions on a daily basis and to pay such
distributions from net investment income, net recognized short-term capital
gains and principal attributable to the respective classes on a monthly basis.
The Fund also presently intends to make distributions of net long-term capital
gains, if any, annually. The monthly distribution is composed of all or a
portion of investment income earned by the Fund, all or a portion of net
short-term capital gains recognized by the Fund on transactions in securities
and in futures and options, in each case, less the expenses attributable to the
respective class, and principal. A distribution from principal made by the Fund
will result in a decrease in the Fund's net assets equal to the amount of such
principal distribution. Long-term capital gains distributions consist of the
Fund's recognized long-term gain on transactions in securities and futures and
options, net of any realized capital losses, less any carryover capital losses
from previous years.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee or 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.

45
<PAGE> 50

Investors will be entitled to begin receiving dividends on their shares on the
business day after ACCESS receives payments for such shares. However, shares
become entitled to dividends on the day ACCESS 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. Persons wishing to utilize this service should
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS, P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

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

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income to the extent of the Fund's earnings and profits, whether
received in shares or cash. Shareholders who receive distributions in the form
of additional shares will have a basis for federal income tax purposes in each
share equal to the value thereof on the distribution date. Distributions of the
Fund's net capital gains ("capital gain dividends"), if any, are taxable to
shareholders as long-term capital gains regardless of the length of time the
Fund shares have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits, such as distributions of principal, first will
reduce the adjusted tax basis of the shares held

46
<PAGE> 51

by the shareholders and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such shareholder (assuming such shares are held as a
capital asset). See the discussion below for a summary of the tax rates
applicable to capital gains (including capital gains dividends). The Fund will
inform shareholders of the source and tax status of such distributions promptly
after the close of each calendar year. Distributions by the Fund generally will
not be eligible for the dividends received deduction for corporations.

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the 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. See the discussion below for a summary of
the tax rates applicable to capital gains. Any loss recognized upon a taxable
disposition of shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends received with respect
to such shares. For purposes of determining whether shares have been held for
six months or less, the holding period is suspended for any periods during which
the shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales.

Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other non-
corporate taxpayers are (i) the same as ordinary income rates for capital assets
held for one year or less, (ii) 28% for capital assets held for more than one
year but not more than 18 months and (iii) 20% for capital assets held for more
than 18 months. Under the 1997 Tax Act, the Treasury is authorized to issue
regulations that address the application of the new capital gains rates to sales
and exchanges by regulated investment companies and to sales and exchanges of
interests in regulated investment companies, but no such regulations have been
issued as of the date hereof. It is expected that the new tax rates for capital
gains under the 1997 Tax Act described above will apply to distributions of
capital gains dividends by regulated investment companies such as the Fund as
well as to sales and exchanges of shares in regulated investment companies such
as the Fund. With respect to capital losses recognized on dispositions of shares
held six months or less where such losses are treated as long-term capital
losses to the extent of prior capital gains dividends received on such shares
(see the discussion regarding sales of shares above), it is unclear how such
capital losses offset the capital gains referred to above. Shareholders should
consult their own tax advisors as to the application of the new capital gains
rates to their particular circumstances.

Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of the securities held by the Fund and the nature of
the income realized by the Fund. These provisions may also require the Fund to
recognize

47
<PAGE> 52

income or gain without receiving the cash with which to make distributions in
amounts necessary to satisfy the distribution requirements for avoiding federal
income and, as described below, excise taxes. The Fund will monitor its
transactions and may make certain tax elections in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.

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

The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's gross income be derived from the disposition of securities
held for less than three months. Under recently enacted legislation, this
requirement will no longer be applicable to the Fund beginning on July 1, 1998.

Income from certain foreign securities may be subject to foreign income,
withholding or other withholding taxes. Shareholders of the Fund will not be
able to claim any deduction or foreign tax credit with respect to such foreign
taxes.

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 gain net income (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 gain net income retained by and subject to federal
income tax in the hands of the Fund will be treated as having been distributed.

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 in January of the following
year will be treated as having been distributed by the Fund (and received by the
shareholders) on December 31 of the year in which the dividend was declared. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as having been paid by the Fund
(except for purposes of the 4% excise tax) during such taxable year. In such
case, shareholders will be treated as having received such dividends in the
taxable year in which the distribution is actually made.

The Fund is required in certain circumstances to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not

48
<PAGE> 53

furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) or who are otherwise subject to
backup withholding. Foreign shareholders, including shareholders who are
nonresident aliens, may be subject to U.S. withholding tax on certain
distributions (whether received in cash or in shares) at a rate of 30% or such
lower rate as prescribed by any applicable treaty.

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 purchasing, holding and disposing of
shares, as well as the effects of state, local, and foreign tax laws and any
proposed tax law changes.

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

The Fund's yield quotation is determined on a monthly basis with respect to
the immediately preceding 30-day period. Yield is computed by first dividing the
Fund's net investment income per share earned during such a 30-day period by the
Fund's maximum offering price per share on the last day of such period. The
Fund's net investment income per share is determined by taking the interest
earned by the Fund during the period, subtracting the expenses accrued for the
period (net of any reimbursements), and dividing the result by the product of
(a) the average daily number of Fund shares outstanding during the period that
were entitled to receive dividends and (b) the Fund's maximum offering price per
share on the last day of the period. 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.

The Fund calculates average compounded total return by determining the
redemption value at the end of specified periods (after adding back all
dividends and other distributions made during the period) of a $1,000 investment
in the Fund (less the maximum sales charge) at the beginning of the period,
annualizing the

49
<PAGE> 54

increase or decrease over the specified period with respect to such initial
investment and expressing the result as a percentage.

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 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.

From time to time, the Fund may include in its supplemental sales literature
and shareholder reports a quotation of the current "distribution rate" for 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. Distribution
rate is determined by annualizing the distributions per share for a stated
period and dividing the result by the ending maximum public offering price for
the same 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 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, 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 options and futures transactions engaged in by the Fund. In addition, the
Fund may, in supplemental sales literature, advertise non-standardized total
return figures representing the cumulative, non-annualized total return from a
given date to a subsequent given date. Cumulative non-standardized total return
is calculated by measuring the value of an initial investment in the Fund at a
given date, deducting the maximum front-end sales charge of 4.75% for Class A
Shares, determining the value of all subsequent reinvested dividends, 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, Semi-Annual Report and Statement of Additional Information, each
of which can be obtained without charge by calling (800) 421-5666 ((800)
421-2833 for the hearing impaired).

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Trust, a Delaware
business trust organized as of May 10, 1995 (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.

50
<PAGE> 55

Shares and Class C Shares. The Fund is permitted to issue an unlimited number of
classes of shares. Other classes may be added from time to time in accordance
with the provisions of the Fund's Declaration of Trust.

Each class of shares represents an interest in the same assets of the Fund and
are identical in all respects except that each class bears certain distribution
expenses and has exclusive voting rights with respect to its distribution fee.
Except as described herein, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of the Fund is
entitled to its pro rata portion of all of the Fund's net assets after all debt
and expenses of the Fund have been paid. Since Class B Shares and Class C Shares
pay higher distribution expenses, the liquidation proceeds to holders of Class B
Shares and Class C Shares are likely to be lower than to holders of Class A
Shares.

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
1940 Act. More detailed information concerning the Trust is set forth in the
Statement of Additional Information.

The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.

- ------------------------------------------------------------------------------
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.

The fiscal year end of the Fund is 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 the
Fund's independent 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.

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<PAGE> 56

APPENDIX A

RATINGS OF CORPORATE OBLIGATIONS

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

A 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 payment--capacity and willingness of the obligor to meet
its financing commitment on an obligation 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' rights.

INVESTMENT GRADE

A-1
<PAGE> 57
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.

SPECULATIVE GRADE

<TABLE>
<S> <C>
BB Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
B having significantly speculative characteristics with
CCC respect to capacity to pay interest and repay principal.
CC "BB" indicates the least degree of speculation and "C" the
C highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB Debt rated "BB" is less vulnerable 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.
B Debt rated "B" is more vulnerable 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" is currently vulnerable 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 Debt rated "CC" is currently highly vulnerable to
nonpayment. The rating "CC" is also used for debt
subordinated to senior debt that is assigned an actual or
implied "CCC" debt rating.
C The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service
payments are continued. The rating "C" typically is applied
to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating.
</TABLE>

A-2
<PAGE> 58
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.
NR Not rated.
R This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe payment risk --
such as interest-only or principal-only mortgage
securities; and obligations with unusually risky or
interest terms, such as inverse floaters.
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",
"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

An S&P 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 strong safety characteristics are
denoted with a plus sign (+) designation.
</TABLE>

A-3
<PAGE> 59
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 significant
speculative characteristics.
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.
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+").

4. NOTES

An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating.

A-4
<PAGE> 60

Notes maturing beyond three years will most likely receive a long-term debt
rating. The following criteria will be used in making that assignment:

-- Amortization schedule (the longer the final maturity relative to other
maturities the more likely the issue is to be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics will be given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.

SP-3 Speculative capacity to pay principal and interest.

5. PREFERRED STOCK

A S&P preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.

The preferred stock ratings are based on the following considerations:

1. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.

2. Nature of, and provisions of, the issue.

3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.

<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated 'AA' also qualifies as a
high-quality, fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated 'AAA'.
A An issue rated 'A' is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
</TABLE>

A-5
<PAGE> 61
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for
preferred stock in this category than for issues in the "A"
category.
BB Preferred stock rated "BB", "B" and "CCC" are regarded, on
B balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest. While such issues will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated "C" is a nonpaying issue.
D A preferred stock rated "D" is a nonpaying issue with the
issuer in default on debt instruments.
NR This indicates that no rating has been requested, that
there is insufficient information on which to base a rating
or that S&P does not rate a particular type of obligation
as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications
of preferred stock quality, 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.

A preferred stock 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, and 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.

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

1. LONG-TERM DEBT

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.

A-6
<PAGE> 62

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 fluctuations 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 in 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 payments
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 to B. 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.

A-7
<PAGE> 63

Should no rating be assigned, the reasons 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.

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. These obligations have an original
maturity not exceeding one year unless explicitly noted.

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 or 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.

A-8
<PAGE> 64

profitability may result in changes of 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.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AAA: An issue which is rated "AAA" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.

AA: An issue which is rated "AA" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the
"AAA" and "AA" classifications, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.

BAA: An issue which is rated "BAA" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.

BA: An issue which is rated "BA" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.

B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.

CA: An issue which is rated "CA" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payment.

C: This is the lowest rated class of preferred or preference stock. 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 preferred stock 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.

A-9
<PAGE> 65

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

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

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

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
HIGH YIELD 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 High Yield Fund

Custodian

STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital High Yield Fund

Legal Counsel

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

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 66

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

HIGH YIELD FUND
------------------------------------------------------------------------------

P R O S P E C T U S

OCTOBER 28, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 67

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
SHORT-TERM GLOBAL INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is a
non-diversified, 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 primarily in a
global portfolio of investment grade debt securities denominated in various
currencies and multi-national currency units and maintaining a dollar-weighted
average portfolio duration of not more than three years. The portfolio consists
of at least 80% of its net assets in investment grade debt securities issued or
guaranteed by foreign governments or supranational organizations or their
agencies, instrumentalities, or subdivisions, investment grade debt securities
issued by corporations, investment grade certificates of deposit or bankers
acceptances issued or guaranteed by large U.S. or foreign banks, investment
grade commercial paper and debt securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. The Fund may also invest up to
20% of its net assets in lower-grade debt securities which are below investment
grade. Investment in lower-grade securities, which securities are commonly
referred to as "junk bonds," involve special risks as compared to investments in
higher grade securities. See "Investment Objectives and Policies -- Special Risk
Considerations Regarding Lower Grade Debt Securities." 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.

(Continued on next page)

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

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 October 28, 1997, containing
additional information about the Fund is hereby incorporated by reference into
this Prospectus. A copy of the Fund's the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1997.

<PAGE> 68

(Continued from previous page)

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. The net asset value will fluctuate depending on market conditions and
other factors. There is no assurance that the Fund will achieve its investment
objective.

The Fund is a separate series of the Van Kampen American Capital Trust (the
"Trust"). The Fund's investment adviser is Van Kampen American Capital
Investment Advisory Corp. (the "Adviser"). 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 (800) 421-5666.

2
<PAGE> 69

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 8
Annual Fund Operating Expenses and Example.................. 9
Financial Highlights........................................ 11
The Fund.................................................... 13
Investment Objective and Policies........................... 13
Investment Practices........................................ 22
Investment Advisory Services................................ 29
Alternative Sales Arrangements.............................. 31
Purchase of Shares.......................................... 33
Shareholder Services........................................ 43
Redemption of Shares........................................ 47
Distribution and Service Plans.............................. 50
Distributions from the Fund................................. 52
Tax Status.................................................. 53
Fund Performance............................................ 58
Description of Shares of the Fund........................... 60
Additional Information...................................... 60
</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> 70

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

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 (the "Trust"). The Trust is an open-end management investment company
organized as a Delaware business trust.

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").

INVESTMENT OBJECTIVE. The Fund's investment objective is to seek a high level
of current income, consistent with prudent investment risk. There is no
assurance that the Fund will achieve its investment objective. See "Investment
Objective and Policies."

INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing primarily in a global portfolio of investment grade debt securities
denominated in various currencies and multi-national currency units and
maintaining a dollar-weighted average portfolio duration of not more than three
years. In normal market conditions, 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. In normal market
conditions, the Fund invests at least 80% of its total net assets in investment
grade debt securities. The Fund may also invest up to 20% of its net assets in
lower-grade debt securities which are below investment grade. Investment in
lower-grade securities, which securities are commonly referred to as "junk
bonds", involve special risks as compared to investments in higher grade
securities. See "Investment Objectives and Policies -- Special Risk
Considerations Regarding Lower Grade Debt Securities." 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. Investment
grade debt securities and securities with shorter duration generally have lower
yields than debt securities of lower quality and with longer maturities. See
"Investment Objective and Policies" and "Investment Practices."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

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

REDEMPTION. Class A Shares generally may be redeemed at net asset value,
without charge subject to conditions set forth herein. Shares sold subject to a
contingent deferred sales charge ("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 expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. The

4
<PAGE> 71

Fund may require the redemption of shares if the value of an account is $500 or
less. See "Redemption of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.

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."

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 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 value of the
Fund's assets as denominated in U.S. dollars and the Fund's dollar denominated
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.

5
<PAGE> 72

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

The Fund may invest up to 20% of its net assets in lower grade debt
securities, including securities of foreign issuers and securities rated in the
lowest rating categories. Investment in medium or lower grade securities, which
securities are commonly referred to as "junk bonds" involve special risks as
compared to investments in higher grade securities. See "Investment Objectives
and Policies -- Special Risk Considerations Regarding Lower Grade Debt
Securities."

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 respect to 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 investments in 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.

6
<PAGE> 73

The Fund may invest in certain types of income securities that involve special
risks; such securities include mortgage-backed and asset-backed securities,
stripped income securities, floating and variable rate income securities, Brady
Bonds, and structured investments. See "Investment Objectives and Policies."

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 United States 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 investment company.

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

7
<PAGE> 74

- ------------------------------------------------------------------------------
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 original purchase price
or redemption proceeds)...... None(2) Year Year
1--3.00% 1--1.00%
Year After--None
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. See "Purchase of Shares--Class A
Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on certain redemptions
made within one year of the purchase. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class A Share Purchases of $1 Million or More."

8
<PAGE> 75

<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%(3) 1.00%(3)
Other Expenses (after expense reimbursement)
(as a percentage of average daily net
assets)(2).................................. 0.53% 0.54% 0.54%
Total Expenses (after expense reimbursement)
(as a percentage of average daily net
assets)(2).................................. 1.33% 2.09% 2.09%
</TABLE>

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

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund 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 for distribution-related expenses. 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. See "Distribution and Service Plans."

(2) Absent the Adviser's waiver or reimbursement of certain expenses of the
Fund, "Other Expenses" would have been 0.56%, 0.57% and 0.57% for Class A
Shares, Class B Shares and Class C Shares, respectively, and "Total
Expenses" would have been 1.36%, 2.12% and 2.12% for Class A Shares, Class B
Shares and Class C Shares, respectively.

(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense by NASD
Rules.

9
<PAGE> 76

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 1.33% for Class A Shares,
2.09% for Class B Shares and 2.09% for Class
C Shares, (ii) a 5.00% annual return and
(iii) redemption at the end of each period:
Class A Shares............................ $46 $73 $103 $187
Class B Shares............................ 51 75 112 205*
Class C Shares............................ 31 65 112 242
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................ $46 $73 $103 $187
Class B Shares............................ 21 65 112 205*
Class C Shares............................ 21 65 112 242
</TABLE>

- ------------------------------------------------------------------------------
* Based on conversion to Class A Shares after six years.

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 and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. 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. Fees currently waived or expenses
reimbursed may not continue; accordingly, future expenses as projected may
increase. Class B Shares acquired through the exchange privilege are subject to
the CDSC 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 CDSC. 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
LESS THAN THOSE SHOWN. For a more complete description of such costs and
expenses, see "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

10
<PAGE> 77

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (for one share outstanding throughout the periods)
- --------------------------------------------------------------------------------

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund outstanding throughout each of
the periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent accountants, for each of the periods 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
-------------------------------------------------------------------------------
SEPTEMBER 28, 1990
YEAR ENDED JUNE 30 (COMMENCEMENT
------------------------------------------------------ INVESTMENT OPERATIONS)
1997 1996 1995 1994 1993 1992 TO JUNE 30, 1991
---- ---- ---- ---- ---- ---- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 7.62 $ 7.56 $ 8.15 $ 9.11 $ 9.65 $ 9.49 $ 9.70
Net Investment Income......................... .42 .49 .50 .59 .71 .69 .62
Net Realized and Unrealized Gain/Loss......... .03 .16 (.45) (.89) (.46) .34 (.15)
------ ------ ------- ------- ------- ------ -------
Total from Investment Operations................ .45 .65 .05 (.30) .25 1.03 .47
------ ------ ------- ------- ------- ------ -------
Less:
Distributions from and in Excess of Net
Investment Income........................... .51 -0- .37 .35 .79 .87 .68
Return of Capital Distribution................ .01 .59 .27 .31 -0- -0- -0-
------ ------ ------- ------- ------- ------ -------
Total Distributions............................. .52 .59 .64 .66 .79 .87 .68
------ ------ ------- ------- ------- ------ -------
Net Asset Value, End of Period.................. $ 7.55 $ 7.62 $ 7.56 $ 8.15 $ 9.11 $ 9.65 $ 9.49
====== ====== ======= ======= ======= ====== =======
Total Return(*)(a).............................. 6.09% 8.81% .69% (3.61%) 2.86% 11.35% 4.97%**
Net Assets at End of Period (In millions)....... $ 39.5 $ 50.1 $ 72.5 $ 147.7 $ 205.9 $205.1 $ 85.4
Ratio of Expenses to Average Net Assets(*)(b)... 1.33% 1.31% 1.14% 1.13% 1.14% 1.32% 1.57%
Ratio of Net Investment Income to Average Net
Assets*....................................... 5.37% 6.54% 7.20% 6.64% 7.87% 8.12% 7.20%
Portfolio Turnover.............................. 378% 225% 204% 259% 141% 65% 78%
- ----------------
* If certain expenses had not been assumed by the Adviser, Total Return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets(b).... 1.36% 1.34% N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets.......................................... 5.34% 6.51% N/A N/A N/A N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A -- Not Applicable

See Financial Statements and Notes Thereto

11
<PAGE> 78

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--continued (for one share outstanding throughout the
periods)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
--------------------------------------------------------------- -------------------------
JULY 22, 1991
YEAR ENDED JUNE 30 (COMMENCEMENT YEAR ENDED JUNE 30
-------------------------------------------- OF DISTRIBUTION) -------------------------
1997(A) 1996 1995 1994 1993 TO JUNE 30, 1992 1997(A) 1996 1995
------- ---- ---- ---- ---- ---------------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 7.62 $ 7.56 $ 8.15 $ 9.10 $ 9.65 $ 9.43 $ 7.62 $ 7.56 $ 8.16
Net Investment Income............. .35 .39 .41 .54 .67 .78 .35 .45 .50
Net Realized and Unrealized
Gain/Loss....................... .04 .20 (.42) (.90) (.49) .19 .04 .14 (.52)
------ ------ ------ ------- ------ ------- ------ ------ ------
Total from Investment Operations... .39 .59 (.01) (.36) .18 .97 .39 .59 (.02)
------ ------ ------ ------- ------ ------- ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income........ .45 -0- .34 .32 .73 .75 .45 -0- .34
Return of Capital Distribution.... .01 .53 .24 .27 -0- -0- .01 .53 .24
------ ------ ------ ------- ------ ------- ------ ------ ------
Total Distributions................ .46 .53 .58 .59 .73 .75 .46 .53 .58
------ ------ ------ ------- ------ ------- ------ ------ ------
Net Asset Value, End of Period..... $ 7.55 $ 7.62 $ 7.56 $ 8.15 $ 9.10 $ 9.65 $ 7.55 $ 7.62 $ 7.56
====== ====== ====== ======= ====== ======= ====== ====== ======
Total Return*(b)................... 5.29% 8.02% (.14%) (4.22%) 2.02% 10.47%** 5.29% 8.03% (.27%)
Net Assets at End of Period (In
millions)......................... $ 52.1 $ 81.1 $127.9 $ 271.8 $393.1 $ 241.7 $ .2 $ .2 $ .2
Ratio of Expenses to Average Net
Assets*(c)........................ 2.09% 2.09% 1.96% 1.85% 1.85% 2.08% 2.09% 2.07% 1.96%
Ratio of Net Investment Income to
Average Net Assets*............... 4.62% 5.79% 6.42% 5.91% 7.20% 8.62% 4.63% 5.72% 6.30%
Portfolio Turnover................. 378% 225% 204% 259% 141% 65% 378% 225% 204%
- ----------------
* If certain expenses had not been assumed by the Adviser, Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets(c).......................... 2.12% 2.12% N/A N/A N/A N/A 2.12% 2.09% N/A
Ratio of Net Investment Income to
Average Net Assets................. 4.59% 5.76% N/A N/A N/A N/A 4.60% 5.69% N/A

<CAPTION>
CLASS C SHARES
----------------
AUGUST 13, 1993
(COMMENCEMENT
OF DISTRIBUTION)
TO JUNE 30, 1994
----------------
<S> <C>
Net Asset Value, Beginning of
Period............................ $ 9.24
Net Investment Income............. .49
Net Realized and Unrealized
Gain/Loss....................... (1.05)
-------
Total from Investment Operations... (.56)
-------
Less:
Distributions from and in Excess
of Net Investment Income........ .27
Return of Capital Distribution.... .25
-------
Total Distributions................ .52
-------
Net Asset Value, End of Period..... $ 8.16
=======
Total Return*(b)................... (6.32%)**
Net Assets at End of Period (In
millions)......................... $ .2
Ratio of Expenses to Average Net
Assets*(c)........................ 1.84%
Ratio of Net Investment Income to
Average Net Assets*............... 5.83%
Portfolio Turnover................. 259%
- ----------------
* If certain expenses had not been
have been as follows:
Ratio of Expenses to Average Net
Assets(c).......................... N/A
Ratio of Net Investment Income to
Average Net Assets................. N/A
</TABLE>

** Non-Annualized

(a) Based on average month-end shares outstanding.

(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A -- Not Applicable

See Financial Statements and Notes Thereto

12
<PAGE> 79

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

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

- ------------------------------------------------------------------------------
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'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% of the voting securities present
at a meeting of shareholders, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy at such meeting, or (ii)
more than 50% of the outstanding voting securities) of the Fund's outstanding
shares. The Fund seeks to achieve its investment objective by investing in a
global portfolio of investment grade debt securities denominated in various
currencies and multi-national currency units and maintaining a dollar-weighted
average portfolio duration of not more than three years.

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. Investment grade debt securities and securities with shorter duration
generally have lower yields than debt securities of lower quality and with
longer maturities. There can be no assurance that the Fund will achieve its
investment objective. An investment in the Fund may not be appropriate for all
investors. The Fund is not intended to be a complete investment program, and
investors should consider their long-term investment goals and financial needs
when making an investment decision with respect to the Fund. An investment in
the Fund is intended to be a long-term investment and should not be used as a
trading vehicle.

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. An issuer of
debt

13
<PAGE> 80

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 investing at least 80% of its net
assets in investment grade debt securities. Accordingly, the Fund will invest at
least 80% of its net assets in: (i) obligations issued or guaranteed by foreign
governments or supranational organizations or their agencies, instrumentalities
or subdivisions and that are rated, at the time of investment, at least BBB by
Standard & Poor's Ratings Group ("S&P") or at least Baa 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 ("Investment Grade Ratings") or, if
unrated, determined by the Adviser to be of comparable quality; (ii) corporate
debt securities having at least one Investment Grade 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 investment
grade; (iv) commercial paper rated, at the time of investment, A-3 by S&P,
Prime-3 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
BBB or Baa by S&P or Moody's, respectively, 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.

Securities rated BBB by S&P are regarded by S&P as having an adequate capacity
to pay interest and repay principal. Whereas such securities normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely, in the opinion of S&P, to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. According to published guidelines, securities rated Baa
by Moody's are considered by Moody's as medium grade obligations. Such
securities are, in the opinion of Moody's, neither highly protected nor poorly
secured. Interest payments and principal security appear to Moody's to be
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. In the opinion
of Moody's they lack outstanding investment characteristics and in fact have
speculative characteristics as well. For a description of S&P's and Moody's
ratings see the Statement of Additional Information.

The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
NRSRO) downgrades its assessment of the credit characteristics of a particular
issuer. In

14
<PAGE> 81

determining whether the Fund will retain or sell such a security, the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other NRSRO.

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. The Fund seeks to maintain a
dollar-weighted average portfolio duration of not more than three years.
Duration is a measure of the expected life of a debt security on a present value
basis expressed in years that incorporates a debt security's yield, coupon
interest payments, final maturity and call features into one measure.
Traditionally, a debt security's "term to maturity" has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the "interest rate risk" or "price volatility" of the security). However, "term
to maturity" measures only the time until a debt security provides its final
payment taking no account of the pattern of the security's payments of interest
or principal prior to maturity. Duration is a function of the length of the time
interval between the present and the time when each payment of interest and
principal is scheduled to be received (or in the case of a callable bond,
expected to be received), weighing such payments by the present value of the
cash to be received at each future point in time. In general, the lower the
coupon rate of interest, the longer the maturity, or the lower the
yield-to-maturity of a debt security, the longer its duration; conversely, the
higher the coupon rate of interest, the shorter the maturity or the higher the
yield to maturity of a debt security, the shorter its duration. With respect to
certain securities, there are some situations where even the standard duration
calculation does not properly reflect the interest rate exposure of a security.
In these and other similar situations, the Adviser will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.

The net asset value of the Fund's shares will change as the general level of
interest rates fluctuates. 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. 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

15
<PAGE> 82

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.

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 may receive a large portion of any income and gains 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, however, 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

16
<PAGE> 83

Fund will purchase such commercial paper and certificates of deposit for hedging
purposes only, not for speculation. The Fund currently maintains a segregated
account with respect to its investments in this type of commercial paper and
certificates of deposit containing cash or liquid securities having a value
equal to the aggregate principal amount of outstanding commercial paper and
certificates of deposit of this type.

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 the 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, often 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.

17
<PAGE> 84

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 those countries.
There may be less publicly available information about a foreign financial
instrument than about a 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 income,
withholding or other taxes, which would reduce the Fund's total return on such
investments and the amounts 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

18
<PAGE> 85

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 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. 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."

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.

The Fund may invest up to 20% of its net total assets in lower grade debt
securities. Lower grade debt securities are securities rated BB or below by S&P,
Ba or below by Moody's, comparably rated by any other NRSRO or, if not rated by
any NRSRO, determined by the Adviser to be of comparable quality to income
securities so rated. Lower grade debt securities are commonly referred to as
"junk bonds" and are regarded by S&P and Moody's as predominately speculative
with respect to the capacity to pay interest or repay principal in accordance
with their

19
<PAGE> 86

terms. Lower grade debt securities involve a greater degree of credit risk than
investment grade debt securities. There is no minimum rating or comparable
quality standard imposed on the Fund's investments and the Fund may purchase
debt securities that are rated D and that are in default in the payment of
interest or repayment of principal. In S&P's view, the D rating category is used
when interest payments or principal payments are not made on the date due even
if an applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D' rating also is used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.

The Fund may invest in certain types of income securities that involve special
risks including, but not limited to, each of the following:

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are
securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property.
Mortgage-backed securities may be issued by the U.S. government or its agencies
or by private entities. The yield characteristics of mortgage-backed securities
differ from traditional debt securities. Interest and principal prepayments are
made more frequently, usually monthly, and principal may be prepaid at any time.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment. Amounts available
for reinvestment by the Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-baked
securities have structural characteristics similar to mortgage-backed
securities, but have underlying assets such as automobile and credit card
receivables and home equity loans. In general, these types of loans are of
shorter average life than mortgage loans and are less likely to have substantial
prepayments.

STRIPPED INCOME SECURITIES. Stripped income securities are derivative
obligations representing an interest in all or a portion of the income or
principal components of an underlying or related security, a pool of securities
or other assets. In the most extreme case, one class will receive all of the
interest (the interest-only or "IO" class), while the other class will receive
all of the principal (the principal-only or "PO" class). The market values of
stripped income securities tend to be more volatile in response to changes in
interest rates than are conventional income securities. In the case of
mortgage-backed IOs, if the underlying assets experience greater than
anticipated prepayments of principal, the Fund may not fully recoup its initial
investment.

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<PAGE> 87

increases and decreases in the value of securities whose rates vary inversely
with changes in market rates of interest generally will be larger than
comparable changes in the value of an equal principal amount of a fixed rate
security having similar credit quality, redemption provisions and maturity.

BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. "Brady Bonds" are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. Certain Brady Bonds
have been collateralized as to principal due at maturity by U.S. Treasury zero
coupon bonds with a maturity equal to the final maturity of such Brady Bonds.
Brady Bonds have been issued only since 1989, and accordingly do not have a long
payment history. In light of the risk of Brady Bonds including, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are to be viewed as speculative.

STRUCTURED INVESTMENTS. The fund may invest a portion of its assets in
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of other income securities. This type of
restructuring involves the deposit with or purchase by an entity of income
securities (such as mortgages, bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of securities ("Structured Investments")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
Structured Investments to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions.

DOMESTIC LOWER GRADE INCOME SECURITIES. Domestic lower grade income securities
are income securities of domestic issuers rated below investment grade or, if
not rated, determined by the Adviser to be of comparable quality to securities
rated below investment grade. Lower grade income securities commonly are
referred to as "junk bonds." Such securities are issued primarily by domestic
corporations. Investment in lower grade income securities involves certain
risks. See "Special Risk Considerations Regarding Lower Grade Debt Securities."

FOREIGN LOWER GRADE INCOME SECURITIES. Foreign lower grade income securities
are income securities issued by non-domestic issuers and rated below investment
grade or, if not rated, determined by the Adviser to be of comparable quality to
income securities rated below investment grade. Lower grade income securities
commonly are referred to as "junk bonds." Such securities may include income
securities issued or guaranteed by foreign governments or their agencies,
central banks of foreign countries and corporations or other business entities.
Investments in this sector may include interests or assignments in nonperforming
or restructured

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<PAGE> 88

income securities. Issuers of foreign lower grade income securities frequently
will be located in emerging market countries, including countries in Latin
America, Eastern Europe, Africa and much of Asia. Investment in emerging market
countries involves significant risks. See "Special Risk Considerations Regarding
Lower Grade Debt Securities."

SPECIAL RISK CONSIDERATIONS REGARDING LOWER GRADE DEBT SECURITIES. Up to 20%
of the Fund's assets may be invested in lower grade securities, commonly
referred to as "junk bonds." Debt securities rated BB or below by S&P or below
Ba by Moody's are deemed by S&P and Moody's to be predominately speculative with
respect to the issuer's capacity to pay interest and repay principal and may
involve major risk exposure to adverse conditions. The lower grade debt
securities in which the Fund may invest may include securities having the lowest
ratings assigned by S&P or Moody's and, together with comparable unrated
securities, may include securities in default or that face the risk of default
with respect to the payment of principal or interest or that have filed for
bankruptcy protection. These securities are considered to have extremely poor
prospects of ever attaining any real investment standing. See the Statement of
Additional Information for a more complete description of S&P and Moody ratings.
Lower grade debt securities are especially subject to adverse changes in general
economic conditions, the industries in which the issuers are engaged, the
financial condition of the issuers and prevailing interest rates. Issuers of
lower grade debt securities are often highly leveraged and may not have
available to them more traditional methods of financing. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and interest and increase the possibility of default.
Lower grade debt securities are generally unsecured and are often subordinated
to other debt securities or the issuer. To the extent the Fund is required to
seek recovery upon a default in the payment of principal or interest on its
portfolio holdings, the Fund may incur additional expenses and, with respect to
foreign lower grade debt securities, may have limited legal recourse in the
event of a default. Lower grade debt securities frequently have call or buy-back
features which permit an issuer to call or repurchase the security prior to its
maturity. If an issuer exercises these provisions in a declining interest rate
environment, the Fund may have to reinvest in lower yielding securities,
resulting in a decrease in income earned by the Fund.

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INVESTMENT PRACTICES
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<PAGE> 89

investment objectives, no assurance can be given that these investment practices
will achieve this result.

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<PAGE> 90

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.

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 the 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

24
<PAGE> 91

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 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 up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions or the markets for
which are illiquid.

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<PAGE> 92

The sale of such 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 or illiquid securities by the Fund for purposes of the
investment limitation set forth above.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on securities in connection with such purchase
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the securities at delivery may be more or less than their purchase price, and
yields generally available on comparable securities when delivery occurs may be
higher or lower than yields on the securities obtained pursuant to such
transactions. Because the Fund relies on the buyer or seller, as the case may
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous. When the Fund is the buyer in such a
transaction, however, it will maintain, in a segregated account with its
custodian, cash or liquid 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

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<PAGE> 93

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 Trust. 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 1940 Act, repurchase agreements may be considered collateralized loans by
the Fund, and the difference between the amount the Fund pays for the securities
and the amount it receives upon resale is accrued as interest and reflected in
the Fund's net income. When the Fund enters into repurchase agreements, it
relies on the seller to repurchase the securities. Failure to do so may result
in a loss for the Fund if the market value of the securities is less than the
repurchase price. At the time the Fund enters into a repurchase agreement, the
value of the underlying security including accrued interest will be equal to or
exceed the value of the repurchase agreement and, for repurchase agreements that
mature in more than one day, the seller will agree that the value of the
underlying security including accrued interest will continue to be at least
equal to the value of the repurchase agreement. In determining whether to enter
into a repurchase agreement with a bank or broker-dealer, the Fund will take
into account the 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.
Repurchase agreements that mature in more than seven days are treated by the
Fund as illiquid securities and are subject to the Fund's limitation on
"illiquid" securities.

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<PAGE> 94

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.

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 may 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 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 annual
portfolio turnover rate is shown in the table of "Financial Highlights."

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<PAGE> 95

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 may place portfolio transactions, to the extent permitted by law,
with brokerage firms affiliated with the Fund, the Adviser or the Distributor
and with firms participating in the distribution of the Fund's shares if it
reasonably believes that the quality of execution and the commission are
comparable to that available from other qualified firms. See "Portfolio
Transactions and Brokerage Allocation" in the Statement of Additional
Information for more information.

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INVESTMENT ADVISORY SERVICES
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<PAGE> 96

closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., the distributor of the Fund and sponsor of the funds
mentioned above, is a wholly-owned subsidiary of Van Kampen American Capital.
Van Kampen American Capital is an indirect wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. The Adviser's principal office is located
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

ADVISORY AGREEMENT. The business and affairs of the Fund are managed under the
direction of the Board of Trustees of the Trust, of which the Fund is a separate
series. Subject to the Trustees' authority, the Adviser and the officers of the
Fund supervise and implement the Fund's investment activities and are
responsible for overall management of the Fund's business affairs. The Fund pays
the Adviser a fee computed based on an annual rate of 0.55% applied to the
average daily net assets of the Fund.

Under its investment advisory agreement, the Fund has agreed to assume and pay
the charges and expenses of the Fund's operations, including the compensation of
the Trustees of the Trust (other than those who are affiliated persons, as
defined in the 1940 Act, of the Adviser, the Distributor or Van Kampen American
Capital), the charges and expenses of independent accountants, legal counsel,
transfer agent (ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned
subsidiary of Van Kampen American Capital) 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 federal and state securities laws, miscellaneous expenses and
all taxes and fees to federal, state or other governmental agencies. The Adviser
reserves the right in its sole discretion from time to time to waive all or a
portion of its management fee or to reimburse the Fund for all or a portion of
its other expenses.

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<PAGE> 97

The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.

PORTFOLIO MANAGEMENT. Thomas J. Slefinger, First Vice President of the
Adviser, 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 July 1989.

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ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

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
accounts under $1 million) or (b) on a contingent deferred basis (Class A Share
accounts over $1 million, Class B Shares and Class C Shares). Shares purchased
subject to a contingent deferred sales charge (a "CDSC") sometimes are referred
to herein collectively as "Contingent Deferred Sales Charge Shares" or "CDSC
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

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<PAGE> 98

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
million, a purchaser of such Class A Shares would not have all of his or her
funds invested initially and, therefore, would initially own fewer shares than
if Class B Shares or Class C Shares had been purchased. On the other hand, an
investor whose purchase would not qualify for price discounts applicable to
Class A Shares and intends to remain invested until after the expiration of the
applicable CDSC 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 which have a shorter CDSC period (discussed
below). Investors should weigh the benefits of deferring the sales charges and
having all of their funds invested against the higher aggregate distribution and
service fee applicable to Class B Shares and Class C Shares.

32
<PAGE> 99

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. 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.

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PURCHASE OF SHARES
- ------------------------------------------------------------------------------

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

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

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<PAGE> 100

distribution arrangements for shares of the Fund. Also, the Distributor in its
discretion may from time to time, pursuant to objective criteria established by
it, pay fees 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. In some instances additional compensation or promotional
incentives may be offered to brokers, dealers or financial intermediaries that
have sold or may sell significant amounts of shares during specified periods of
time. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. Such payments to brokers, dealers and
financial intermediaries for sales contests, other sales programs and seminars
are made by the Distributor out of its own assets and not out of assets of the
Fund. Such fees paid for such services and activities with respect to the Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.

CLASS A SHARES

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

34
<PAGE> 101

than 90% or more of the sales charge may be deemed to be "underwriters" as that
term is defined in the Securities Act of 1933, as amended.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
SIZE OF TRANSACTION OF OFFERING OF NET OF OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $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
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers or financial intermediaries who initiate
and are responsible for purchases of $1 million or more. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."

QUANTITY DISCOUNTS

VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person at any one
time

35
<PAGE> 102

in Class A Shares of the Fund, or in any combination of shares of the Fund and
shares of other Participating Funds, although other Participating Funds may have
different sales charges.

OTHER PURCHASE PROGRAMS

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund at net asset value, with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the

36
<PAGE> 103

Distributor. The total sales charge for all other investments made from unit
trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer, financial intermediary or the Distributor.

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the

37
<PAGE> 104

aggregate amount invested in Class A Shares of the Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

38
<PAGE> 105

(8) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and Participating Funds, (iv) has a membership that the authorized
dealer can certify as to the group's members and (v) satisfies other
uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified
group does not include one whose sole organizational nexus, for example,
is that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar groups.
Shares purchased in each group's participants account in connection with
this privilege will be subject to a CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares and Class C Shares.
The public offering price of a CDSC Share is equal to the net asset value per
share without the imposition of a sales charge at the time of purchase. CDSC
Shares are sold without an initial sales charge so that the Fund may invest the
full amount of the investor's purchase payment.

39
<PAGE> 106

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 CDSC 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.
The CDSC schedule and holding period applicable to any CDSC Share acquired
through an exchange privilege is determined by reference to the Participating
Fund from which such share was originally purchased.

To provide an example, assume an investor purchased 100 Class B Shares 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).

Proceeds from the CDSC and the distribution fee 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 CDSC 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. The Distributor compensates brokers, dealers and financial
intermediaries participating in the continuous public offering of the CDSC
Shares out of its own assets, and not out of the assets of the Fund, at a
percentage rate of the dollar value of the CDSC Shares purchased from the Fund
by such brokers, dealers and financial intermediaries, which percentage rate is
equal to (i) with respect to Class A Shares, 1.00% on sales to $2 million, plus
0.80% on the next $1 million and 0.50% on the excess over $3 million; (ii) 3.00%
with respect to Class B Shares and (iii) 1.00%

40
<PAGE> 107

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.

CLASS B SHARES. Class B Shares redeemed within three years of purchase
generally will be subject to a CDSC 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
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
------------------- --------------------------------
<S> <C>
First...................................... 3.00%
Second..................................... 2.00%
Third...................................... 1.00%
Fourth and after........................... 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan".

CLASS C SHARES. Class C Shares redeemed within the first 12-months of purchase
generally will be subject to a CDSC of 1.00% of the dollar amount subject
thereto. Class C Shares redeemed thereafter will not be subject to a CDSC.

41
<PAGE> 108

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
is also waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 180 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

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 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

42
<PAGE> 109

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.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

43
<PAGE> 110

In addition, if such certificates are lost the shareholder must write to Van
Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to ACCESS. On the date the letter is received ACCESS will
calculate a fee for replacing the lost certificate equal to no more than 2.00%
of the net asset value of the issued shares and bill the party to whom the
replacement certificate was mailed.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of a Participating
Fund so long as the investor has a pre-existing account for such class of shares
of the other fund. Both accounts must be of the same type, either non-retirement
or retirement. If the accounts are retirement accounts, they must both be for
the same type of retirement plan (e.g., IRA, 403(b)(7), 401(k) or Keogh) and for
the benefit of the same individual. If the qualified pre-existing account does
not exist, the shareholder must establish a new account subject to minimum
investment and other requirements of the fund into which distributions would be
invested. Distributions are invested into the selected fund at its net asset
value as of the payable date of the distribution.

44
<PAGE> 111

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the net asset values of each fund after
requesting the exchange without any sales charge, subject to certain
limitations. Shares of the Fund may be exchanged for shares of any Participating
Fund only if shares of the Participating Fund are available for sale; however,
during periods of suspensions of sales, shares of a Participating Fund may be
available for sale only to existing shareholders of the Participating Fund.
Shareholders seeking an exchange with a Participating Fund should obtain and
read the current prospectus of such fund.

When Class B Shares and Class C Shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase from a Participating Fund (the "original fund").
Upon redemption from the Participating Funds' complex of funds, Class B Shares
and Class C Shares are subject to the CDSC schedule imposed by the original
fund.

45
<PAGE> 112

from the new account into another fund, an exchanging shareholder must file a
specific written request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund may modify, restrict
or terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25. Such a systematic withdrawal plan may also be maintained by an investor
purchasing shares for a retirement plan established on a form made available by
the Fund. See "Shareholder Services -- Retirement Plans."

46
<PAGE> 113

to the agent, a supply of checks drawn on State Street Bank and Trust Company
("State Street Bank") will be sent to such shareholder. These checks may be made
payable by the holder of Class A Shares to the order of any person in any amount
of $100 or more.

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares may not liquidate the entire account by means of a
check. The check writing privilege may be terminated or suspended at any time by
the Fund or State Street Bank. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on these checks.

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

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be

47
<PAGE> 114

redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would exceed $50,000, or
if the proceeds are not to be paid to the record owner at the record address, or
if the record address has changed within the previous 30 days, signature(s) must
be guaranteed by one of the following: a bank or trust company; a broker-dealer;
a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next determined after the
request is received by ACCESS in proper form. Payment for shares redeemed (less
any sales charge, if applicable) will ordinarily be made by check mailed within
three business days after acceptance by ACCESS of the request and any other
necessary documents in proper order.

48
<PAGE> 115

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

49
<PAGE> 116

and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal (and interest) on their borrowings on such plans.

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

DISTRIBUTION AND SERVICE PLANS

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

50
<PAGE> 117

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 connection with the distribution of Class B 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 B Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

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

51
<PAGE> 118

respect to any such class of CDSC Shares, any unreimbursed distribution-related
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 June 30, 1997, there were $7,742,616 and
$1,283 of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares respectively, representing 14.88% and 0.72% of the
Fund's net assets attributable to Class B Shares and Class C Shares,
respectively. 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 CDSC.

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 CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

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

52
<PAGE> 119

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

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit monthly 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
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired) or in writing to ACCESS. See "Shareholder Services -- Reinvestment
Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

TAXATION OF THE FUND

The Fund has qualified and intends to continue to qualify each year to be
treated as a regulated investment company under Subchapter M of the Code. To
qualify as a regulated investment company, the Fund must comply with certain
requirements of the Code relating to, among other things, the source of its
income and 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

53
<PAGE> 120

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
tax-exempt income and 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 90%
distribution requirement. The Fund will not be subject to federal income tax on
any net capital gains distributed to its shareholders.

In order to avoid a 4% excise tax the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income for such year and
at least 98% of its 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 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 recognize income or gain without
receiving cash with

54
<PAGE> 121

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). Under recently
enacted legislation, this requirement will no longer be applicable of the Fund
beginning on July 1, 1998.

DISTRIBUTIONS

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income, to the extent of the Fund's earnings and profits, 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).
For a summary of the tax rates applicable to capital gains (including capital
gain dividends), see "Capital Gains Rates Under the 1997 Tax Act" below.

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, except to the

55
<PAGE> 122

extent the Fund receives dividends from domestic 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
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

56
<PAGE> 123

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

The sale of shares (including transfers in connection with a redemption or
repurchase of shares) will be a taxable transaction for federal income tax
purposes. Selling shareholders will generally recognize gain or loss in an
amount equal to the difference between their adjusted tax basis in the 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. For a summary of the tax rates applicable
to capital gains, see "Capital Gains Rates Under the 1997 Tax Act" below. 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. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property, or through certain options or share sales.

CAPITAL GAINS RATES UNDER THE 1997 TAX ACT

Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other non-
corporate taxpayers are (i) the same as ordinary income rates for capital assets
held for one year or less, (ii) 28% for capital assets held for more than one
year but not more than 18 months and (iii) 20% for capital assets held for more
than 18 months. Under the 1997 Tax Act, the Treasury is authorized to issue
regulations that address the application of the new capital gains rates to sales
and exchanges by regulated investment companies and to sales and exchanges of
interests in regulated investment companies, but no such regulations have been
issued as of the date hereof. It is expected that the new tax rates for capital
gains under the 1997 Tax Act described above will apply to distributions of
capital gains dividends by regulated investment companies such as the Fund as
well as to sales and exchanges of shares in regulated investment companies such
as the Fund. With respect to capital losses recognized on dispositions of shares
held six months or less where such losses are treated as long-term capital
losses to the extent of prior capital gains dividends received on such shares
(see "Sale of Shares" above), it is unclear how such capital losses offset the
capital gains referred to above. Shareholders should consult their own tax
advisors as to the application of the new capital gains rates to their
particular circumstances.

57
<PAGE> 124

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 purchasing holding and disposing of shares,
as well as the effects of state, local and foreign tax laws and any proposed tax
law changes.

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

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. Yield quotations do not reflect the
imposition of a CDSC, and if any such CDSC imposed at the time of redemption
were reflected, it would reduce the performance quoted.

58
<PAGE> 125

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.

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 CDSC, and if any such CDSC 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 or reward characteristics
than the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal or return. In
addition, from time to time sales materials and advertisements for the Fund may
include hypothetical information.

Further information about the Fund's performance is contained in the Fund's
Annual Report, Semi-Annual Report, and Statement of Additional Information,

59
<PAGE> 126

each of which can be obtained without charge by calling (800) 421-5666 ((800)
421-2843 for the hearing impaired).

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes, designated Class A Shares, Class B
Shares and Class C Shares. The Fund is permitted to issue an unlimited number of
classes of shares. Other classes of shares may be established from time to time
in accordance with provisions of the Fund's Declaration of Trust.

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. Except as discussed herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of the Fund is entitled to its pro rata portion of all of the Fund's
net assets after all debts and expenses of the Fund have been paid. Since Class
B Shares and Class C Shares pay higher distribution expenses, the liquidation
proceeds to holders of Class B Shares and Class C Shares are likely to be lower
than to holders of Class A Shares.

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

60
<PAGE> 127

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.

dividends and capital gains distributions.

61
<PAGE> 128

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

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

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

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

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
Short-Term Global Income Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Short-Term Global Income Fund

Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 129

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

SHORT-TERM GLOBAL
INCOME FUND

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

P R O S P E C T U S

OCTOBER 28, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 130

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
STRATEGIC INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Strategic Income Fund (the "Fund") is a
non-diversified, open-end management investment company, commonly known as a
mutual fund. The Fund's primary investment objective is to seek to provide its
shareholders with high current income. The Fund has a secondary investment
objective of seeking capital appreciation. The Fund will seek to achieve its
investment objectives by investing primarily in a portfolio of income securities
selected by Van Kampen American Capital Investment Advisory Corp., the Fund's
investment adviser (the "Adviser"), from the following market sectors: U.S.
government securities; domestic investment grade income securities; domestic
lower grade income securities; foreign investment grade income securities; and
foreign lower grade income securities. The Adviser will allocate the Fund's
investments among these market sectors based on its evaluation of the relative
investment opportunities and investment risks presented by such sectors from
time to time. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in U.S. dollar-denominated income securities and at
least 40% of the Fund's total assets will be invested in U.S. government
securities and investment grade rated income securities. The Fund is organized
as a separate series of Van Kampen American Capital Trust (the "Trust").

A substantial portion of the Fund's assets may be invested in lower grade
income securities, including securities of issuers in emerging market countries
and
(Continued on next page)

------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------

A Statement of Additional Information, dated October 28, 1997, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device For the Deaf at (800) 421-2833. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is available along with other related materials at
the SEC's internet web site (http: //www.sec.gov).

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1997.

<PAGE> 131

(Continued from previous page)

securities rated in the lowest rating category. Investment in lower grade income
securities involves significant risks. Lower grade securities commonly are
referred to as "junk bonds." The Fund borrows money for investment purposes
which will create the opportunity for increased return but also involves special
risks. The Fund is allowed to invest in derivative mortgage-backed securities,
as described in "Investment Objectives and Policies--Portfolio
Securities--Mortgage-Backed and Asset-Backed Securities," without limitation. In
addition, the Fund may invest up to 20% of total assets in defaulted bank loans.
The Fund is designed for investors willing to assume additional risk in return
for the potential for high current income and capital appreciation. There can be
no assurance that the Fund will achieve its investment objectives. See
"Investment Objectives and Policies--Special Risk Factors" and "Investment
Practices--Use of Leverage."

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 (800) 421-5666.

2
<PAGE> 132

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 5
Annual Fund Operating Expenses and Example.................. 6
Financial Highlights........................................ 8
The Fund.................................................... 10
Investment Objectives and Policies.......................... 10
Investment Practices........................................ 21
Investment Advisory Services................................ 26
Alternative Sales Arrangements.............................. 28
Purchase of Shares.......................................... 30
Shareholder Services........................................ 40
Redemption of Shares........................................ 44
Distribution and Service Plans.............................. 46
Distributions from the Fund................................. 48
Tax Status.................................................. 50
Fund Performance............................................ 51
Description of Shares of the Fund........................... 52
Additional Information...................................... 53
</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> 133

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

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

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").

INVESTMENT OBJECTIVES. The Fund's primary investment objective is to seek to
provide its shareholders with high current income. The Fund has a secondary
investment objective of seeking capital appreciation. There is no assurance the
Fund will achieve its investment objectives. See "Investment Objectives and
Policies."

INVESTMENT POLICIES. The Fund seeks to achieve its investment objectives by
investing primarily in a portfolio of income securities selected by the Fund's
investment adviser from the following market sectors: U.S. government
securities; domestic investment grade income securities; domestic lower grade
income securities; foreign investment grade income securities; and foreign lower
grade income securities. See "Investment Objectives and Policies" and
"Investment Practices."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

PURCHASE OR SALE OF SHARES. Investors may elect to purchase Class A Shares,
Class B Shares or Class C Shares, each with different sales charges and
expenses. The different classes of shares permit an investor to choose the
method of purchasing shares that is most beneficial to the investor, taking into
account the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. See "Purchase of Shares." For
information on redeeming shares see "Redemption of Shares".

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.

SPECIAL RISK FACTORS. A substantial portion of the Fund's assets may be
invested in lower grade income securities, including securities of issuers in
emerging market countries and securities rated in the lowest ratings category.
Lower grade income securities commonly are referred to as "junk bonds."
Investment in lower grade income securities involves significant risks. The Fund
intends to borrow money for investment purposes which will create the
opportunity for increased return but also involves special risks. The Fund is
also allowed to invest in derivative mortgage-backed securities and defaulted
bank loans. The Fund is designed for investors willing to assume additional risk
in return for the potential for high current income and capital appreciation.
There can be no assurance that the Fund will achieve its investment objectives.
See "Investment Objectives and Policies--Special Risk Factors" and "Investment
Practices -- Use of Leverage".

THE FOREGOING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.

4
<PAGE> 134

- ------------------------------------------------------------------------------
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).......... 4.75%(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 original purchase price
or redemption proceeds)...... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed).................... None None None
Exchange fees.................. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

5
<PAGE> 135

<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)(1)............. 1.00% 1.00% 1.00%
12b-1 Fees (as a percentage of
average daily net assets)(2)............. 0.25% 1.00%(5) 1.00%(5)
Other Expenses:
Miscellaneous Other Expenses
(as a percentage of
average daily net assets; after expense
reimbursement)(3)...................... 0.56% 0.57% 0.56%
Interest Expenses (as a percentage of
average daily net assets)(4)........... 1.99% 1.98% 1.98%
Total Other Expenses (as a percentage of
average daily net assets; after expense
reimbursement)(3)(4)..................... 2.55% 2.55% 2.54%
Total Expenses (as a percentage of
average daily net assets; after expense
reimbursement)(3)(4)..................... 3.80% 4.55% 4.54%
</TABLE>

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

(1) Represents the effective management fee as a percent of average daily net
assets. Management fees are based on a percentage of average daily managed
assets. For purposes of determining the management fee, "average daily
managed assets" means the average daily value of the Fund's aggregate
assets, minus the sum of accrued liabilities other than the aggregate amount
of any borrowings undertaken by the Fund.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund 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 for distribution related expenses. 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. See "Distribution and Service Plans."

(3) Absent the Adviser's waiver or reimbursement of certain expenses of the Fund
"Total Other Expenses" would have been 2.60% for Class A Shares, 2.59% for
Class B Shares and 2.59% for Class C Shares and the "Total Expenses" would
have been 3.85% for Class A Shares, 4.59% for Class B Shares and 4.59% for
Class C Shares.

(4) The Fund incurred financing expenses related to borrowings for investment
purposes. Borrowings provide the opportunity for increased net income, but
may increase the Fund's investment risk. "Total Expenses" without regard to
the interest expense would have been 1.81%, 2.57% and 2.56% for each of the
Class A Shares, Class B Shares and Class C Shares, respectively. See
"Financial Highlights" and "Investment Objectives and Policies -- Special
Risk Factors."

(5) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense of NASD
Rules.

6
<PAGE> 136

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 3.80% for Class
A Shares, 4.55% for Class B Shares and
4.54% for Class C Shares, (ii) 5.00%
annual return and (iii) redemption at the
end of each time period:
Class A Shares............................ $84 $158 $234 $432
Class B Shares............................ $86 $172 $245 $450*
Class C Shares............................ $56 $137 $230 $465
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................ $84 $158 $234 $432
Class B Shares............................ $46 $137 $230 $450*
Class C Shares............................ $46 $137 $230 $465
</TABLE>

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

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table 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 and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment purposes. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. 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. Fees currently waived or expenses
reimbursed by the Adviser may not continue; accordingly, future expenses as
projected may increase. Class B Shares acquired through the exchange privilege
are subject to the 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 CDSC. 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 "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

7
<PAGE> 137

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund throughout the periods
indicated. The financial highlights have been audited by KPMG Peat Marwick LLP,
independent accountants, for each of the periods 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
-----------------------------------------------
FROM
DECEMBER 31, 1993
YEAR ENDED (COMMENCEMENT
JUNE 30, OF INVESTMENT
--------------------------- OPERATIONS) TO
1997 1996 1995 JUNE 30, 1994
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $12.065 11.704 $11.975 $14.300
------- ------- ------- -------
Net Investment Income..................................... 1.019 1.013 .657 .566
Net Realized and Unrealized Gain/Loss..................... .714 .446 .272 (2.391)
------- ------- ------- -------
Total from Investment Operations........................... 1.733 1.459 .929 (1.825)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net Investment
Income.................................................. 1.020 1.098 .793 .500
Return of Capital Distributions........................... -0- -0- .407 -0-
------- ------- ------- ------
Total Distributions........................................ 1.020 1.098 1.200 .500
------- ------- ------- ------
Net Asset Value, End of the Period......................... $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======

<CAPTION>
CLASS B SHARES
-----------------------------------------------
FROM
DECEMBER 31, 1993
YEAR ENDED (COMMENCEMENT
JUNE 30, OF INVESTMENT
--------------------------- OPERATIONS) TO
1997 1996 1995 JUNE 30, 1994
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $12.069 $11.706 $11.968 $14.300
------- ------- ------- ------
Net Investment Income..................................... .920 .926 .585 .515
Net Realized and Unrealized Gain/Loss..................... .717 .443 .245 (2.392)
------- ------- ------- ------
Total from Investment Operations........................... 1.637 1.369 .830 (1.877)
------- ------- ------- ------
Less:
Distributions from and in Excess of Net Investment
Income.................................................. .927 1.006 .722 .455
Return of Capital Distributions........................... -0- -0- .370 -0-
------- ------- ------- ------
Total Distributions........................................ .927 1.006 1.092 .455
------- ------- ------- ------
Net Asset Value, End of the Period......................... $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======

<CAPTION>
CLASS C SHARES
-----------------------------------------------
FROM
DECEMBER 31, 1993
YEAR ENDED (COMMENCEMENT
JUNE 30, OF INVESTMENT
--------------------------- OPERATIONS) TO
1997 1996 1995 JUNE 30, 1994
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------
Net Investment Income..................................... .913 .944 .598 .509
Net Realized and Unrealized Gain/Loss..................... .723 .422 .227 (2.388)
------- ------- ------- ------
Total from Investment Operations........................... 1.636 1.366 .825 (1.879)
------- ------- ------- ------
Less:
Distributions from and in Excess of Net Investment
Income.................................................. .927 1.006 .722 .455
Return of Capital Distributions........................... -0- -0- .370 -0-
------- ------- ------- ------
Total Distributions........................................ .927 1.006 1.092 .455
------- ------- ------- ------
Net Asset Value, End of the Period......................... $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======
</TABLE>

(Continued on following page)

See Financial Statements and Notes Thereto

8
<PAGE> 138

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------------------- ---------------------------
FROM
DECEMBER 31, 1993
YEAR ENDED (COMMENCEMENT YEAR ENDED
JUNE 30, OF INVESTMENT JUNE 30,
--------------------------- OPERATIONS) TO ---------------------------
1997 1996 1995 JUNE 30, 1994 1997 1996 1995
---- ---- ---- ----------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Return*(a).................. 14.92% 12.92% 8.46% (12.83%)** 13.98% 12.06% 7.62%
Net Assets at End of the Period
(In millions).................... $43.8 $33.8 $29.6 $24.5 $76.2 $61.9 $52.6
Ratio of Operating Expenses to
Average Net Assets*.............. 1.81% 1.84% 1.98% 1.88% 2.57% 2.59% 2.68%
Ratio of Interest Expense to
Average Net Assets............... 1.99% 2.27% 2.38% .96% 1.98% 2.26% 2.38%
Ratio of Net Investment Income to
Average Net Assets*.............. 8.12% 8.34% 5.88% 9.27% 7.33% 7.58% 5.30%
Portfolio Turnover................ 474% 343% 253% 114%** 474% 343% 253%
* If certain expenses had not been assumed by the Adviser, Total Return would have been lower and the ratios
would have been as follows:
Ratio of Operating Expenses to
Average Net Assets............ 1.86% 1.92% N/A N/A 2.61% 2.67% N/A

Ratio of Net Investment Income
to Average Net Assets......... 8.07% 8.26% N/A N/A 7.28% 7.50% N/A

<CAPTION>
CLASS B SHARES CLASS C SHARES
----------------- -----------------------------------------------
FROM FROM
DECEMBER 31, 1993 DECEMBER 31, 1993
(COMMENCEMENT YEAR ENDED (COMMENCEMENT
OF INVESTMENT JUNE 30, OF INVESTMENT
OPERATIONS) TO --------------------------- OPERATIONS) TO
JUNE 30, 1994 1997 1996 1995 JUNE 30, 1994
----------------- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
Total Return*(a).................. (13.21%)** 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the Period
(In millions).................... $46.4 $3.8 $3.1 $1.7 $2.1
Ratio of Operating Expenses to
Average Net Assets*.............. 2.63% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense to
Average Net Assets............... .96% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment Income to
Average Net Assets*.............. 8.48% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover................ 114%** 474% 343% 253% 114%**
* If certain expenses had not be
would have been as follows:
Ratio of Operating Expenses to
Average Net Assets............ N/A 2.61% 2.66% N/A N/A
Ratio of Net Investment Income
to Average Net Assets......... N/A 7.27% 7.41% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

(The following table presents Unaudited Information).

<TABLE>
<CAPTION>
AVERAGE MONTHLY
AMOUNT OF DEBT AVERAGE DAILY BALANCE OF BALANCE OF SHARES AVERAGE AMOUNT OF
BANK BORROWING: OUTSTANDING AT DEBT OUTSTANDING DURING OUTSTANDING DURING DEBT PER SHARE
PERIOD END OF YEAR PERIOD PERIOD DURING PERIOD
--------------- -------------- ------------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1994............. $19,574,968 $ 4,421,010 5,080,190 $0.870
Year Ended June 30, 1995................... $28,496,055 $29,790,000 6,729,831 $4.427
Year Ended June 30, 1996................... $15,913,433 $32,784,900 7,658,078 $4.281
Year Ended June 30, 1997................... $50,983,397 $38,213,200 9,090,395 $4.204
</TABLE>

See Financial Statements and Notes Thereto

9
<PAGE> 139

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

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

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------

The Fund's primary investment objective is to provide its shareholders with
high current income. The Fund has a secondary investment objective of seeking
capital appreciation. The Fund will seek to achieve its investment objectives by
investing primarily in a portfolio of income securities selected by the Adviser
from the following market sectors: U.S. government securities; domestic
investment grade income securities; domestic lower grade income securities;
foreign investment grade income securities; and foreign lower grade income
securities. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in U.S. dollar-denominated income securities and at
least 40% of the Fund's total assets will be invested in U.S. government
securities and investment grade rated income securities. A substantial portion
of the Fund's assets (up to 60%) may be invested in lower grade income
securities, including securities of issuers located in emerging market
countries. The Fund may invest 100% of its total assets in asset-backed
securities. Such investments involve significant risks. See "Investment
Objectives and Policies -- Special Risk Considerations." The Fund is designed
for investors willing to assume additional risk in return for the potential for
high current income and capital appreciation. The Fund's investment objectives
are fundamental and may not 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 of 1940, as amended (the "1940 Act"). There can be no
assurance that the Fund will achieve its investment objectives.

An investment in the Fund may not be appropriate for all investors. The Fund
is not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment

10
<PAGE> 140

decision with respect to the Fund. An investment in the Fund is intended to be a
long-term investment and should not be used as a trading vehicle.

The Adviser will allocate the Fund's investments among market sectors based on
its evaluation of the relative investment opportunities and investment risks
presented by income securities in such sectors from time to time. See
"Investment Objectives and Policies -- Allocation of Investments." Under normal
market conditions, the Fund will invest at least 10% of its total assets in each
of at least three market sectors. The Fund is not required to invest a minimum
amount of its assets in any one market sector. The Fund does not intend to
invest more than 25% of its total assets in any one industry or in income
securities of issuers (including foreign governments) located in any single
country other than the United States.

Investment grade income securities are income securities rated at least BBB by
Standard & Poor's Ratings Group ("S&P"), at least Baa by Moody's Investors
Service, Inc. ("Moody's"), comparably rated by any other nationally recognized
statistical rating organization ("NRSRO") or, if not rated by any NRSRO,
determined by the Adviser to be of comparable quality to income securities so
rated. Securities rated BBB by S&P are regarded by S&P as having an adequate
capacity to pay interest and repay principal. Whereas such securities normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely, in the opinion of S&P, to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. Securities rated Baa by Moody's are considered by
Moody's as medium grade obligations. Such securities are in the opinion of
Moody's, neither highly protected nor poorly secured. Interest payments and
principal security appear to Moody's to be adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. In the opinion of Moody's, they lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Lower grade income securities are income securities rated BB or below by S&P, Ba
or below by Moody's, comparably rated by any other NRSRO or, if not rated by any
NRSRO, determined by the Adviser to be of comparable quality to income
securities so rated. Lower grade income securities are commonly referred to as
"junk bonds" and are regarded by S&P and Moody's as predominately speculative
with respect to the capacity to pay interest or repay principal in accordance
with their terms. Lower grade income securities involve a greater degree of
credit risk than investment grade income securities. There is no minimum rating
or comparable quality standard imposed on the Fund's investments and the Fund
may purchase income securities that are rated D and that are in default in the
payment of interest or repayment of principal. In S&P's view, the D rating
category is used when interest payments or principal payments are not made on
the date due even if an applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The 'D'
rating also is used upon the filing of a bankruptcy petition if debt service
payments are jeopardized. The Fund will not, however, invest in any security
that does not provide for, or that is not current in the payment of, periodic
interest or dividend

11
<PAGE> 141

distributions if as a result of such investment more than 20% of the Fund's
total assets would, at the time of investment, be invested in such securities.

ALLOCATION OF INVESTMENTS

The Adviser allocates the Fund's investments among various market sectors
based on the Adviser's assessment of the relative investment opportunities and
investment risks presented by income securities in such sectors from time to
time. The Adviser believes that, over time, market sectors become undervalued
relative to the risks of investing in such sectors due to actual or perceived
changes in interest rate cycles, business or economic conditions, rates of
inflation, currency relationships, political factors, investor demand, new issue
or secondary market supply and other factors. Accordingly, the relative
investment performance of the various market sectors change over time, with the
best performing sectors frequently changing from year to year. The Adviser seeks
to take advantage of these changes by allocating a greater proportion of the
Fund's assets to those market sectors that the Adviser believes are undervalued.
If successful, this strategy may enable the Fund to achieve a higher level of
investment return over time than if the Fund invested exclusively in one market
sector or if the Fund allocated a fixed proportion of its assets to each market
sector. In addition, the Fund has a policy of investing, under normal market
conditions, a portion of its assets in each of at least three market sectors.
This policy may, over time, enable the Fund to experience less volatility in
income and net asset value than if the Fund invested exclusively in one market
sector. The Fund is, however, more dependent on the Adviser's ability to
successfully evaluate the relative values of various market sectors as compared
to an investment company that does not seek to adjust market sector allocations
over time.

The Adviser dedicates at least one portfolio manager to the continuing
analysis of each market sector in which the Fund may invest. Peter W. Hegel, the
Adviser's Chief Investment Officer, makes market sector investment allocation
decisions for the Fund based on recommendations made by such portfolio managers
responsible for each market sector. Once assets are allocated to a particular
sector, the portfolio manager responsible for such sector selects the Fund's
investments within that sector and monitors such investments on an ongoing
basis, subject to the continuing supervision and authority of Mr. Hegel. Market
sector allocations may be adjusted at any time and are formally reviewed at
least monthly.

MARKET SECTORS

U.S. GOVERNMENT SECURITIES. U.S. government securities are obligations issued
or guaranteed by the U.S. government or its agencies, instrumentalities or
political subdivisions (collectively "agencies"). These obligations may be
either direct obligations of the U.S. Treasury or obligations issued or
guaranteed by U.S. government agencies. Of the obligations issued or guaranteed
by agencies, some are backed by the full faith and credit of the U.S. government
and others are

12
<PAGE> 142

backed only by the right of the issuer to borrow from the U.S. Treasury. U.S.
government securities generally are not rated, but are generally considered to
be of at least the same credit quality as privately issued securities rated in
the highest investment grade rating categories.

DOMESTIC INVESTMENT GRADE INCOME SECURITIES. Domestic investment grade income
securities are income securities of domestic issuers rated investment grade or,
if not rated, determined by the Adviser to be of comparable quality to
investment grade rated securities. Such securities are issued primarily by
domestic corporations.

DOMESTIC LOWER GRADE INCOME SECURITIES. Domestic lower grade income securities
are income securities of domestic issuers rated below investment grade or, if
not rated, determined by the Adviser to be of comparable quality to securities
rated below investment grade. Lower grade income securities commonly are
referred to as "junk bonds." Such securities are issued primarily by domestic
corporations. Investment in lower grade income securities involves certain
risks. See "Investment Objectives and Policies -- Special Risk Considerations."

FOREIGN INVESTMENT GRADE INCOME SECURITIES. Foreign investment grade income
securities are income securities issued by non-domestic issuers and rated
investment grade or, if not rated, determined by the Adviser to be of comparable
quality to income securities rated investment grade. Such securities may include
income securities issued or guaranteed by foreign governments or their agencies,
central banks of foreign countries, supranational entities, such as the
International Bank for Reconstruction and Development, and corporations or other
business entities. Foreign investment grade income securities may be denominated
in any currency and include U.S. dollar denominated income securities sold in
the United States (commonly known as "Yankee bonds") and income securities
denominated in U.S. dollars or other currencies and sold outside the United
States (commonly referred to as "Eurobonds"). As of the date of this prospectus,
most foreign investment grade income securities are issued by issuers located in
more developed countries, including Canada, Japan, Australia, New Zealand and
several Western European countries.

13
<PAGE> 143

countries involves significant risks. See "Investment Objectives and Policies --
Special Risk Considerations."

PORTFOLIO SECURITIES

As used in this prospectus, the term "income securities" includes: fixed or
variable rate bonds, notes, bills or debentures; mortgage backed securities;
asset backed securities; stripped income securities; convertible securities;
zero coupon or deferred payment securities; payment in kind securities;
preferred stock; dividend paying common stock; warrants and other equity
securities acquired as units together with other income securities; bank debt
obligations; short-term paper; loan participations and assignments; assignments
and interests issued by entities organized and operated for the purpose of
restructuring the investment characteristics of other income securities and
securities whose principal or interest payments are indexed to changes in the
values of currencies, interest rates, commodities or a basket of securities. The
Fund may invest in income securities of any maturity and denominated in any
currency. At least 65% of the Fund's total assets will be invested in U.S.
dollar denominated securities. Following is a brief description of some of the
portfolio securities in which the Fund may invest. See the Statement of
Additional Information for more information concerning these and other portfolio
securities in which the Fund may invest.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are
securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property.
Mortgage-backed securities may be issued by the U.S. government or its agencies
or by private entities. The yield characteristics of mortgage-backed securities
differ from traditional debt securities. Interest and principal prepayments are
made more frequently, usually monthly, and principal may be prepaid at any time.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment. Amounts available
for reinvestment by the Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-backed
securities have structural characteristics similar to mortgage-backed
securities, but have underlying assets such as automobile and credit card
receivables and home equity loans. In general, these types of loans are of
shorter average life than mortgage loans and are less likely to have substantial
prepayments.

14
<PAGE> 144

securities. In the case of mortgage backed IOs, if the underlying assets
experience greater than anticipated prepayments of principal, the Fund may not
fully recoup its initial investment.

FLOATING AND VARIABLE RATE INCOME SECURITIES. Income securities may provide
for floating or variable rate interest or dividend payments. The Fund may invest
in derivative floating and variable rate securities such as inverse floaters,
whose rates vary inversely with market rates of interest, or range floaters or
capped floaters, whose rates are subject to periodic or lifetime caps. Such
securities may also pay a rate of interest determined by applying a multiple to
the variable rate. The extent of increases and decreases in the value of
securities whose rates vary inversely with changes in market rates of interest
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate security having similar credit quality,
redemption provisions and maturity.

DISCOUNT, ZERO COUPON SECURITIES AND PAYMENT-IN-KIND SECURITIES. The Fund may
invest in securities sold at a substantial discount from their value at
maturity. Such securities include "zero coupon" and payment-in-kind securities
of governmental or private issuers. Zero coupon securities generally pay no cash
interest (or dividends in the case of preferred stock) to their holders prior to
maturity. Payment-in-kind securities allow the issuer, at its option, to make
current interest payments on such securities either in cash or in additional
securities. Accordingly, zero coupon and payment-in-kind securities usually are
issued and traded at a deep discount from their face or par value and generally
are subject to greater fluctuations of market value in response to changing
interest rates than securities of comparable maturities and credit quality that
pay cash interest (or dividends in the case of preferred stock) on a current
basis. Even though the holder of a zero coupon bond or a payment-in-kind
security does not receive cash interest payments prior to maturity, a portion of
the purchase price discount must be accrued as income each year under current
federal tax law. In order to generate sufficient cash to make distributions, the
Fund may have to dispose of securities that it would otherwise continue to hold,
which, in some cases, may be disadvantageous to the Fund.

PREMIUM SECURITIES. The fund may invest in income securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. Although such securities bear coupon rates higher than prevailing
market rates, because they are purchased at a price in excess of par value, the
yield earned by the Fund on such investments may not exceed prevailing market
yields. If securities purchased by a Fund at a premium are called or sold prior
to maturity, the Fund may recognize a capital loss. Additionally, the Fund will
recognize a capital loss if it holds such securities to maturity.

15
<PAGE> 145

entitles the holder to receive interest generally paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged.

EQUITY FEATURES. Income securities may involve equity features, such as
contingent interest or participations based on revenues, sales or profits (i.e.,
interest or other payments, often in addition to a fixed rate of return, that
are based on the borrower's attainment of specified levels of revenues, sales or
profits). At times, the Fund may also acquire warrants and other equity
securities in connection with the purchase of income securities.

BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. "Brady Bonds" are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. Certain Brady Bonds
have been collateralized as to principal due at maturity by U.S. Treasury zero
coupon bonds with a maturity equal to the final maturity of such Brady Bonds.
Brady Bonds have been issued only recently, and accordingly do not have a long
payment history. In light of the risk of Brady Bonds including, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are to be viewed as speculative.

OTHER SOVEREIGN-RELATED DEBT. In addition to Brady Bonds, the Fund may invest
in sovereign or sovereign-related debt obligations, including obligations of
supranational entities. Such investments may include participations and
assignments of sovereign bank debt, restructured external debt that has not
undergone a Brady-style debt exchange, and internal government debt. The Fund
may invest in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign government or agency and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of all or a portion of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender, not with the borrower. The Fund will have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. The Fund generally has no direct
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan ("Loan Agreement"), nor any rights of set-off against the
borrower, and the Fund may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a result, the Fund will
assume the credit risk of both the borrower and the Lender that is selling the
Participation. When the Fund purchases Assignments from Lenders, the Fund

16
<PAGE> 146

will acquire direct rights against the borrower on the Loan. However, since
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.

STRUCTURED INVESTMENTS. The Fund may invest a portion of its assets in
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of other income securities. This type of
restructuring involves the deposit with or purchase by an entity of income
securities (such as bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of securities ("Structured Investments") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions.

PRIVATE PLACEMENTS. The Fund may invest in income securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded in the OTC secondary market.
In many cases, privately placed securities will be subject to contractual or
legal restrictions on transfer. As a result of the absence of a public trading
market, privately placed securities may in turn be less liquid and more
difficult to value than publicly traded securities. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. Certain of the Fund's direct investments,
particularly in emerging foreign markets, may include investments in smaller,
less seasoned companies, which may involve greater risks. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group.

INDEXED INCOME SECURITIES. The Fund may invest in income securities that are
indexed to certain specific foreign currency exchange rates, interest rates or
other reference rates. The terms of such securities provide that their principal
amount is adjusted upwards or downwards (but ordinarily not below zero) at
maturity to reflect changes in the exchange rate between two currencies (or
other rates) while the obligations are outstanding.

SPECIAL RISK FACTORS

INVESTMENTS IN INCOME SECURITIES. The value of the income securities held by
the Fund, and thus the net asset value of the shares, generally will fluctuate
with (i) changes in the perceived creditworthiness of the issuers of those
securities, (ii) movements in interest rates, and (iii) changes in the relative
values of the currencies in which the Fund's investments are denominated with
respect to the U.S. dollar. Many of the income securities in which the Fund will
invest have long maturities. A longer average maturity generally is associated
with a higher level of

17
<PAGE> 147

volatility in market value in response to changes in interest rates. In
addition, securities issued at a discount, such as certain types of Brady Bonds
and zero coupon obligations, may be subject to greater fluctuations in market
value in response to changes in interest rates.

The Fund may invest in derivative income securities such as stripped income
securities, inverse floaters, range floaters and capped floaters. Investment in
such securities involves special risks as compared to investment in conventional
floating or variable rate income securities. The extent of increases and
decreases in the value of such securities and the corresponding changes to the
per share net asset value of the Fund in response to changes in market rates of
interest generally will be larger than comparable changes in the value of an
equal principal amount of a fixed rate income security having similar credit
quality, redemption provisions and maturity. The markets for such securities may
be less developed than the markets for conventional floating or variable rate
income securities.

INVESTMENT IN LOWER GRADE INCOME SECURITIES. A substantial portion of the
Fund's assets may be invested in lower grade securities, commonly referred to as
"junk bonds." Debt securities rated BB or below by S&P or below Ba by Moody's
are deemed by S&P and Moody's to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. The lower grade income securities in which
the Fund may invest may include securities having the lowest ratings assigned by
S&P or Moody's and, together with comparable unrated securities, may include
securities in default or that face the risk of default with respect to the
payment of principal or interest or that have filed for bankruptcy protection.
These securities are considered to have extremely poor prospects of ever
attaining any real investment standing. See the Statement of Additional
Information for a more complete description of S&P and Moody's ratings. Lower
grade income securities are especially subject to adverse changes in general
economic conditions, the industries in which the issuers are engaged, the
financial condition of the issuers and prevailing interest rates. Issuers of
lower grade securities are often highly leveraged and may not have available to
them more traditional methods of financing. During periods of economic downturn
or rising interest rates, highly leveraged issuers may experience financial
stress which could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. Lower grade income
securities are generally unsecured and are often subordinated to other income
securities of the issuer. To the extent the Fund is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings, the Fund may incur additional expenses and, with respect to foreign
lower grade income securities, may have limited legal recourse in the event of a
default. Lower grade income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the security prior to its maturity.
If an issuer exercises these provisions in a declining interest rate
environment, the Fund may have to reinvest in lower yielding securities,
resulting in a decrease in income earned by the Fund.

18
<PAGE> 148

<TABLE>
<CAPTION>
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING (AS A PERCENTAGE OF (AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
-------- ------------------- ---------------------
<S> <C> <C>
AAA/Aaa.............................. 11.3% 0.0%
AA/Aa................................ 2.9% 0.0%
A/A.................................. 5.4% 0.0%
BBB/Baa.............................. 22.7% 6.3%
BB/Ba................................ 24.3% 12.5%
B/B.................................. 12.1% 2.5%
CCC/Caa.............................. 0.0% 0.0%
CC/Ca................................ 0.0% 0.0%
C/C.................................. 0.0% 0.0%
D.................................... 0.0% 0.0%
------ ------
Percentage of Rated and Unrated
Debt Securities.................... 78.7% 21.3%
====== ======
</TABLE>

DEFAULTED SECURITIES. The Fund may invest in defaulted securities. Defaulted
securities are securities with respect to which payment of interest or repayment
of principal is in arrears. Any investment in defaulted securities primarily
would be intended to benefit the Fund's investment objective with respect to
capital appreciation and not its investment objective with respect to providing
a high level of current income. Defaulted securities may be less liquid than
investments in more highly rated securities and the Fund may be unable to
dispose of such securities in a timely fashion. Investment in defaulted
securities should be considered speculative. Defaulted securities may not resume
payment of interest or repayment of principal in accordance with the terms of
the original obligation and the Fund may not recoup its investment in such
securities.

INVESTMENTS IN FOREIGN INCOME SECURITIES. Investment in foreign income
securities involves certain special risks not usually associated with investment
in domestic income securities. In addition, the magnitude of such risks is
generally greater with respect to investment in emerging market countries.
Investments in foreign income securities involve risks relating to political and
economic developments abroad. With respect to many foreign countries, there is
the possibility of nationalization, expropriation or confiscatory taxation,
political instability, increased governmental regulation, social instability or
diplomatic developments (including armed conflict) which could adversely affect
the economies of such countries or the value of the Fund's investments in those
countries. Foreign investment in certain countries is restricted or controlled
to varying degrees. These restrictions or controls may at times limit or

19
<PAGE> 149

preclude foreign investment in certain emerging market income securities and
increase the costs and expenses of the Fund. Disclosure, accounting and
regulatory standards in many respects are less stringent in many countries than
in the U.S and there may be less publicly available information concerning
foreign issuers than there is with respect to domestic issuers. In addition,
there may be less timely and accurate information with respect to general
economic conditions and trends in countries in which issuers of foreign income
securities are located, particularly in emerging market countries. There also
may be a lower level of monitoring and regulation of securities markets and the
activities of investors in such markets, and enforcement of existing regulations
has in many instances been limited. Foreign markets also have different
clearance and settlement procedures, and in certain markets settlement may fail
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 uninvested and no return is earned thereon.
Because the Fund may invest in non-U.S. dollar-denominated securities, changes
in foreign currency exchange rates will affect the Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income to be distributed to shareholders. The
exchange rates between the U.S. dollar and other currencies can be volatile.
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign income, withholding or other, which would reduce the
Fund's total return on such investments and the amounts available for
distribution by the Fund to its shareholders.

SOVEREIGN DEBT. The issuer of sovereign debt or the governmental authorities
that control the repayment of sovereign debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt.
Sovereign debt differs from debt obligations issued by private entities in that,
generally, remedies for defaults must be pursued in the courts of the defaulting
party. Legal recourse is therefore limited. At times certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt. Holders of sovereign debt, including the Fund, may be requested
to participate in the rescheduling of such debt and to extend further loans to
sovereign debtors.

LEVERAGE. The Fund may borrow for investment purposes in an amount equal to
33 1/3% of the Fund's total assets (after giving effect to the amount borrowed).
The use of leverage creates the opportunity for enhanced return, but also should
be considered a speculative technique and may increase the Fund's investment
risk, including the potential for greater volatility in the Fund's net asset
value and net income available for distribution to shareholders.

RESTRICTED AND ILLIQUID SECURITIES. Subject to limitations under state law,
the Fund may invest up to 15% of its net assets in illiquid securities including
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 such 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

20
<PAGE> 150

national securities exchanges or in the over-the-counter markets. The Fund may
find it difficult to sell such illiquid securities when the Adviser believes it
is advisable to do so or may be able to sell such securities only at prices
lower than if such securities were more liquid. The lack of a liquid secondary
market also may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund's portfolio and calculating net
asset value. These risks may be intensified in the case of securities issued by
issuers located in, or traded in capital markets located in, emerging foreign
markets. Such securities may trade infrequently and such markets may be unable
to respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings impossible at times, particularly in times
of economic distress. Restricted securities salable among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended, that are determined to be liquid by the Adviser under guidelines
adopted by the Board of Trustees of the Trust will not be treated as restricted
or illiquid securities by the Fund for purposes of the investment limitation set
forth above.

NON-DIVERSIFIED STATUS. The Fund has registered as a non-diversified
investment company, which means that the Fund may invest to a greater degree in
a relatively limited number of issuers than may a diversified investment
company. To the extent that the Fund so invests, the Fund will be more
susceptible to any single adverse economic, political or regulatory occurrence.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions, enter into currency transactions, purchase and
sell securities on a "when issued" and "delayed delivery" basis, borrow money
from banks, enter into repurchase and reverse repurchase agreements, engage in
dollar rolls and lend its portfolio securities, in each case subject to the
limitations set forth below. These investment practices entail risks. See the
Statement of Additional Information for a more complete discussion of these
practices.

21
<PAGE> 151

derivatives markets as a temporary substitute for purchasing or selling
particular securities. Strategic Transactions may also be used to enhance
potential gain, although no more than 5% of the Fund's assets will be committed
to certain Strategic Transactions for non-hedging transactions. The use of
Strategic Transactions for non-hedging purposes should be considered a
speculative technique. 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 Fund may also invest in
income securities the terms of which include elements of or are similar in
effect to Strategic Transactions in which the Fund may engage. 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 have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of 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 use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. 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.

22
<PAGE> 152

REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected banks and broker-dealers, under which the
Fund acquires securities and agrees to resell the securities at an agreed upon
time and at an agreed upon price. The Fund accrues as interest the difference
between the amount it pays for the securities and the amount it receives upon
resale. In determining whether to enter into a repurchase agreement with a bank
or broker-dealer, the Fund will take into account the credit-worthiness of such
party and will monitor its credit-worthiness on an ongoing basis. In the event
of default by such party, the delays and expenses potentially involved in
establishing the Fund's rights to, and in liquidating, the security may result
in loss to the Fund.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell portfolio securities on a "when issued" and "delayed delivery" purchase
basis. No income accrues to or is earned by the Fund on portfolio securities in
connection with such transactions prior to the date the Fund actually takes
delivery of such securities. These transactions are subject to market
fluctuation; the value of such securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher or lower than yields on the such securities
obtained pursuant to such transactions.

SHORT SALES. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. When the Fund makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale in order to satisfy its obligation to
deliver the security upon conclusion of the sale. The Fund is obligated to
collateralize its obligation to replace the borrowed security with cash, U.S.
government securities or other highly liquid securities. The Fund may have to
pay a fee to borrow particular securities and is often obligated to pay over any
payments received on such borrowed securities. If the price of the security sold
short increases between the time of the short sale and the time the Fund
replaces the borrowed security, the Fund will incur a loss; conversely, if the
price declines, the Fund will realize a capital gain. Any gain will

23
<PAGE> 153

be decreased, and any loss increased, by the transaction costs described above.
Although the Fund's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited. The short sale of a
security is considered a speculative investment technique.

The market value of the security sold short of any one issuer will not exceed
either 5% of the Fund's total assets or 5% of such issuer's voting securities.
The Fund will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its assets
or the Fund's aggregate short sales of a particular class of securities exceeds
25% of the outstanding securities of that class. The Fund may also make short
sales "against the box" without respect to such limitations. In this type of
short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.

LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. The
Fund is the beneficial owner of the loaned securities in that any gain or loss
in the market price during the loan inures to the Fund and its shareholders.

USE OF LEVERAGE. The Fund is authorized to borrow money from banks for
investment purposes in an amount up to 33 1/3% of its total assets (including
the amount of the borrowing). The Fund is also authorized to borrow an
additional 5% of its total assets from any person without regard to the
foregoing limitation for temporary purposes such as clearance of portfolio
transactions, the payment of dividends and share repurchases. The use of
leverage will provide the opportunity for increased net income, but also should
be considered a speculative technique and may increase the Fund's investment
risk.

Borrowing will exaggerate changes in the net asset value of the shares and in
the yield on the Fund's portfolio, which may, in turn, result in increased
volatility of the market price of the shares. Borrowing will create interest
expenses for the Fund which can exceed the income from the assets obtained with
the proceeds. To the extent the income derived from securities purchased with
funds obtained through borrowing exceeds the interest and other expenses that
the Fund will have to pay in connection with such borrowing, the Fund's net
income will be greater than if the Fund did not borrow. Conversely, if the
income from the assets obtained through borrowing is not sufficient to cover the
cost of borrowing, the net income of the Fund will be less than if the Fund did
not borrow, and therefore the amount available for distribution to shareholders
will be reduced. See "Investment Objectives and Policies -- Special Risk Factors
- -- Leverage."

BANK BORROWING. The Fund may borrow money from banks on a secured or unsecured
basis, and may be required to pledge specific portfolio securities as
collateral. The Fund may incur various fees and expenses in connection with bank
borrowings, including initial facility fees, ongoing commitment fees and
interest

24
<PAGE> 154

expenses. Loan agreements may include various covenants, including restrictions
on certain investment practices in which the Fund might otherwise be permitted
to engage. Bank borrowings constitute senior securities under the 1940 Act, and
the Fund is required to maintain an asset coverage of at least 300% of the
amount of any bank borrowing.

DOLLAR ROLLS. Dollar rolls are transactions in which the Fund sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund foregoes principal and interest
paid on the securities. The Fund is compensated by the difference between the
current sales price and lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund also could be compensated through the
receipt of fee income equivalent to a lower forward price. At the time the Fund
enters into a dollar roll, the Fund's custodian will segregate cash or liquid
securities having a value not less than the forward purchase price. Dollar rolls
will be considered borrowings and, accordingly, will be subject to the Fund's
33 1/3% limitation on borrowings.

REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with the same parties with whom it may enter into repurchase
agreements. Under a reverse repurchase agreement, the Fund sells securities and
agrees to repurchase them at a mutually agreed date and price. At the time the
Fund enters into a reverse repurchase agreement, an approved custodian will
segregate cash or liquid securities having a value not less than the repurchase
price (including accrued interest). Reverse repurchase agreements will be
considered borrowings and, accordingly, will be subject to the Fund's 33 1/3%
limitation on borrowings.

DEFENSIVE STRATEGIES. At times, conditions in the markets may, in the
Adviser's judgment, make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund may invest to a substantial degree in high-quality, short-term
obligations.

PORTFOLIO TURNOVER. Other than for tax purposes, frequency of portfolio
turnover generally will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund anticipates that the
annual portfolio turnover rate may be in excess of 200%. A high rate of
portfolio turnover involves correspondingly greater brokerage commission
expenses or dealer costs than a lower rate, which expenses and costs must be
borne by the Fund and its shareholders. A high portfolio turnover rate may
result in the realization of more short-term capital gains than if the Fund had
a lower portfolio turnover rate. The Fund's annual portfolio turnover rate is
shown in the table of "Financial Highlights."

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions set forth in the Statement of Additional Information which are
fundamental

25
<PAGE> 155

policies. These investment restrictions together with the Fund's investment
objectives cannot be changed without the approval of the holders of a majority
of the Fund's outstanding voting securities, as defined in the 1940 Act. The
Fund's other investment policies are not fundamental and may be changed without
shareholder approval. See "Investment Policies and Restrictions" in the
Statement of Additional Information.

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 income securities in which the Fund may invest 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 may place portfolio transactions, to the extent permitted by law,
with brokerage firms, affiliated with the Fund, the Adviser or the Distributor
and with firms participating in the distribution of the Fund's shares if it
reasonably believes that the quality of execution and the commission are
comparable to that available from other qualified firms. See "Portfolio
Transactions and Brokerage Allocation" in the Statement of Additional
Information for more information.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

26
<PAGE> 156

company with more than two million retail investor accounts, extensive
capabilities for managing institutional portfolios, and more than $60 billion
under management or supervision. Van Kampen American Capital's more than 50
open-end and 37 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading financial advisers nationwide. 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. Van Kampen American Capital is a wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. The Adviser's principal office is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

ADVISORY AGREEMENT. The business and affairs of the Fund are managed under the
direction of the Board of Trustees of the Trust, of which the Fund is a separate
series. Subject to the Trustees' authority, the Adviser and the officers of the
Fund supervise and implement the Fund's investment activities and are
responsible for overall management of the Fund's business affairs. The Fund pays
the Adviser a fee computed based on an annual rate applied to the average daily
managed assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY MANAGED ASSETS % PER ANNUM
---------------------------- -----------
<S> <C>
First $500 million...................... 0.75 of 1.00%
Next $500 million....................... 0.70 of 1.00%
Over $1 billion......................... 0.65 of 1.00%
</TABLE>

For purposes of determining the investment advisory fee, "average daily managed
assets" shall mean the average daily value of the Fund's aggregate assets, minus
the sum of accrued liabilities other than the aggregate amount of any borrowings
(whether from banks, through reverse repurchase agreements or dollar rolls, or
otherwise) undertaken by the Fund.

27
<PAGE> 157

(ACCESS Investor Services, Inc. ("ACCESS") a wholly-owned subsidiary of Van
Kampen, American Capital) 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 and state securities laws, miscellaneous expenses and all
taxes and fees to federal, state or other governmental agencies. The Adviser
reserves the right in its sole discretion from time to time to waive all or a
portion of its management fee or to reimburse the Fund for all or a portion of
its other expenses.

The Adviser may utilize at its own expense credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
Asset Management, Inc.

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes of Ethics permit trustees, directors,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to preclearance and other procedures designed to prevent
conflicts of interest.

PORTFOLIO MANAGEMENT. Peter W. Hegel is an Executive Vice President, Chief
Investment Officer and Portfolio Manager of the Adviser. He has made market
sector investment allocation decisions for the Fund since its inception based on
recommendations made by portfolio managers responsible for each market sector.
Mr. Hegel has been employed by the Adviser for the last five years. The Adviser
dedicates at least one portfolio manager to the continuing analysis of each
market sector in which the Fund may invest. Once assets are allocated to a
particular sector, the portfolio manager responsible for such sector selects the
Fund's investments within that sector and monitors such investments on an
ongoing basis, subject to the continuing supervision and authority of Mr. Hegel.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

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

28
<PAGE> 158

The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (Class A
Shares accounts under $1 million) or (b) on a contingent deferred basis (Class A
Share accounts over $1 million, Class B Shares and Class C Shares). Shares
purchased subject to a contingent deferred sales charge (a "CDSC") sometimes are
referred to herein collectively as "Contingent Deferred Sales Charge Shares" or
"CDSC Shares."

29
<PAGE> 159

service options available. Generally, a class of shares subject to a higher
ongoing distribution fee and service fee or subject to the conversion feature
will have a higher expense ratio and pay lower dividends than a class of shares
subject to a lower ongoing distribution and 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 "Purchase of Shares -- Net Asset Value."

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

30
<PAGE> 160

the Distributor by such broker, dealer or financial intermediary prior to such
time in order for the investor's order to be fulfilled on the basis of the net
asset value to be determined that day. Any change in the purchase price due to
the failure of the Distributor to receive a purchase order prior to such time
must be settled between the investor and the broker, dealer or financial
intermediary submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, 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 it, 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. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. Such payments to brokers, dealers and financial intermediaries for
sales contests, other sales programs and seminars are made by the Distributor
out of its own assets and not out of the assets of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor will pay for shares
or the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has

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<PAGE> 161

taken the position that brokers, dealers or financial intermediaries who receive
90% or more of the sales charge may be deemed to be "underwriters" as that term
is defined in the Securities Act of 1933, as amended.

SALES CHARGE TABLE

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

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission will
be paid to brokers, dealers and financial intermediaries who initiate and are
responsible for purchases of $1 million or more. See "Purchase of Shares --
Deferred Sales Charge Alternatives".

QUANTITY DISCOUNTS

32
<PAGE> 162

OTHER PURCHASE PROGRAMS

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of

33
<PAGE> 163

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

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

34
<PAGE> 164

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or in
any combination of shares of the Fund and shares of other Participating
Funds as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

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<PAGE> 165

million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million and 0.25% on the excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

DEFERRED SALES CHARGE ALTERNATIVES

36
<PAGE> 166

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 CDSC 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. The CDSC schedule and holding period applicable to any CDSC Share
acquired through the exchange privilege is determined by reference to the
Participating Fund from which such Share was originally purchased.

To provide an example, assume an investor purchased 100 Class B Shares 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 the charge because of dividend reinvestment. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
3.75% (the applicable rate in the second year after purchase).

37
<PAGE> 167

termediaries, which percentage rate is equal to (i) with respect to Class A
Shares, 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million; (ii) 4.00% with respect to Class B Shares
and (iii) 1.00% with respect to Class C Shares. Such compensation will not
change the price an investor will pay for CDSC Shares or the amount that the
Fund will receive from such sale.

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a CDSC 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
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------- --------------------------------
<S> <C>
First............................................ 4.00%
Second..................................... 3.75%
Third...................................... 3.50%
Fourth..................................... 2.50%
Fifth...................................... 1.50%
Sixth...................................... 1.00%
Seventh and after.......................... 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

Class C Shares. Class C Shares redeemed within the first twelve months of
purchase generally will be subject to a CDSC of 1.00% of the dollar amount
subject thereto. Class C Shares redeemed thereafter will not be subject to a
CDSC.

CONVERSION FEATURE. Class B shares purchased on or after June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares eight years after the end of the calendar month in which the
shares were purchased. Class B shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares six years after the end of the calendar month in which the shares
were purchased. Class C shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge. The conversion schedule applicable to a CDSC Share acquired through the
exchange privilege is determined by reference to the Participating Fund from
which such share originally was purchased.

38
<PAGE> 168

The conversion of such 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 fees and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) the conversion of such shares
does not constitute a taxable event under federal income tax law. The conversion
may be suspended if such an opinion is no longer available and such shares might
continue to be subject to the higher aggregate fees applicable to such shares
for an indefinite period.

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 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.

Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less 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

39
<PAGE> 169

at which it is expected such securities may be resold. Any securities or other
assets for which current market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees of the Trust.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

40
<PAGE> 170

telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. The investor may, on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value after
requesting the exchange without any sales charge, subject to certain
limitations. Shares of the Fund may be exchanged for shares of any Participating
Fund only if shares of the Participating Fund are available for sale; however,
during periods of suspension of sales, shares of a Participating Fund may be
available for sale only to existing shareholders of the Participating Fund.
Shareholders seeking an exchange with a Participating Fund should obtain and
read a current prospectus of such fund.

To be eligible for exchanges, shares of the Fund must have been registered in
the shareholder's name for at least 30 days prior to an exchange. Shares of the
Fund

41
<PAGE> 171

registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.

When Class B Shares and Class C Shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund (the
"original fund"). Upon redemption from the Participating Funds' complex of
funds, Class B Shares and Class C Shares are subject to the CDSC schedule
imposed by the original fund.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanying this Prospectus. Van Kampen American Capital and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Fund employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. If the exchanging shareholder does not have an
account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another Fund, an exchanging shareholder must file a specific written
request. The Fund reserves the right to reject any order to acquire its shares
through exchange. In addition, the Fund may modify, restrict or terminate the
exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

42
<PAGE> 172

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 ACH. In addition, the shareholder must fill out the appropriate
section of the account application. The shareholder must also include a voided
check or deposit slip from the bank account into which redemptions are to be
deposited together with the completed application. Once ACCESS has received the
application and the voided check or deposit slip, such shareholder's designated
bank account, following any redemption, will be credited with the proceeds of
such redemption. Once enrolled in the ACH plan, a shareholder may terminate
participation at any time by writing ACCESS.

43
<PAGE> 173

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

44
<PAGE> 174

45
<PAGE> 175

duration." While the Fund does not specifically adopt the balance of the Code's
definition which pertains to furnishing the Secretary of Treasury with such
proof as he or she may require, the Distributor will require satisfactory proof
of disability before it determines to waive the CDSC on Class B Shares and Class
C Shares.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privileges") next determined after the order is received, which must be
within 180 days after the date of the redemption. Reinstatement at net asset
value is also offered to participants in those eligible retirement plans held or
administered by Van Kampen American Capital Trust Company for repayment of
principal (and interest) on their borrowings on such plans.

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

DISTRIBUTION AND SERVICE PLANS

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

46
<PAGE> 176

spend a portion of the Fund's average daily net assets attributable to each
class of shares in connection with distribution of the respective class of
shares and in connection with the provision of ongoing services to shareholders
of each class. The Distribution Plan and the Service Plan are being implemented
through an agreement with the Distributor and sub-agreements between the
Distributor and brokers, dealers and financial intermediaries (collectively,
"Selling Agreements") that may provide for their customers or clients certain
services or assistance.

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 connection with the distribution of Class B 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 B Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

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

47
<PAGE> 177

event, with respect to the Class A Shares, there is no carryover of such
reimbursement obligations to succeeding years.

The Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares (for purposes of this section, excluding any Class A Shares that
may be subject to a CDSC) for any given year may exceed the amounts payable to
the Distributor with respect to such class of CDSC Shares under the Distribution
Plan, the Service Plan and payments received pursuant to the CDSC. In such
event, with respect to any such class of CDSC Shares, any unreimbursed
distribution-related 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 June 30, 1997, there
were $3,118,545 and $5,694 of unreimbursed distribution-related expenses with
respect to Class B Shares and Class C Shares representing 4.11% and 0.15% of the
Fund's net assets attributable to Class B Shares and Class C Shares,
respectively. 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 CDSC.

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 CDSC applicable to a particular class of
shares to defray distribution related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare distributions on a daily basis and to pay such
distributions

48
<PAGE> 178

from net investment income and principal attributable to each respective class
of shares of the Fund on a monthly basis. The Fund may at times pay out less
than the entire amount of net investment income earned in any particular period
and may at times pay out such accumulated undistributed income in addition to
net investment income earned in other periods in order to permit the Fund to
maintain a more stable level of distributions to shareholders. As a result, the
distributions paid by the Fund for any particular period may be more or less
than the amount of net investment income earned by the Fund during such period.
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 (including any interest payments required
with respect to any borrowings by 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 applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without a sales charge. Unless a shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired) or in writing to ACCESS. See "Shareholder Services -- Reinvestment
Plan."

49
<PAGE> 179

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

FEDERAL INCOME TAXATION. The Fund has qualified and intends to continue to
qualify each year to be treated as a regulated investment company under
Subchapter M of the Code. If the Fund so qualifies and distributes each year to
its shareholders at least 90% of its net investment income (which includes
tax-exempt income and net short-term capital gain, 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 will not be subject to federal
income tax on any net capital gains distributed to shareholders.

If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. Some of the Fund's
investment practices are subject to special provisions of the Code that, among
other things, may affect the amount, timing and character of distributions to
shareholders.

DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to shareholders at the rates applicable to long-term capital gains regardless of
the length of time shares of the Fund have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
shares are held as a capital asset). For a summary of the tax rates applicable
to capital gains (including capital gains dividends), see "Capital Gains Rates
Under the 1997 Tax Act" below. The Fund will inform shareholders of the source
and tax status of all distributions promptly after the close of each calendar
year. A portion of the distributions from the Fund will be eligible for the
dividends received deduction for corporations if the Fund receives qualifying
dividends during the year and if certain other requirements of the Code are
satisfied.

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. The basis of such shares will equal the
fair market value on the distribution date.

SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount

50
<PAGE> 180

equal to the difference between their adjusted tax basis in the 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. For a summary of the tax rates applicable to
capital gains, see "Capital Gains Rates Under the 1997 Tax Act" below. 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. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the Shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.

CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. Under the 1997 Tax Act, the
Treasury is authorized to issue regulations that address the application of the
new capital gains rates to sales and exchanges by regulated investment companies
and to sales and exchanges of interests in regulated investment companies, but
no such regulations have been issued as of the date hereof. It is expected that
the new tax rates for capital gains under the 1997 Tax Act described above will
apply to distributions of capital gains dividends by regulated investment
companies such as the Fund as well as to sales and exchanges of shares in
regulated investment companies such as the Fund. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gains
dividends received on such shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisers as to the application of the new capital
gains rates to their particular circumstances.

GENERAL. The federal income tax discussion set forth above is for general
information only and is qualified by reference to additional information
contained in the Statement of Additional Information. Prospective investors
should consult their advisors regarding the specific federal tax consequences of
holding and disposing of shares, as well as the effects of state, local and
foreign tax law and any proposed tax law changes.

- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------

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<PAGE> 181

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

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. Distribution rate is determined by annualizing the
distributions per share for a stated period and dividing the result by the
public offering price for the same 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 the Fund's
investments 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.

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

52
<PAGE> 182

shares. Other classes may be established from time to time in accordance with
the Fund's Declaration of Trust.

Each class of shares represents an interest in the same assets of the Fund and
are identical in all respects except that each class bears certain distribution
expenses and has exclusive voting rights with respect to its distribution.
Except as described herein, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of the Fund is
entitled to its pro rata portion of all of the Fund's net assets after all debt
and expenses of the Fund have been paid. Since Class B Shares and Class C Shares
pay higher distribution expenses, the liquidation proceeds to holders of Class B
Shares and Class C Shares are likely to be lower than to holders of Class A
Shares.

The Trust's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be held to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

53
<PAGE> 183

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

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

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

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
STRATEGIC 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
Strategic Income Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Strategic Income Fund

Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606

Independent Accountants
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 184

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

STRATEGIC INCOME
FUND

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

P R O S P E C T U S

OCTOBER 28, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 185

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND

Van Kampen American Capital High Yield Fund (the "Fund") is a separate,
diversified series of Van Kampen American Capital Trust (the "Trust"), an
open-end investment company. The Fund seeks as its primary investment objective
to provide a high level of current income. As a secondary objective, the Fund
seeks capital appreciation. The Fund will attempt to achieve its investment
objectives through investment primarily in a diversified portfolio of medium and
lower grade domestic corporate debt securities. There is no assurance that the
Fund will achieve its investment objective.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for the Fund dated the date
hereof (the "Prospectus"). This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge by writing or calling Van Kampen American Capital Distributors,
Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at (800) 421-5666
((800) 421-2833 for the hearing impaired). 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. (the "SEC") These items may
be obtained from the SEC upon payment of the fee prescribed, or inspected at the
SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust...................................... B-2
Investment Policies and Restrictions........................ B-3
Additional Investment Considerations........................ B-4
Trustees and Officers....................................... B-13
Legal Counsel............................................... B-22
Transfer Agency............................................. B-22
Investment Advisory and Other Services...................... B-22
Custodian and Independent Accountants....................... B-23
Portfolio Transactions and Brokerage Allocation............. B-23
Tax Status of the Fund...................................... B-24
The Distributor............................................. B-25
Distribution and Service Plans.............................. B-25
Performance Information..................................... B-26
Report of Independent Accountants........................... B-29
Financial Statement......................................... B-30
Notes to the Financial Statements........................... B-43
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1997.

<PAGE> 186

THE FUND AND THE TRUST

Van Kampen American Capital High Yield Fund (the "Fund") is a separate,
diversified series of Van Kampen American Capital Trust (the "Trust"), an
open-end management investment company. The Fund was established pursuant to a
designation of series dated May 10, 1995. At present, the Fund, Van Kampen
American Capital Short-Term Global Income Fund and Van Kampen American Capital
Strategic Income Fund are the only series of the Trust, although other series
may be organized and offered in the future. Each series of the Trust will be
treated as a separate corporation for Federal income tax purposes.

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

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, 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 Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940, as amended (the "1940
Act").

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

The Trust originally was organized as the Van Kampen Merritt Trust, a
Massachusetts business trust, by a Declaration of Trust dated March 14, 1986
(the "Massachusetts Trust"). The Massachusetts Trust was reorganized into the
Trust and adopted its present name on July 31, 1995 pursuant to an Agreement and
Plan of Reorganization and Liquidation. The Trust was formed pursuant to an
Agreement and Declaration of Trust dated May 10, 1995 for the purpose of
facilitating the Massachusetts Trust's reorganization into a Delaware business
trust. The Trust filed a Certificate of Trust with the Delaware Secretary of
State on July 28, 1995.

The Fund originally was organized, under the name Van Kampen Merritt High
Yield Fund, as a sub-trust of the Massachusetts Trust. In connection with the
Massachusetts Trust's reorganization into a Delaware business trust, the Fund
was reorganized into a series of the Trust and renamed Van Kampen American
Capital High Yield Fund.

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 as part, each such statement
being qualified in all respects by such reference.

B-2
<PAGE> 187

INVESTMENT POLICIES AND RESTRICTIONS

The following information supplements the information provided in the
Prospectus under the headings "Investment Objectives and Policies" and
"Investment Practices."

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 instrumentalities) if, as a result,
more than 5% of the Fund's total assets (taken at current value) would
then be invested in securities of a single issuer or, if, as a result, the
Fund would hold more than 10% of the outstanding voting securities of an
issuer; except that up to 25% of the Fund's total assets may be invested
without regard to such limitations, and except that the Fund may purchase
securities of other investment companies without regard to such
limitations to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.

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

3. Borrow money, except for temporary purposes from banks or in reverse
repurchase transactions as described in the Statement of Additional
Information 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 exceed 5% of the total
asset value of the Fund. Notwithstanding this investment restriction, the
Fund may enter into "when issued" and "delayed delivery" transactions as
described in the Prospectus.

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

5. Sell any securities "short", unless at all times when a short position is
open the Fund owns an equal amount of the securities or of securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.

6. Write, purchase, or sell puts, calls or combinations thereof, or purchase
or sell interest rate futures contracts or related options, except that
the Fund may write covered call options with respect to its portfolio
securities and enter into closing purchase transactions with respect to
such options, to a maximum of 25% of its net assets and except that the
Fund may invest in hedging instruments as described in the Prospectus and
the Statement of Additional Information from time to time.

7. 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.

8. Make investments for the purpose of exercising control or management,
except that the Fund may purchase securities of other investment companies
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and extent permitted by
(i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.

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

B-3
<PAGE> 188

11. Purchase or sell real estate, commodities, or commodity contracts, except
for investments in hedging instruments as described in the Prospectus and
this Statement of Additional Information from time to time.

The Fund may not change any of these investment restrictions nor any other
fundamental policy without the approval of the lesser of (i) more than 50% of
the Fund's outstanding shares or (ii) 67% of the Fund's shares present at a
meeting at which the holders of more than 50% of the outstanding shares are
present in person or by proxy. As long as the percentage restrictions described
above are satisfied at the time of the investment or borrowing, the Fund will be
considered to have abided by those restrictions even if, at a later time, a
change in values or net assets causes an increase or decrease in percentage
beyond that allowed.

From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states. In this
connection the Fund has committed that it will not invest assets of the Fund in
securities of companies which have a record of less than three years continuous
operation. However, such period of three years may include the operation of any
predecessor company or companies, partnership or individual enterprise if the
company whose securities are proposed as an investment for funds of the Fund has
come into existence as the result of a merger, consolidation, reorganization or
the purchase of substantially all of the assets of such predecessor company or
companies, partnership or individual enterprise. The Fund may revoke any such
commitments at any time so long as it thereafter ceases to offer its shares in
the state or states involved.

The Fund may invest up to 15% of its total assets in illiquid securities,
including 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 such 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
pursuant to Rule 144A under the Securities Act of 1933, as amended, that are
determined to be liquid by the Adviser under guidelines adopted by the Board of
Trustees of the Trust (under which guidelines the Adviser will consider factors
such as trading activities and the availability of price quotations), will not
be treated as illiquid or restricted securities by the Fund for purposes of the
limitation set forth above. 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.
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. Also excluded from this limitation set forth above are securities
purchased by the Fund issued by other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.

ADDITIONAL INVESTMENT CONSIDERATIONS

MEDIUM AND LOWER GRADE DEBT SECURITIES

Discussion concerning the special risk factors of the Fund's investments in
medium and lower grade debt securities appears in the Prospectus under the
heading "Investment Objective and Policies--Special Risk Considerations
Regarding Medium and Lower Grade Debt Securities." Other corporate debt
securities which may also be acquired by the Fund include preferred stocks and
all types of debt obligations having varying terms with respect to security or
credit support, subordination, purchase price, interest payments and maturity.
Such obligations may include, for example, bonds, debentures, notes, mortgage-
or other asset-backed instruments, equipment lease or trust participation
certificates, conditional sales contracts, commercial paper and obligations
issued or guaranteed by the United States government or any of its political
subdivisions, agencies or instrumentalities (including obligations, such as
repurchase agreements, secured by such instruments). Mortgage-backed securities
are securities that directly or indirectly represent a participation in, or are
secured and payable from, mortgage loans secured by real property. The Fund will
not invest in mortgage-backed residual interests. Asset-backed securities have
structural characteristics similar to mortgage-backed

B-4
<PAGE> 189

securities, but have underlying assets, such as accounts receivable, that are
not mortgage loans or interests in mortgage loans. Participation certificates
are issued by obligors to finance the acquisition of equipment and facilities
and may represent participations in a lease, an installment purchase contract or
a conditional sales contract. Most debt securities in which the Fund will invest
will bear interest at fixed rates. However, the Fund reserves the right to
invest without limitation in corporate debt securities that have variable rates
of interest or involve equity features, such as contingent interest or
participation based on revenues, sales or profits (i.e., interest or other
payments, often in addition to a fixed rate of return, that are based on the
borrower's attainment of specified levels of revenues, sales or profits and thus
enable the holder of the security to share in the potential success of the
venture). Corporate debt securities consisting of preferred stocks may have
cumulative or non-cumulative dividend rights. To the extent the Fund invests in
non-cumulative preferred stocks, the Fund's ability to achieve its investment
objective of high current income may be affected adversely. In connection with
its investments in corporate debt securities, the Fund also may invest in equity
securities, including warrants and common stocks. No more than 5% of the Fund's
assets will be invested in such equity securities. The Fund also may invest in
convertible securities, zero coupon securities and payment-in-kind securities.

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

B-5
<PAGE> 190

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 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.

B-6
<PAGE> 191

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 S&P or P-1 from 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 15% 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" (i.e.,
the Fund must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Fund will receive the option premium to help
protect it against loss, a call sold by the Fund exposes the Fund during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security and may require the Fund to hold a
security which it might otherwise have sold. In selling calls on securities not
owned by the Fund, the Fund may be required to acquire the underlying security
at a disadvantageous price in order to satisfy its obligation with respect to
the call option. 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.

B-7
<PAGE> 192

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 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position 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) for other than bona fide hedging purposes 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. Certain state securities laws to which the Fund
may be subject may further restrict the Fund's ability to engage in futures
contracts and related options. 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 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.

B-8
<PAGE> 193

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 cross hedging and 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
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.

B-9
<PAGE> 194

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 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.

B-10
<PAGE> 195

additional consideration) or to segregate cash or liquid securities sufficient
to purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio securities
which correlate with the index or to segregate cash or liquid securities 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 cash or liquid
securities 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
cash or liquid securities denominated in that currency equal to the Fund's
obligations or to segregate cash or liquid securities 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 liquid
securities 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 cash or liquid securities
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 securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

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

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

REPURCHASE AGREEMENTS

The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved the Fund's Board of Trustees. The Adviser
will monitor the creditworthiness of such parties, under the general supervision
of the Board of Trustees. In the event of a default or a bankruptcy by a seller,
the Fund will promptly seek to liquidate the collateral. To the extent that the
proceeds from any sale of such collateral upon a default in the obligation to
repurchase are less than the repurchase price, the Fund will suffer the loss.

B-11
<PAGE> 196

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 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.

During the time a reverse repurchase agreement is outstanding, the Fund will
maintain a segregated custodial account containing cash or liquid securities
having a value equal to the repurchase price under such reverse repurchase
agreement. Any investment gains made by the Fund with monies borrowed through
reverse repurchase agreements will cause the net asset value of the Fund's
shares to rise faster than would be the case if the Fund had not engaged in such
borrowings. On the other hand, if the investment performance resulting from the
investment of borrowings obtained through reverse repurchase agreements fails to
cover the cost of such borrowings to the Fund, the net asset value of the Fund
will decrease faster than would otherwise be the case.

Reverse repurchase agreements will be considered borrowings by the Fund and as
such would be subject to the restrictions on borrowings described under
"Investment Policies and Restrictions" in this Statement of Additional
Information. The Fund will enter into reverse repurchase agreements only with
commercial banks whose deposits are insured by the Federal Deposit Insurance
Corporation and whose assets exceed $500 million or broker-dealers who are
registered with the SEC. In determining whether to enter into a reverse
repurchase agreement with a bank or broker-dealer, the Fund will take into
account the credit-worthiness of such party and will monitor such
credit-worthiness on an ongoing basis.

BORROWING

The Fund may borrow up to 5% of the value of its assets from a bank, or
through reverse repurchase agreements with broker-dealers or banks meeting the
same qualifications as set forth above under "Repurchase Agreements." The Fund
will use such borrowings only for temporary emergency purposes such as paying
for unexpectedly heavy redemptions.

SECURITIES LENDING

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund, and are at all
times secured by cash or liquid securities, which are maintained in a segregated
account pursuant to applicable regulations that are equal to at least the market
value, determined daily, of the loaned securities. The advantage of such loans
is that the Fund continues to receive the income on the loaned securities while
at the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations.

A loan may be terminated by the borrower on one business day's notice, or by
the Fund on two business days' notice. If the borrower fails to deliver the
loaned securities within two days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Adviser to be creditworthy and when the income which can be earned from
such loans justifies the attendant risks. Upon termination of the

B-12
<PAGE> 197

loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the investment adviser pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees
of the Trust.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities.

"WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES

From time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis--i.e., delivery and
payment can take place a month or more after the date of the transactions. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during this period. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction and thereafter reflect the value,
each day, of such security in determining the net asset value of the Fund. At
the time of delivery of the securities, the value may be more or less than the
purchase price. The Fund will also establish a segregated account with the
Fund's custodian bank in which it will continuously maintain cash or liquid
securities equal in value to commitments for such when-issued or delayed
delivery securities; subject to this requirement, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value. The investment adviser does not believe that the Fund's net asset value
or income will be adversely affected by the Fund's purchase of securities on
such basis.

TRUSTEES AND OFFICERS

The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and other executive officers of the Fund's investment
adviser and their principal occupations for the last five years and their
affiliations, if any, with VK/AC Holding, Inc. ("VKAC Holding"), Van Kampen
American Capital, Inc. ("Van Kampen American Capital" or "VKAC"), Van Kampen
American Capital Investment Advisory Corp. ("Advisory Corp."), Van Kampen
American Capital Asset Management, Inc. ("Asset Management"), Van Kampen
American Capital Distributors, Inc., the distributor of the Fund's shares (the
"Distributor") and ACCESS Investors Services Inc., the Fund's transfer agent
("ACCESS"). Advisory Corp. and Asset Management sometimes are referred to herein
collectively as the "Advisers". For purposes hereof, the term "Fund Complex"
includes each of the open-end investment companies advised by the Advisers
(excluding the Van Kampen American Capital Exchange Fund and the Common Sense
Trust).

TRUSTEES

B-13
<PAGE> 198

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc.
Trustee/Director of each of the funds in the Fund
Complex.
Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Don G. Powell*............................ Chairman, President, Chief Executive Officer and a
2800 Post Oak Blvd. Director of VKAC. Chairman, Chief Executive Officer and a
Houston, TX 77056 Director of the Advisers and the Distributor. Chairman
Date of Birth: 10/19/39 and a Director of ACCESS. Director or officer of certain
other subsidiaries of VKAC. Chairman of the Board of
Governors and the Executive Committee of the Investment
Company Institute. Prior to November, 1996, President,
Chief Executive Officer and a Director of VKAC Holding.
Trustee/Director of certain funds in the Fund Complex
advised by Advisory Corp. and prior to July 1996,
President, Chief Executive Officer and a Trustee of the
funds in the Fund Complex.
Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director, Pacesetter Software, a software
Date of Birth: 10/10/22 programming company specializing in white collar
productivity. Director, Panasia Bank. Trustee/Director of
each of the funds in the Fund Complex.
</TABLE>

B-14
<PAGE> 199

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management
Inc. Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, open-end funds advised by Van Kampen American
Date of Birth: 08/22/39 Capital Management, Inc. and closed-end funds advised by
Advisory Corp. Trustee/Director of each of the funds in
the Fund Complex, open-end funds advised by Van Kampen
American Capital Management, Inc. and closed-end funds
advised by Advisory Corp.
</TABLE>

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

* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund and is an interested
person of Asset Management with respect to certain funds advised by Asset
Management by reason of his firm in the past acting as legal counsel to Asset
Management. Messrs. DeMartini and Powell are interested persons of the Fund
and the Advisers by reason of their positions with the Adviser and its
affiliates.

OFFICERS

Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell
and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL 60181. The
Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President President and a Director of VKAC.
Date of Birth: 05/20/42 President, Chief Operating Officer and a
Director of the Advisers. Director or
officer of certain other subsidiaries of
VKAC. Prior to November 1996, Executive
Vice President and a Director of VKAC
Holding. President of each of the funds in
the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers.
Date of Birth: 06/25/56 Director of Asset Management. Officer of
certain other subsidiaries of VKAC. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
</TABLE>

B-15
<PAGE> 200

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>

Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.

Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel
Date of Birth: 07/29/53 and Secretary of VKAC. Executive Vice
President, General Counsel, Assistant
Secretary and a Director of the Advisers
and the Distributor. Executive Vice
President, General Counsel and Assistant
Secretary of ACCESS. Director or officer of
certain other subsidiaries of VKAC.
Director of ICI Mutual Insurance Co., a
provider of insurance to members of the
Investment Company Institute. Prior to
November 1996, Executive Vice President,
General Counsel and Secretary of VKAC
Holding. Vice President and Secretary of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.

Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers.
Date of Birth: 04/20/42 Director of Asset Management. Director or
officer of certain other subsidiaries of
VKAC. Vice President of each of the funds
in the Fund Complex and certain other
investment companies advised by the
Advisers or their affiliates.

Paul R. Wolkenberg.......... Vice President Executive Vice President of VKAC, the
Date of Birth: 11/10/44 Advisers and the Distributor. President,
Chief Executive Officer and a Director of
ACCESS. Director or officer of certain
other subsidiaries of VKAC. Vice President
of each of the funds in the Fund Complex
and certain other investment companies
advised by the Advisers or their
affiliates.

Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers. Vice
Date of Birth: 01/11/56 Financial Officer President and Chief Financial Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.

John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
</TABLE>

B-16
<PAGE> 201

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Nicholas Dalmaso............ Assistant Secretary Vice President and Assistant Secretary of
Date of Birth: 03/01/65 VKAC. Vice President and Assistant
Secretary of the Advisers and the
Distributor. Officer of certain other
subsidiaries of VKAC. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.

Huey P. Falgout, Jr......... Assistant Secretary Assistant Vice President and Senior
Date of Birth: 11/15/63 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Advisers,
the Distributor and ACCESS. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC.
Senior Vice President, Deputy General
Counsel and Secretary of the Advisers, the
Distributor and ACCESS. Officer of certain
other subsidiaries of VKAC. Prior to
November 1996, Senior Vice President,
Deputy General Counsel and Assistant
Secretary of VKAC Holding. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.

Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers and the Distributor. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

Steven M. Hill.............. Assistant Treasurer Assistant Vice President of the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

M. Robert Sullivan.......... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>

B-17
<PAGE> 202

Trustee reinvested his or her compensation into the funds. As of the date
hereof, each AC Fund and VK Fund provides a retirement plan to its
Non-Affiliated Trustees that provides Non-Affiliated Trustees with compensation
after retirement, provided that certain eligibility requirements are met as more
fully described below. As of January 1, 1998, it is anticipated that each fund
in the Fund Complex, except the money market series of the MS Funds, will
provide such a retirement plan to its Non-Affiliated Trustees.

The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.

For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.

For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.

For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds is intended to be
based generally on the compensation amounts and methodology used by such funds
prior to their joining the current Fund Complex on July 2, 1997. Each
trustee/director was elected as a director of the MS Funds on July 2, 1997.
Prior to July 2, 1997, the MS Funds were part of another fund complex (the
"Prior Complex") and the former directors of the MS Funds were paid an aggregate
fee allocated among the funds in the Prior Complex that resulted in individual
directors receiving total compensation between approximately $8,000 to $10,000
from the MS Funds during such funds' last fiscal year.

B-18
<PAGE> 203

1996, certain trustees/directors received aggregate compensation from the funds
in the Fund Complex over $84,000 due to compensation received but not subject to
the cap, including compensation from new funds added to the Fund Complex after
July 22, 1995 and certain special meetings in 1996. In addition, each of
Advisory Corp. or Asset Management, as the case may be, agreed to reimburse each
fund in the Fund Complex through December 31, 1996 for any increase in the
aggregate compensation over the aggregate compensation paid by such fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.

Additional information regarding compensation and benefits for trustees is set
forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Fund's most recently completed fiscal year or the Fund
Complex' most recently completed calendar year ended December 31, 1996.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR ESTIMATED MAXIMUM BEFORE DEFERRAL
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS FROM FUND
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE TRUST UPON COMPLEX PAID
NAME(1) TRUST(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
------- ------------------------ ------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan* $10,500 $1,861 $7,500 $104,875
Linda Hutton Heagy* 10,500 200 7,500 104,875
Dr. Roger Hilsman 5,250 0 0 103,750
R. Craig Kennedy* 10,500 149 7,500 104,875
Donald C. Miller 5,250 7,059 4,250 104,875
Jack E. Nelson* 9,750 1,038 7,500 97,875
Jerome L. Robinson* 10,500 7,858 4,250 101,625
Phillip B. Rooney* 2,250 0 7,500 0
Dr. Fernando Sisto* 10,500 3,200 5,250 104,875
Wayne W. Whalen* 10,500 770 7,500 104,875
William S. Woodside 5,250 0 0 104,875
</TABLE>

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

* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.

(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Messrs. Hilsman, Miller and Woodside
retired from the Board of Trustees on December 31, 1996. Messrs. DeMartini,
McDonnell and Powell, also trustees of the Fund during all or a portion of
the Fund's last fiscal year, are

B-19
<PAGE> 204

not included in the compensation table because they are affiliated persons
of the Advisers and are not eligible for compensation or retirement benefits
from the Fund.

(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral from all three series of the Trust, including the Fund, with
respect to the Trust's fiscal year ended June 30, 1997. The detail of
aggregate compensation before deferral for each series, including the Fund,
is shown in Table A below. The following trustees deferred compensation from
the Trust during the fiscal year ended June 30, 1997; the aggregate amount
deferred from all three series of the Trust, including the Fund, is as
follows: Mr. Branagan, $7,125; Ms. Heagy, $8,250; Mr. Kennedy, $2,250; Mr.
Miller, $4,875; Mr. Nelson, $9,375; Mr. Robinson, $9,375; Dr. Sisto, $2,250;
and Mr. Whalen, $9,375. The details of amounts deferred for each series,
including the Fund, is shown in Table B below. Amounts deferred are retained
by the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from all three series of the Trust,
including the Fund, as of June 30, 1997 is as follows: Mr. Branagan, $7,917;
Mr. Gaughan, $11,229; Ms. Heagy, $14,076; Mr. Kennedy, $28,809; Mr. Miller,
$27,966; Mr. Nelson, $37,572; Mr. Rees, $8,071; Mr. Robinson, $35,118; Dr.
Sisto, $2,445; and Mr. Whalen, $32,052. The detail of deferred compensation
(including interest) for each series, including the Fund, is shown in Table
C below. The deferred compensation plan is described above the Compensation
Table.

(3) The amounts shown in this column represent the Retirement Benefits accrued
by all three series of the Trust, including the Fund, for each trustee
during the Trust's fiscal year ended June 30, 1997. The retirement plan is
described above the Compensation Table. The details of retirement benefits
accrued for each Series, including the Fund, are shown in Table D below.
Amounts accrued during the Trust's last fiscal year for former trustees not
named above was $3,291.

(4) For Messrs. Hilsman, Miller and Woodside, this is the actual annual benefits
payable from all three series of the Trust, including the Fund, in each year
of the 10-year period since such trustee's retirement. For the remaining
trustees, this is the estimated maximum annual benefits payable from all
three series of the Trust, including the Fund, in each year of the 10-year
period commencing in the year of such trustee's retirement from the Trust
based on the earlier of the trustee's anticipated retirement date or the
trustee having 10 or more years of service on the Board of Trustees
(including years of service prior to the adoption of the retirement plan)
and retiring at or after attaining the age of 60. Trustees retiring prior to
the age of 60 or with fewer than 10 years of service for the Fund may
receive reduced retirement benefits from the Fund. The actual annual benefit
may be less if the trustee is subject to the Fund Complex retirement benefit
cap or if the trustee is not fully vested at the time of retirement. Each
Non-Affiliated Trustee of the Board of Trustees has served as a member of
the Board of Trustees since he or she was first appointed or elected in the
year set forth in Table E below.

(5) The amounts shown in this column represent the aggregate compensation paid
by all 51 operating investment companies in the Fund Complex as of December
31, 1996 before deferral by the trustees under the deferred compensation
plan. Because the funds in the Fund Complex have different fiscal year ends,
the amounts shown in this column are presented on a calendar year basis. As
described in the narrative preceding the table, the Fund Complex has
increased in size since December 31, 1996. It is likely the aggregate
compensation from the Fund Complex for the calendar year ending December 31,
1997 will be higher due to the increased size of the Fund Complex during
1997. The trustees recently reviewed and adopted a standardized compensation
and benefits program to become effective January 1, 1998 which program is
described in more detail in the narrative preceding this table. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1996. The deferred
compensation earns a rate of return determined by reference to the return on
the shares of the funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap covered the period July 22, 1995
through December 31, 1996. For the calendar year ended December 31, 1996,
certain trustees received compensation over $84,000 in the aggregate due to
compensation received but not subject to the cap, including compensation
from new funds added to the Fund Complex after July 22, 1995 and certain
special meetings in 1996. The Advisers and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell, Powell and Whalen, the trustees were not
trustees of such investment companies. Combining the Fund Complex with other
investment companies advised by the Advisers and their affiliates, Mr.
Whalen received Total Compensation of $243,375 during the calendar year

ended December 31, 1996.

B-20
<PAGE> 205

TABLE A

FISCAL YEAR 1997 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ----------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY HILSMAN KENNEDY MILLER NELSON ROBINSON ROONEY
--------- -------- -------- ----- ------- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund.......................... 06/30 $ 3,500 $ 3,500 $1,750 $ 3,500 $1,750 $3,250 $ 3,500 $ 750
Short-Term Global Income Fund............ 06/30 3,500 3,500 1,750 3,500 1,750 3,250 3,500 750
Strategic Income Fund.................... 06/30 3,500 3,500 1,750 3,500 1,750 3,250 3,500 750
Trust Total............................ $10,500 $10,500 $5,250 $10,500 $5,250 $9,750 $10,500 $2,250

<CAPTION>
TRUSTEE
----------------------------
FUND NAME SISTO WHALEN WOODSIDE
--------- ----- ------ --------
<S> <C> <C> <C>
High Yield Fund.......................... $ 3,500 $ 3,500 $1,750
Short-Term Global Income Fund............ 3,500 3,500 1,750
Strategic Income Fund.................... 3,500 3,500 1,750
Trust Total............................ $10,500 $10,500 $5,250
</TABLE>

TABLE B

FISCAL YEAR 1997 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY HILSMAN KENNEDY MILLER NELSON ROBINSON
--------- -------- -------- ----- ------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund............................. 06/30 $2,375 $2,750 $0 $ 750 $1,625 $3,125 $3,125
Short-Term Global Income Fund............... 06/30 2,375 2,750 0 750 1,625 3,125 3,125
Strategic Income Fund....................... 06/30 2,375 2,750 0 750 1,625 3,125 3,125
Trust Total............................... $7,125 $8,250 $0 $2,250 $4,875 $9,375 $9,375

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME ROONEY SISTO WHALEN WOODSIDE
--------- ------ ----- ------ --------
<S> <C> <C> <C> <C>
High Yield Fund............................. $0 $ 750 $3,125 $0
Short-Term Global Income Fund............... 0 750 3,125 0
Strategic Income Fund....................... 0 750 3,125 0
Trust Total............................... $0 $2,250 $9,375 $0
</TABLE>

TABLE C

FISCAL YEAR 1997 CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST)

FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ------------------------------------------------------------------------------
YEAR-
FUND NAME END BRANAGAN HEAGY HILSMAN KENNEDY MILLER NELSON ROBINSON ROONEY
--------- ------ -------- ----- ------- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund......................... 06/30 $2,639 $ 4,692 $0 $ 9,603 $ 9,322 $12,524 $11,706 $0
Short-Term Global Income Fund........... 06/30 2,639 4,692 0 9,603 9,322 12,524 11,706 0
Strategic Income Fund................... 06/30 2,639 4,692 0 9,603 9,322 12,524 11,706 0
Trust Total........................... $7,917 $14,076 $0 $28,809 $27,966 $37,572 $35,118 $0

<CAPTION>
TRUSTEE
---------------------------

FUND NAME SISTO WHALEN WOODSIDE
--------- ----- ------ --------
<S> <C> <C> <C>
High Yield Fund......................... $ 815 $10,684 $0
Short-Term Global Income Fund........... 815 10,684 0
Strategic Income Fund................... 815 10,684 0
Trust Total........................... $2,445 $32,052 $0
</TABLE>

TABLE D

FISCAL YEAR 1997 RETIREMENT BENEFITS ACCRUED AS PART OF EXPENSES

FOR THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN HEAGY HILSMAN KENNEDY MILLER NELSON ROBINSON
--------- -------- -------- ----- ------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund.............................. 06/30 $ 630 $ 68 $0 $ 52 $3,896 $ 389 $2,812
Short-Term Income Fund....................... 06/30 624 67 0 50 3,163 347 2,719
Strategic Income Fund........................ 06/30 607 65 0 47 0 302 2,327
Trust Total................................ $1,861 $200 $0 $149 $7,059 $1,038 $7,858

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME ROONEY SISTO WHALEN WOODSIDE
--------- ------ ----- ------ --------
<S> <C> <C> <C> <C>
High Yield Fund.............................. $0 $1,085 $293 $0
Short-Term Income Fund....................... 0 1,072 257 0
Strategic Income Fund........................ 0 1,043 220 0
Trust Total................................ $0 $3,200 $770 $0
</TABLE>

TABLE E

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
--------------------------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY HILSMAN KENNEDY MILLER NELSON ROBINSON ROONEY SISTO WHALEN
- --------- -------- ----- ------- ------- ------ ------ -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund.................... 1995 1995 1995 1993 1986 1986 1992 1997 1995 1986
Short-Term Global Income Fund...... 1995 1995 1995 1993 1990 1990 1992 1997 1995 1990
Strategic Income Fund.............. 1995 1995 1995 1993 1993 1993 1993 1997 1995 1993

<CAPTION>
TRUSTEE
--------
FUND NAME WOODSIDE
- --------- --------
<S> <C>
High Yield Fund.................... 1995
Short-Term Global Income Fund...... 1995
Strategic Income Fund.............. 1995
</TABLE>

B-21
<PAGE> 206

As of October 6, 1997, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

As of October 6, 1997, no person was known by the Fund to own beneficially or
to hold of record as much as 5% of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER OCTOBER 6, 1997 SHARES OWNERSHIP
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company................... 2,268,924 A 7.72%
2800 Post Oak Blvd. 766,821 B 5.63%
Houston, TX 77056
MLPF&S For the Sole Benefit of Its Customers ............... 115,719 C 13.14%
Attn: Fund Administration
4800 Deer Lake Dr. EFL 3
Jacksonville, FL 32246-6484
</TABLE>

Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and individual retirement accounts.

LEGAL COUNSEL

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

TRANSFER AGENCY

During the fiscal periods ended June 30, 1997 and 1996, ACCESS, shareholder
service agent and dividend disbursing agent for the Fund, received fees
aggregating $431,600 and $406,100, respectively, for these services. These
services are provided at cost plus a profit.

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'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. ("Van Kampen American Capital")
which is an indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.

The investment advisory agreement 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 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
Fund's Trustees to whom the Adviser renders periodic reports of the Fund's
investment activities.

The investment advisory agreement will remain in effect from year to year if
specifically approved by the Fund's Trustees or the Fund's shareholders and by
the Fund's independent 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 and will automatically terminate in the event of assignment.

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. In addition to making

B-22
<PAGE> 207

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, 1997, 1996 and 1995, the Fund recognized advisory
expenses of $3,011,682, $2,614,970 and $2,202,317, respectively.

OTHER AGREEMENTS.

ACCOUNTING SERVICES 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 funds advised by the Adviser or its
affiliates and distributed by the Distributor in the cost of providing such
services, with 25% of such costs shared proportionately based on the respective
number of classes of securities issued per fund and the remaining 75% of such
cost based proportionally on their respective net assets per fund.

For the years ended June 30, 1997, 1996 and 1995, the Fund recognized expenses
of approximately $24,500, $11,300 and $10,500, respectively, representing the
Adviser's cost of providing certain accounting services.

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

For the years ended June 30, 1997, 1996 and 1995, the Fund recognized expenses
of approximately $16,900, $14,300 and $10,100, respectively, representing Van
Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, 225 West 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 accountants for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent accountants 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.

B-23
<PAGE> 208

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 that
set forth to the Fund and the Adviser, (ii) have sold or are selling shares of
the Fund and (iii) may select firms that are affiliated with the Fund, its
investment adviser or its distributor or 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 Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. Although it is possible that in
some cases this procedure could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned, it is also possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.

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

The Board of Trustees has 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 Board of Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Board of Trustees will consider from time to time whether the
advisory fee will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.

During the year ended June 30, 1997, the Fund paid no brokerage commissions on
transactions to brokers related to research services provided to the Adviser.

Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser.

<TABLE>
<CAPTION>
AFFILIATED BROKERS
----------------------------
BROKERS MORGAN STANLEY DEAN WITTER
------- -------------- -----------
<S> <C> <C> <C>
Commissions paid:
Fiscal year 1995......................................... $ 0 N/A N/A
Fiscal year 1996......................................... $ 0 N/A N/A
Fiscal year 1997......................................... $ 0 $ 0 $ 0
Fiscal year 1997 Percentages:
Commissions with affiliate to total commissions.......... 0% 0%
Value of brokerage transactions with affiliate to total
transactions.......................................... 0% 0%
</TABLE>

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, among other things, 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.

B-24
<PAGE> 209

THE DISTRIBUTOR

The Distributor offers one of the industry's broadest lines of investments --
encompassing mutual funds, closed-end funds and unit investment trusts -- assets
which have been entrusted to Van Kampen American Capital in more than 2 million
investor accounts. Van Kampen American Capital has one of the largest research
teams (outside of the rating agencies) in the country. Each of our high yield
analysts, based either in San Francisco, Chicago, Houston or Boston, has the
responsibility to cover a specific region of the county. This regional focus
enables each high yield analyst to provide more specialized coverage of the
market and alert the portfolio manager to issues of local importance.

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
dealers. The Distributor's obligation is an agency or "best efforts" arrangement
under which the Distributor is required to take and pay for only such shares of
the Fund as may be sold to the public. The Distributor is not obligated to sell
any stated number of shares. The Distributor bears the cost of printing (but not
typesetting) prospectuses used in connection with this offering and certain
other costs, including the cost of supplemental sales literature and
advertising. The Distribution and Service Agreement is renewable from year to
year if approved (a) by the Fund's Trustees or by a vote of a majority of the
Fund's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for such purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty be either party on 90 days' written notice. Total underwriting
commissions on the sale of shares of the Fund for the fiscal periods indicated
are as follows:

<TABLE>
<CAPTION>
AMOUNTS
TOTAL UNDERWRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------------ --------------
<S> <C> <C>
Fiscal Year Ended June 30, 1997............................. $725,021 $ 92,626
Fiscal Year Ended June 30, 1996............................. $785,205 $118,900
</TABLE>

DISTRIBUTION AND SERVICE PLANS

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

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

B-25
<PAGE> 210

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, 1995, the Fund has recognized expenses under the
Plans of $645,210, $433,721 and $18,586 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $578,187, $106,435 and $4,170
represent payments to financial intermediaries under the Selling Agreements for
Class A Shares, Class B Shares and Class C Shares, respectively. For the year
ended June 30, 1995, the Fund has reimbursed the Distributor $79,336, $3,915 and
$0 for advertising expenses, and $22,813, $19,846 and $0 for compensation of the
Distributor's sales personnel for the Class A Shares, Class B Shares and Class C
Shares, respectively.

For the year ended June 30, 1996, the Fund recognized expenses under the Plans
of $647,486, $779,712 and $51,552 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $520,742, $154,566 and $7,520 represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares, Class B Shares and Class C Shares, respectively.

For the year ended June 30, 1997, the Fund has recognized expenses under the
Plans of $666,457, $1,155,132 and $74,596 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $587,241, $44,181 and $ represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares, Class B Shares and Class C Shares, respectively.

For the fiscal year ended June 30, 1997, the Fund's aggregate expenses under
the Class B Plan were $1,159,557 or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $866,349 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B shares of the Fund and $293,208
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Plans. For the fiscal year ended June 30, 1997, the Fund's
aggregate expenses under the Plans for Class C shares were $68,117 or 1.00% of
the Class C shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $38,986 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $29,131 for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Class C Plan.

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum front-end sales charge) per share of such class on
the last day of such period. The Fund's net investment income per share is
determined by taking the interest attributable to a given class of shares earned
by the Fund during the period, subtracting the expenses attributable to a given
class of shares accrued for the period (net of any reimbursements), and dividing
the result by the average daily number of shares of each class outstanding
during the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a CDSC on the lesser of the then current
net asset value of the shares redeemed or their initial

B-26
<PAGE> 211

purchase price from the Fund. Yield quotations do not reflect the imposition of
a CDSC, and if any such CDSC 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 CDSC) at the end of specified periods
(after adding back all dividends and other distributions made during the period)
of a $1,000 investment in a given class of shares of the Fund (less the maximum
sales charge, if any) at the beginning of the period, annualizing the increase
or decrease over the specified period with respect to such initial investment
and expressing the result as a percentage. Average compounded total return will
be computed separately for each class of shares.

From time to time marketing materials may provide a portfolio manager update,
an adviser update and discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sector holdings and ten largest holdings. Materials may also mention
how Van Kampen American Capital believes the Fund compares relative to other
funds advised by the Adviser or its affiliates. Materials may also discuss the
Dalbar Financial Services study from 1984 to 1994 which examined investor cash
flow into and out of all types of mutual funds. The ten year study found that
investors who bought mutual fund shares and held such shares outperformed
investors who bought and sold. The Dalbar study conclusions were consistent
regardless if shareholders purchased their funds in direct or sales force
distribution channels. The study showed that investors working with a
professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the Internet.

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 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 CDSC, and if any such CDSC with respect to
the CDSC Shares imposed at the time of redemption were reflected, it would
reduce the performance quoted.

CLASS A SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class A Shares was 7.37%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class A Shares was 8.41%.

The Fund's average total returns, including payment of the maximum sales
charge, for Class A Shares for (i) the one year period ended June 30, 1997 was
8.24%, (ii) the five year period ended June 30, 1997 was 9.69%, (iii) the ten
year period ended June 30, 1997 was 7.99% and (iv) the approximately eleven year
period since June 27, 1986, the commencement of investment operations, through
June 30, 1997 was 8.47%.

The Fund's cumulative non-standardized total return, including payment of the
maximum sales charge, for Class A Shares from inception through June 30, 1997
(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 144.72%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum front-end sales charge, with respect to the Class A Shares from the
commencement of operations through June 30, 1997

B-27
<PAGE> 212

(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 156.88%.

CLASS B SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class B Shares was 6.96%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class B Shares was 8.10%.

The Fund's average total return, including payment of the CDSC, for Class B
Shares for (i) the one year period ended June 30, 1997 was 8.64% and (ii) the
approximately four year period since May 17, 1993, the commencement of
distribution for Class B Shares of the Fund, through June 30, 1997 was 8.48%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, for Class B Shares from inception through June 30, 1997 (as calculated in
the manner described in the Prospectus under the heading "Fund Performance") was
39.86%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum front-end sales charge, with respect to the Class B Shares from June
30, 1993 (the commencement of the sale of Class B Shares) through June 30, 1997
(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 41.31%.

CLASS C SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class C Shares was 6.96%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class C Shares was 8.10%.

The Fund's average total returns, including payment of the CDSC, for Class C
Shares for (i) the one year period ended June 30, 1997 was 11.65%, and (ii) the
approximately four year period since August 13, 1993, the commencement of
distribution, through June 30, 1997 was 8.21%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, for Class C Shares from inception through June 30, 1997 (as calculated in
the manner described in the Prospectus under the heading "Fund Performance") was
35.84%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum front-end sales charge, with respect to the Class C Shares from June
30, 1994 (the commencement of the sale of Class C Shares) through June 30, 1997
(as calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 35.84%.

B-28
<PAGE> 213

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen American Capital High Yield Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital High Yield Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, 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 American Capital High Yield Fund as of June 30, 1997, 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 11, 1997

B-29
<PAGE> 214

PORTFOLIO OF INVESTMENTS

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CORPORATE BONDS 63.3%
AEROSPACE & DEFENSE 1.4%
2,000 Dyncorp, Inc., 144A -- Private Placement
(a)....................................... 9.500% 03/01/07 $ 2,020,000
2,200 Sequa Corp................................ 9.625 10/15/99 2,266,000
1,600 Sequa Corp................................ 9.375 12/15/03 1,644,000
------------
5,930,000
------------
AUTOMOBILE 0.9%
1,800 Collins and Aikman Products Co............ 11.500 04/15/06 2,043,000
1,600 Exide Corp................................ 10.750 12/15/02 1,688,000
------------
3,731,000
------------
BUILDINGS & REAL ESTATE 1.8%
3,600 American Standard, Inc.................... 10.875 05/15/99 3,834,000
3,250 Johns Manville International Group,
Inc....................................... 10.875 12/15/04 3,623,750
------------
7,457,750
------------
CHEMICALS, PLASTICS & RUBBER 1.6%
4,258 ISP Holdings, Inc......................... 9.750 02/15/02 4,513,480
2,300 Pioneer Amers Acquisition Corp., 144A --
Private Placement (a)..................... 9.250 06/15/07 2,277,000
------------
6,790,480
------------
CONTAINERS, PACKAGING & GLASS 1.5%
1,550 Owens Illinois, Inc....................... 9.750 08/15/04 1,631,375
2,100 S.D. Warren Co............................ 12.000 12/15/04 2,352,000
2,400 Sweetheart Cup, Inc....................... 9.625 09/01/00 2,436,000
------------
6,419,375
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 3.7%
3,300 Aetna Industries, Inc..................... 11.875 10/01/06 3,605,250
3,500 Communications & Power Industries, Inc.... 12.000 08/01/05 3,885,000
3,000 Newflo Corp............................... 13.250 11/15/02 3,240,000
4,200 Talley Manufacturing & Technology, Inc.... 10.750 10/15/03 4,410,000
500 Terex Corp................................ 13.250 05/15/02 562,500
------------
15,702,750
------------
ECOLOGICAL 0.6%
2,000 Envirosource, Inc......................... 9.750 06/15/03 1,960,000
550 Norcal Waste Systems, Inc. (b)............ 0/13.000 11/15/05 621,500
------------
2,581,500
------------
</TABLE>

See Notes to Financial Statements

B-30
<PAGE> 215

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRONICS 3.0%
5,050 Advanced Micro Devices, Inc............... 11.000% 08/01/03 $ 5,605,500
4,250 Bell & Howell Co. (b)..................... 0/11.500 03/01/05 3,400,000
3,600 Exide Electronics Group, Inc.............. 11.500 03/15/06 3,816,000
------------
12,821,500
------------
ENERGY 4.8%
2,400 Clark R & M Holdings, Inc................. * 02/15/00 1,824,000
3,700 Giant Industries, Inc..................... 9.750 11/15/03 3,811,000
5,300 Global Marine, Inc. (c)................... 12.750 12/15/99 5,565,000
4,350 KCS Energy, Inc........................... 11.000 01/15/03 4,708,875
4,200 Petroleum Heat & Power, Inc............... 12.250 02/01/05 4,410,000
------------
20,318,875
------------
FINANCE 3.1%
4,840 American Annuity Group, Inc............... 11.125 02/01/03 5,130,400
3,300 Americo Life, Inc......................... 9.250 06/01/05 3,374,250
1,750 Americredit Corp.......................... 9.250 02/01/04 1,741,250
3,000 Contifinancial Corp....................... 8.375 08/15/03 3,075,000
------------
13,320,900
------------
GROCERY 1.6%
3,650 Pantry, Inc............................... 12.500 11/15/00 3,768,625
3,050 Pathmark Stores, Inc...................... 9.625 05/01/03 2,950,875
------------
6,719,500
------------
HEALTHCARE 2.6%
3,100 Merit Behavioral Care Corp................ 11.500 11/15/05 3,441,000
3,100 Tenet Healthcare Corp..................... 10.125 03/01/05 3,394,500
2,350 Tenet Healthcare Corp..................... 8.625 12/01/03 2,444,000
1,650 Urohealth Systems, Inc., 144A -- Private
Placement (a)............................. 12.500 04/01/04 1,617,000
------------
10,896,500
------------
HOTEL, MOTEL, INNS & GAMING 4.2%
5,050 Argosy Gaming Co.......................... 13.250 06/01/04 4,873,250
3,075 Coast Hotels & Casinos, Inc............... 13.000 12/15/02 3,436,313
3,350 Grand Casino, Inc......................... 10.125 12/01/03 3,500,750
4,200 Trump Atlantic City Associates............ 11.250 05/01/06 4,116,000
1,800 Waterford Gaming.......................... 12.750 11/15/03 2,020,500
------------
17,946,813
------------
</TABLE>

See Notes to Financial Statements

B-31
<PAGE> 216

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LEISURE/ENTERTAINMENT 2.3%
2,500 Cobblestone Golf Group, Inc............... 11.500% 06/01/03 $ 2,625,000
5,000 Selmer, Inc............................... 11.000 05/15/05 5,525,000
1,650 Viacom International, Inc................. 10.250 09/15/01 1,790,250
------------
9,940,250
------------
MINING, STEEL, IRON & NON-PRECIOUS
METAL 5.4%
5,000 Armco, Inc................................ 11.375 10/15/99 5,175,000
3,850 Carbide/Graphite Group, Inc............... 11.500 09/01/03 4,215,750
1,300 Clark Material Handling................... 10.750 11/15/06 1,368,250
3,000 Dawson Production Services, Inc........... 9.375 02/01/07 3,060,000
1,530 Falcon Drilling........................... 9.750 01/15/01 1,587,375
1,000 Inland Steel Co........................... 12.000 12/01/98 1,067,500
1,100 Parker Drilling Co........................ 9.750 11/15/06 1,157,750
1,550 Pride Petroleum Services, Inc............. 9.375 05/01/07 1,619,750
3,400 WCI Steel, Inc............................ 10.000 12/01/04 3,527,500
------------
22,778,875
------------
PERSONAL & NON-DURABLE 2.1%
2,250 Revlon Consumer Products Corp............. 9.375 04/01/01 2,317,500
900 Revlon, Inc............................... 10.875 07/15/10 915,750
5,000 Samsonite Corp............................ 11.125 07/15/05 5,650,000
------------
8,883,250
------------
PRINTING, PUBLISHING & BROADCASTING 4.6%
900 Cablevision Systems Corp.................. 9.875 05/15/06 958,500
2,600 Cablevision Systems Corp.................. 10.500 05/15/16 2,834,000
1,600 Comcast Corp.............................. 9.375 05/15/05 1,684,000
1,000 Comcast Corp.............................. 9.125 10/15/06 1,045,000
900 Diamond Cable Co., 144A -- Private
Placement (a) (b)......................... 0/10.750 02/15/07 517,500
2,700 International Cabletel, Inc., Series A
(b)....................................... 0/12.750 04/15/05 2,079,000
1,000 International Cabletel, Inc., Series B
(b)....................................... 0/11.500 02/01/06 690,000
1,600 K-III Communications Corp................. 10.250 06/01/04 1,728,000
4,600 SCI Television, Inc....................... 11.000 06/30/05 4,841,500
850 Young Broadcasting, Inc................... 10.125 02/15/05 890,375
2,000 Young Broadcasting, Inc................... 11.750 11/15/04 2,220,000
------------
19,487,875
------------
</TABLE>

See Notes to Financial Statements

B-32

<PAGE> 217

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAIL 2.9%
2,000 Cole National Group, Inc.................. 11.250% 10/01/01 $ 2,195,000
3,250 Cole National Group, Inc.................. 9.875 12/31/06 3,420,625
1,000 Hosiery Corp. America, Inc................ 13.750 08/01/02 1,095,000
5,100 Waban, Inc................................ 11.000 05/15/04 5,750,250
------------
12,460,875
------------
TELECOMMUNICATIONS 8.9%
3,150 Capstar Radio Broadcasting, 144A --
Private Placement (a)..................... 9.250 07/01/07 3,047,625
1,650 Centennial Cellular Corp.................. 8.875 11/01/01 1,633,500
1,800 Centennial Cellular Corp.................. 10.125 05/15/05 1,876,500
1,800 Century Communications Corp............... 8.875 01/15/07 1,764,000
2,800 Echostar Communications Corp. (b)......... 0/12.875 06/01/04 2,352,000
2,300 EZ Communications, Inc.................... 9.750 12/01/05 2,438,000
1,100 Gray Communications Systems, Inc.......... 10.625 10/01/06 1,166,000
2,700 Intermedia Communications of Florida, Inc.
(b)....................................... 0/12.500 05/15/06 1,890,000
1,350 Intermedia Communications of Florida,
Inc....................................... 13.500 06/01/05 1,647,000
5,000 IXC Communications, Inc................... 12.500 10/01/05 5,712,500
1,750 Katz Media Corp........................... 10.500 01/15/07 1,723,750
2,700 Panamsat L.P.............................. 9.750 08/01/00 2,835,000
2,550 Pricellular Wireless Corp. (b)............ 0/12.250 10/01/03 2,390,625
2,550 Pricellular Wireless Corp................. 10.750 11/01/04 1,985,500
3,000 Teleport Communications Group (b)......... 0/11.125 07/01/07 2,167,500
4,900 Viatel, Inc. (b).......................... 0/15.000 01/15/05 3,307,500
------------
37,937,000
------------
TEXTILES 2.0%
4,450 Anvil Knitwear, Inc., 144A -- Private
Placement (a)............................. 10.875 03/15/07 4,505,625
3,700 Dan River, Inc............................ 10.125 12/15/03 3,940,500
------------
8,446,125
------------
TRANSPORTATION 1.0%
4,000 U.S. Air, Inc............................. 8.625 09/01/98 4,040,000
------------
</TABLE>

See Notes to Financial Statements

B-33
<PAGE> 218

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 3.3%
3,850 AES Corp. (e)............................. 10.250% 07/15/06 $ 4,215,750
2,100 El Paso Electric Co....................... 8.250 02/01/03 2,189,250
3,200 Midland Funding Corp. II.................. 11.750 07/23/05 3,728,000
3,900 National Energy Group, Inc................ 10.750 11/01/06 4,036,500
------------
14,169,500
------------
TOTAL DOMESTIC CORPORATE BONDS.................................... 268,780,693
------------
FOREIGN BONDS AND DEBT SECURITIES 16.6%
ARGENTINA 1.3%
3,000 Banco De Credito Argentino (US$).......... 9.500 04/24/00 3,105,000
1,000 Credito Argentino SA (US$)................ 9.500 04/24/00 1,035,000
1,000 Republic of Argentina (Var. Rate Cpn.)
(US$)..................................... 6.875 03/31/23 346,875
500 Republic of Argentina (Var. Rate Cpn.)
(US$)..................................... 5.500 03/31/23 863,750
------------
5,350,625
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$)........... 10.000 10/15/02 959,756
------------
BRAZIL 0.6%
1,940 Brazil Media Trust (US$).................. 6.546 09/15/07 1,767,386
1,000 CESP Companhia Energetica (US$)........... 9.125 06/26/07 985,000
------------
2,752,386
------------
CANADA 4.9%
3,100 Algoma Steel, Inc. (US$).................. 12.375 07/15/05 3,448,750
4,750 Doman Industries Ltd. (US$)............... 8.750 03/15/04 4,607,500
3,000 Fundy Cable Ltd. (US$).................... 11.000 11/15/05 3,262,500
4,000 Fonorola, Inc. (US$)...................... 12.500 08/15/02 4,440,000
2,500 Rogers Communications, Inc. (US$)......... 10.875 04/15/04 2,618,750
2,300 Trizec Finance (US$)...................... 10.875 10/15/05 2,587,500
------------
20,965,000
------------
COLOMBIA 1.1%
2,500 Financiera Energetica (US$)............... 9.375 06/15/06 2,675,000
2,000 Financiera Energetica (US$), 144A -
Private Placement (a)..................... 9.375 06/15/06 2,140,000
------------
4,815,000
------------
INDONESIA 1.1%
4,000 Tjiwi Kimia International Finance (US$)... 13.250 08/01/01 4,560,000
------------
ITALY 0.2%
1,500,000 Federal Republic of Italy (Lira).......... 10.000 08/01/03 1,028,201
------------
LUXEMBURG 0.9%
5,150 Millicom International Cellular SA (US$)
(b)....................................... 0/13.500 06/01/06 3,720,875
------------
</TABLE>

See Notes to Financial Statements

B-34
<PAGE> 219

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO 2.2%
4,000 Grupo Televisa SA, 144A -- Private
Placement (US$) (a)....................... 10.000% 11/09/97 $ 4,048,000
2,000 United Mexican States (US$)............... 11.375 09/15/16 2,247,000
3,000 Vicap SA, 144A -- Private Placement (US$)
(a)....................................... 10.250 05/15/02 3,078,750
------------
9,373,750
------------
MOROCCO 0.9%
4,000 Morocco Trust A Loan (US$) (e)............ 6.813 01/01/09 3,650,000
------------
NETHERLANDS 1.2%
4,950 Fresh Del Monte Produce NV (US$).......... 10.000 05/01/03 5,098,500
------------
PHILIPPINES 0.2%
1,000 Republic of Philippines (US$)............. 6.250 12/01/17 878,750
------------
RUSSIA 1.4%
3,000 Russia Min Finance (US$).................. 9.250 11/27/01 3,018,750
3,000 Vneshekonombank Loan Agreement (US$)
(e)....................................... 6.250 01/01/99 2,748,750
------------
5,767,500
------------
VENEZUELA 0.4%
2,000 Republic of Venezuela (includes 10,000
common stock warrants) (US$).............. 6.750 03/31/20 1,575,000
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES........................... 70,495,343
------------
U.S. GOVERNMENT OBLIGATIONS 0.7%
3,000 U.S. T-Notes.............................. 9.000 05/15/98 3,082,710
------------
EQUITIES 3.0%
American Telecasting, Inc. (8,370 common stock warrants) (g)................ 4,185
Cablevision Systems Corp. (1 preferred share) (f)........................... 104
Capital Gaming International, Inc. (5,000 common stock warrants) (g)........ 0
Cobblestone Holdings, Inc. (1,000 common shares) (g)........................ 15,000
El Paso Electric Co. (20,072 preferred shares) (f).......................... 2,258,100
Exide Electronics Group, Inc. (2,950 common stock warrants) (g)............. 73,750
Fresenius Medical Care Capital Trust (4,000 preferred shares)............... 4,100,000
Hosiery Corp. of America, Inc. (1,000 common stock warrants) (g)............ 75,000
Intermedia Communications of Florida, Inc. (3,150 common stock warrants)
(g)......................................................................... 126,000
Panamsat LP Corp. (2,180 preferred shares) (f).............................. 2,662,097
Supermarkets General Holdings Corp. (28,600 preferred shares) (g)........... 572,000
Time Warner, Inc. (2,564 preferred shares) (d) (f).......................... 2,833,275
Urohealth Systems, Inc. (1,650 common stock warrants) (g)................... 8,250
------------
TOTAL EQUITIES.................................................... 12,727,761
------------
</TABLE>

See Notes to Financial Statements

B-35
<PAGE> 220

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

U.S.($)
Market Value
- --------------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 83.6%
(Cost $343,287,367)......................................................... $355,086,507
------------
REPURCHASE AGREEMENT 14.7%
J.P. Morgan (Collateralized by U.S. T-Note, $50,534,000 par, 8.875% coupon,
due 02/15/19, dated 06/30/97, to be sold on 07/01/97, at $62,310,210)....... 62,300,000
------------
TOTAL INVESTMENTS 98.3%
(Cost $405,587,367)......................................................... 417,386,507
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................... 7,365,126
------------
NET ASSETS 100.0%............................................................ $424,751,633
------------
</TABLE>

*Zero coupon bond

(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified buyers.

(b) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.

(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open forward transactions.

(d) Securities purchased on a when issued or delayed delivery basis.

(e) Security is a bank loan participation.

(f) Payment-in-kind security.

(g) Non-income producing security.

See Notes to Financial Statements

B-36

<PAGE> 221

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreements of
$62,300,000 (Cost $405,587,367)........................... $ 417,386,507
Cash........................................................ 1,963
Receivables:
Interest.................................................. 7,382,554
Investments Sold.......................................... 3,984,888
Fund Shares Sold.......................................... 692,465
Other....................................................... 27,619
--------------
Total Assets.......................................... 429,475,996
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,877,489
Income Distributions...................................... 1,808,000
Fund Shares Repurchased................................... 249,208
Investment Advisory Fee................................... 226,171
Distributor and Affiliates................................ 328,205
Deferred Compensation and Retirement Plans.................. 97,854
Accrued Expenses............................................ 137,436
--------------
Total Liabilities..................................... 4,724,363
--------------
NET ASSETS.................................................. $ 424,751,633
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 511,129,305
Net Unrealized Appreciation................................. 11,798,356
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,905,853)
Accumulated Net Realized Loss............................... (96,270,175)
--------------
NET ASSETS.................................................. $ 424,751,633
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $288,018,283 and 29,228,811 shares of
beneficial interest issued and outstanding)............. $ 9.85
Maximum sales charge (4.75%* of offering price)......... .49
--------------
Maximum offering price to public........................ $ 10.34
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $128,655,113 and 13,054,923 shares of
beneficial interest issued and outstanding)............. $ 9.85
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $8,078,237 and 820,064 shares of
beneficial interest issued and outstanding)............. $ 9.85
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

B-37
<PAGE> 222

STATEMENT OF OPERATIONS

For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $25,337)...... $38,980,796
Dividends................................................... 732,637
Other....................................................... 458,206
-----------
Total Income............................................ 40,171,639
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,011,682
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $666,457, $1,155,132, and $74,596,
respectively)............................................. 1,896,185
Shareholder Services........................................ 580,039
Custody..................................................... 137,428
Legal....................................................... 45,820
Trustees Fees and Expenses.................................. 43,040
Other....................................................... 303,953
-----------
Total Expenses.......................................... 6,018,147
Less Fees Waived and Expenses Reimbursed ($370,483 and
$5,042, respectively)................................. 375,525
-----------
Net Expenses............................................ 5,642,622
-----------
NET INVESTMENT INCOME....................................... $34,529,017
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 9,413,805
Forward Currency Contracts.............................. 2,754
Foreign Currency Transactions........................... 308,614
-----------
Net Realized Gain........................................... 9,725,173
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 5,542,049
-----------
End of the Period:
Investments............................................. 11,799,140
Foreign Currency Translation............................ (784)
-----------
11,798,356
-----------
Net Unrealized Appreciation During the Period............... 6,256,307
-----------
NET REALIZED AND UNREALIZED GAIN............................ $15,981,480
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $50,510,497
===========
</TABLE>

See Notes to Financial Statements

B-38
<PAGE> 223

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 34,529,017 $ 31,296,259
Net Realized Gain........................................ 9,725,173 5,994,371
Net Unrealized Appreciation/Depreciation During the
Period................................................. 6,256,307 (896,955)
------------ ------------
Change in Net Assets from Operations..................... 50,510,497 36,393,675
------------ ------------
Distributions from Net Investment Income................. (34,529,017) (31,296,259)
Distributions in Excess of Net Investment Income......... (412,288) (186,982)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.............................................. (34,941,305) (31,483,241)
Return of Capital Distribution*.......................... (612,243) (1,853,192)
------------ ------------
Total Distributions.................................... (35,553,548) (33,336,433)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 14,956,949 3,057,242
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 151,222,275 130,645,161
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................... 13,768,097 12,295,000
Cost of Shares Repurchased............................... (130,375,583) (81,944,626)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 34,614,789 60,995,535
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 49,571,738 64,052,777
NET ASSETS:
Beginning of the Period.................................. 375,179,895 311,127,118
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $1,905,853 and
$1,835,750, respectively).............................. $424,751,633 $375,179,895
============ ============
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income (Note 1):
Class A Shares....................... $(24,888,535) $(24,518,181)
Class B Shares....................... (9,438,468) (6,539,545)
Class C Shares....................... (614,302) (425,515)
------------ ------------
$(34,941,305) $(31,483,241)
============ ============
Return of Capital Distribution (Note 1):
Class A Shares....................... $ (430,710) $ (1,394,959)
Class B Shares....................... (170,818) (427,086)
Class C Shares....................... (10,715) (31,147)
------------- -------------
$ (612,243) $ (1,853,192)
============= =============
</TABLE>

See Notes to Financial Statements

B-39

<PAGE> 224

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 9.493 $ 9.398 $ 9.643 $10.380 $ 9.896
------- -------- ------- -------- --------
Net Investment Income.............. .857 .878 .844 .908 1.118
Net Realized and Unrealized
Gain/Loss........................ .384 .147 (.099) (.595) .566
------- -------- ------- -------- --------
Total from Investment Operations..... 1.241 1.025 .745 .313 1.684
------- -------- ------- -------- --------
Less:
Distributions from and in Excess of
Net Investment Income............ .865 .880 .815 .950 1.129
Return of Capital Distribution..... .015 .050 .175 .100 .071
------- -------- ------- -------- --------
Total Distributions.................. .880 .930 .990 1.050 1.200
------- -------- ------- -------- --------
Net Asset Value, End of the Period... $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
======= ======== ======= ======== ========
Total Return* (a).................... 13.60% 11.26% 8.50% 2.92% 18.08%
Net Assets at End of the Period (In
millions).......................... $ 288.0 $ 271.1 $ 253.3 $ 260.7 $ 251.5
Ratio of Expenses to Average Net
Assets *........................... 1.17% 1.31% 1.31% 1.32% 1.20%
Ratio of Net Investment Income to
Average Net Assets *............... 8.83% 9.16% 9.13% 8.85% 11.13%
Portfolio Turnover................... 125% 102% 152% 203% 198%
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 1.26% 1.31% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets................. 8.73% 9.15% N/A N/A N/A
</TABLE>

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A -- Not applicable.

See Notes to Financial Statements

B-40
<PAGE> 225

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
May 17, 1993
Year Ended June 30, (Commencement
------------------------------------- of Distribution) to
Class B Shares 1997 1996 1995 1994 June 30, 1993(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $ 9.497 $ 9.398 $ 9.638 $10.382 $10.190
------- ------- ------- ------- -------
Net Investment Income........... .777 .797 .788 .889 .117
Net Realized and Unrealized
Gain/Loss..................... .389 .160 (.115) (.665) .217
------- ------- ------- ------- -------
Total from Investment
Operations...................... 1.166 .957 .673 .224 .334
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income...... .794 .812 .751 .877 .128
Return of Capital
Distribution.................. .014 .046 .162 .091 .014
------- ------- ------- ------- -------
Total Distributions............... .808 .858 .913 .968 .142
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
======= ======= ======= ======= =======
Total Return* (b)................. 12.64% 10.55% 7.61% 2.11% 3.27%**
Net Assets at End of the Period
(In millions)................... $ 128.7 $ 97.1 $ 55.9 $ 33.2 $ 2.7
Ratio of Expenses to Average Net
Assets*......................... 1.93% 2.07% 2.04% 2.13% 2.06%
Ratio of Net Investment Income to
Average Net Assets*............. 8.03% 8.39% 8.35% 7.94% 7.17%
Portfolio Turnover................ 125% 102% 152% 203% 198%**
*If certain expenses had not been waived or reimbursed by VKAC, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.......................... 2.02% 2.07% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets.............. 7.94% 8.38% N/A N/A N/A
</TABLE>

** Non-Annualized

(a) Based on average shares outstanding.

(b) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.

N/A -- Not applicable.

See Notes to Financial Statements

B-41
<PAGE> 226

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
--------------------------------- Distribution) to
Class C Shares 1997 1996 1995 June 30, 1994(a)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period............................. $ 9.495 $ 9.396 $ 9.643 $10.340
------- ------- ------- -------
Net Investment Income.............. .780 .828 .745 .761
Net Realized and Unrealized
Gain/Loss........................ .384 .129 (.079) (.605)
------- ------- ------- -------
Total from Investment Operations..... 1.164 .957 .666 .156
------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income............ .794 .812 .751 .763
Return of Capital Distribution..... .014 .046 .162 .090
------- ------- ------- -------
Total Distributions.................. .808 .858 .913 .853
------- ------- ------- -------
Net Asset Value, End of Period....... $ 9.851 $ 9.495 $ 9.396 $ 9.643
======= ======= ======= =======
Total Return* (b).................... 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)...................... $ 8.1 $ 7.0 $ 2.0 $ 2.2
Ratio of Expenses to Average Net
Assets*............................ 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*................ 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover................... 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 2.03% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................. 7.99% 8.38% N/A N/A
</TABLE>

** Non-Annualized

(a) Based on average shares outstanding.

(b) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.

N/A -- Not applicable.

See Notes to Financial Statements

B-42
<PAGE> 227

NOTES TO FINANCIAL STATEMENTS

June 30, 1997
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital High Yield Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust, a Delaware business trust (the
"Trust"), and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objective is to provide a high level of current income through
investment in medium and lower grade domestic corporate debt securities. The
Fund also may invest up to 35% of its assets in foreign government and corporate
debt securities of comparable quality. The Fund commenced investment operations
on June 27, 1986. The Fund commenced distribution of its Class B and C shares on
May 17, 1993 and August 13, 1993, respectively.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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

The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account

B-43
<PAGE> 228

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

along with other investment companies advised by Van Kampen American Capital
Investment Advisory Corp. (the "Adviser") or its affiliates, the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.

C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Bond discount is amortized
over the expected life of each applicable security.

D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $96,270,175, which will expire between June 30, 1998 and
June 30, 2004. 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.

At June 30, 1997, for federal income tax purposes, the cost of long- and
short-term investments is $405,587,367; the aggregate gross unrealized
appreciation is $13,177,770 and the aggregate gross unrealized depreciation is
$1,379,414, resulting in net unrealized appreciation of $11,798,356.

E. 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 foreign currency
transactions. These gains and losses are included as net realized gains and
losses for financial reporting purposes. Permanent book and tax basis
differences relating to net realized currency gains totaling $311,368 were
reclassified from accumulated net realized gain/loss on investments to
accumulated undistributed net investment income.

B-44
<PAGE> 229

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

Additional permanent differences relating to the recognition of expenses
which are not deductible for tax purposes, totaling $30,817 were reclassified
from accumulated distributions in excess of net investment income to capital.

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

F. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward 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 prevailing when accrued.

G. BANK LOAN PARTICIPATIONS--The Fund invests in participation interests of
loans to foreign entities. When the Fund purchases a participation of a foreign
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------
<S> <C>
First $500 million.................................. .75 of 1%
Over $500 million................................... .65 of 1%
</TABLE>

For the year ended June 30, 1997, the Adviser waived a portion of its
advisory fee. This waiver is voluntary and may be discontinued at any time.
Additionally during the period, the Adviser reimbursed the Fund for certain
trustees' compensation in connection with the July, 1995 increase in the number
of trustees of the Fund.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $33,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $52,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates'

B-45
<PAGE> 230

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

(collectively "VKAC") cost of providing accounting, cash management and legal
services to the Fund.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $431,600, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.

Additionally, for the year ended June 30, 1997, the Fund reimbursed VKAC
approximately $30,817 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies resulting from the consolidation.

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 provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.

3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At June 30, 1997, capital aggregated
$378,296,283,

B-46
<PAGE> 231

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

$124,965,107 and $7,867,915 for Class A, B and C shares, respectively. For the
year ended June 30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 9,665,241 $ 93,909,024
Class B.................................. 5,509,891 53,363,176
Class C.................................. 406,766 3,950,075
----------- -------------
Total Sales................................ 15,581,898 $ 151,222,275
=========== =============
Dividend Reinvestment:
Class A.................................. 1,014,981 $ 9,862,811
Class B.................................. 369,698 3,593,610
Class C.................................. 32,085 311,676
----------- -------------
Total Dividend Reinvestment................ 1,416,764 $ 13,768,097
=========== =============
Repurchases:
Class A.................................. (10,008,711) $ (97,324,996)
Class B.................................. (3,049,089) (29,617,644)
Class C.................................. (353,416) (3,432,943)
----------- -------------
Total Repurchases.......................... (13,411,216) $(130,375,583)
=========== =============
</TABLE>

B-47
<PAGE> 232

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

At June 30, 1996, capital aggregated $372,301,052, $97,806,116 and
$7,050,408 for Class A, B and C shares, respectively. For the year ended June
30, 1996, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 7,294,414 $ 69,532,238
Class B................................... 5,691,156 54,286,076
Class C................................... 717,313 6,826,847
---------- ------------
Total Sales................................. 13,702,883 $130,645,161
========== ============
Dividend Reinvestment:
Class A................................... 1,003,726 $ 9,564,922
Class B................................... 265,511 2,531,980
Class C................................... 20,771 198,098
---------- ------------
Total Dividend Reinvestment................. 1,290,008 $ 12,295,000
========== ============
Repurchases:
Class A................................... (6,692,159) $(63,898,755)
Class B................................... (1,675,635) (15,998,857)
Class C................................... (215,382) (2,047,014)
---------- ------------
Total Repurchases........................... (8,583,176) $(81,944,626)
========== ============
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C 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
- ---------------------------------------------------------------------------
<S> <C> <C>
First............................................ 4.00% 1.00%
Second........................................... 3.75% None
Third............................................ 3.50% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth............................................ 1.00% None
Seventh and Thereafter........................... None None
</TABLE>

B-48
<PAGE> 233

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$92,626 and CDSC on redeemed shares of approximately $287,213. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $450,557,499 and $445,872,249,
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.

During the year ended June 30, 1997, the Fund entered into forward currency
contracts, a type of derivative. 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 as a component of
realized gain/loss on forward currency contracts.

6. DISTRIBUTION AND SERVICE PLANS

The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a 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 .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended June 30, 1997, are payments to VKAC of approximately
$930,700.

B-49
<PAGE> 234

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
separate, non-diversified series of Van Kampen American Capital Trust (the
"Trust"), 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 primarily in a
global portfolio of investment grade debt securities denominated in various
currencies and multi-national currency units and maintaining a dollar-weighted
average portfolio duration of not more than three years. The portfolio consists
of at least 80% of its net assets in investment grade debt securities issued or
guaranteed by foreign governments or supranational organizations or their
agencies, instrumentalities or subdivisions, investment grade debt securities
issued by corporations, investment grade certificates of deposit or bankers
acceptances issued or guaranteed by large U.S. or foreign banks, investment
grade commercial paper and debt securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. The fund may also invest up to
20% of its net assets in lower-grade debt securities which are below investment
grade. Investment in such lower-grade securities, which securities are commonly
referred to as "junk bonds," involve special risks as compared to investments in
higher grade securities. 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.

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated the date hereof (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
writing or calling Van Kampen American Capital Distributors, Inc. at One
Parkview Plaza, Oakbrook Terrace, Illinois 60187 at (800) 421-5666 ((800)
421-2833 for the hearing impaired). 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. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust...................................... B-2
Investment Policies and Restrictions........................ B-3
Additional Investment Considerations........................ B-4
Description of Securities Ratings........................... B-18
Trustees and Officers....................................... B-23
Legal Counsel............................................... B-32
Transfer Agency............................................. B-32
Investment Advisory and Other Services...................... B-32
Custodian and Independent Accountants....................... B-33
Portfolio Transactions and Brokerage Allocation............. B-33
Tax Status of the Fund...................................... B-35
The Distributor............................................. B-35
Distribution and Service Plans.............................. B-35
Performance Information..................................... B-36
Report of Independent Accountants........................... B-39
Financial Statements........................................ B-40
Notes to Financial Statements............................... B-47
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1997.

<PAGE> 235

THE FUND AND THE TRUST

Van Kampen American Capital Short-Term Global Income Fund is a separate,
non-diversified series of the Van Kampen American Capital Trust (the "Trust"),
an open-end management investment company. The Fund was established pursuant to
a Designation of Series dated May 10, 1995. At present, the Fund, Van Kampen
American Capital High Yield Fund and Van Kampen American Capital Strategic
Income Fund, each a separate series of the Trust, are the only series of the
Trust, although other series may be organized and offered in the future. Each
series of the Trust will be treated as a separate corporation for federal income
tax purposes.

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

The Trust originally was organized as the Van Kampen Merritt Trust, a
Massachusetts business trust created by a Declaration of Trust dated March 14,
1986 (the "Massachusetts Trust"). The Massachusetts Trust was reorganized into
the Trust and adopted its present name on July 31, 1995 pursuant to an Agreement
and Plan of Reorganization and Liquidation. The Trust was formed pursuant to an
Agreement and Declaration of Trust dated May 10, 1995 for the purpose of
facilitating the Massachusetts Trust's reorganization into a Delaware business
trust. The Trust filed a Certificate of Trust with the Delaware Secretary of
State on June 28, 1995.

The Fund originally was organized, under the name Van Kampen Merritt
Short-Term Global Income Fund, as a sub-trust of the Massachusetts Trust. In
connection with the Massachusetts Trust's reorganization into a Delaware
business trust, the Fund was reorganized into a series of the Trust and renamed
Van Kampen American Capital Short-Term Global Income Fund.

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.

B-2
<PAGE> 236

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, except
that the Fund may purchase securities of other investment companies
without regard to such limitations to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940 Act.

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 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, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

8. The Fund may not invest in securities issued by other investment companies
except as part of a merger, reorganization or other acquisition and except
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.

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.

B-3
<PAGE> 237

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 (a) 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy; or (b) more than 50% of the outstanding voting
securities of the Fund. 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,
including 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 such 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
pursuant to Rule 144A under the Securities Act of 1933, as amended, that are
determined to be liquid by the Adviser under guidelines adopted by the Board of
Trustees of the Trust (under which guidelines the Adviser will consider factors
such as trading activities and the availability of price quotations), will not
be treated as illiquid or restricted securities by the Fund for purposes of the
limitation set forth above. 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.
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. Also excluded from this limitation set forth above are securities
purchased by the Fund issued by other investment companies to the extent
permitted by (i) the 1940, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.

In connection with certain state securities law requirements, the Fund may
limit 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

B-4
<PAGE> 238

MORTGAGE-BACKED SECURITIES

"Mortgage-Backed Securities" are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. There are currently three basic types of
Mortgage-Backed Securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities; (ii) those
issued by private issuers that represent an interest in or are collateralized by
Mortgage-Backed Securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement.

Mortgage-Backed Securities may represent an undivided ownership interests in
pools of mortgages. The mortgages backing these securities may include
conventional 30-year fixed rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The U.S. Government
or the issuing agency guarantees the payment of the interest on and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Fund's shares.
These securities are in most cases "pass-through" instruments, through which the
holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees. Because the principal
amounts of such underlying mortgages may generally be prepaid in whole or in
part by the mortgagees at any time without penalty and the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through securities.
Mortgage-Backed Securities are subject to more rapid repayment than their stated
maturity date would indicate as a result of the pass-through of prepayments of
principal on the underlying mortgage obligations. The remaining maturity of a
Mortgage-Backed Security will be deemed to be equal to the average maturity of
the mortgages underlying such security determined by the Adviser on the basis of
assumed prepayment rates with respect to such mortgages. The remaining expected
average life of a pool of mortgages underlying a Mortgage-Backed Security is a
prediction of when the mortgages will be repaid and is based upon a variety of
factors such as the demographic and geographic characteristics of the borrowers
and the mortgaged properties, the length of time that each of the mortgages has
been outstanding, the interest rates payable on the mortgages and the current
interest rate environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the prepayment
experience of graduated payment mortgages is basically the same as that of the
conventional mortgages of the same maturity dates over the life of the pool.

The yield characteristics of Mortgage-Backed Securities differ from
traditional debt securities. Among the major differences are that interest and
principal prepayments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans or
other assets generally may be prepaid at any time. As a result, if the Fund
purchases such a security at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Stripped Mortgage-Backed Securities (defined herein)
which are highly sensitive to changes in prepayment and interest rates.

Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net equity in the
mortgaged properties and servicing decisions. Generally, however, prepayments on
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
Securities may decrease in value as a result of increases in interest rates and
may benefit less than other fixed income securities from declining interest
rates because of the risk of prepayment.

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The Fund's yield may also be affected by the yields on instruments in which
the Fund is able to reinvest the proceeds of payments and prepayments.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.

During periods of declining interest rates, prepayment of mortgages underlying
Mortgage-Backed Securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Fund reinvests the prepaid amounts in other income
producing securities, the yields of which reflect interest rates prevailing at
the time. Therefore, the Fund's ability to maintain a portfolio of high-yielding
Mortgage-Backed Securities will be adversely affected to the extent that
prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid Mortgage-Backed Securities. Moreover, prepayments of
mortgages which underlie securities purchased by the Fund at a premium would
result in capital losses.

Guaranteed Mortgage Pass-Through Securities. The Fund may invest in mortgage
pass-through securities representing participation interest in pools of
residential mortgage loans originated by U.S. governmental or private lenders or
guaranteed, to the extent provided in such securities, by the U.S. government or
one of its agencies or instrumentalities. Mortgage pass-through securities
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayment) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicer of the underlying mortgage loans.

The guaranteed mortgage pass-through securities that the Fund may invest in
include those issued or guaranteed by GNMA, FNMA and FHLMC. Each of GNMA, FNMA
and FHLMC guarantee timely distributions of interest to security holders. GNMA
and FNMA also guarantee timely distribution of scheduled principal. FHLMC
guarantees only ultimate collection of principal on the underlying loans, which
collection may take up to one year. The Fund may also invest in other agency
securities, including but not limited to securities issued by the Small Business
Administration, Export-Import Bank of the United States, Federal Housing
Administration, Farm Credit Administration, Federal Home Loan Banks, General
Services Administration, U.S. Department of Transportation, U.S. Department of
Housing and Urban Development, and Student Loan Marketing Association. These
securities generally are not backed by the full faith and credit of the United
States.

Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities ("Private Pass-Throughs") are structured similarly to the GNMA, FNMA
and FHLMC mortgage pass-through securities described above and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Private Pass-Throughs constituting ARMS
are backed by a pool of conventional adjustable rate mortgage loans. Since
Private Pass-Throughs typically are not guaranteed by an entity having the
credit status of GNMA, FNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement.

GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or guaranteed by the Veteran's Administration under the
Servicemen's Readjustment Act of 1944, as amended ("VA Loans"), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. In order to meet its obligations
under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with
no limitations as to amount.

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to reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-
to four-family housing units.

FNMA Certificates. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to purchase
home mortgage loans from many capital market investors that may not ordinarily
invest in mortgage loans directly, thereby expanding the total amount of funds
available for housing.

Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. government.

Each FNMA Certificate will represent a pro rata interest in one or more pools
of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage loans that
are not insured or guaranteed by any governmental agency) of the following
types: (i) fixed rate level payment mortgage loans; (ii) fixed rate growing
equity mortgage loans; (iii) fixed rate graduated payment mortgage loans; (iv)
variable rate California mortgage loans; (v) other adjustable rate mortgage
loans; and (vi) fixed rate loans secured by multifamily projects.

FHLMC Certificates. FHLMC is a corporate instrumentality of the United States
created pursuant to the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of needed housing. The
principal activity of FHLMC currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and the resale of the mortgage loans so purchased in the form of
mortgage securities, primarily Freddie Mac Certificates.

FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such FHLMC Certificate, whether
or not received. Freddie Mac also guarantees to each registered holder of a
FHLMC Certificate ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on account
of its guarantee of collection of principal at any time after default on an
underlying mortgage loan, but not later than 30 days following (i) foreclosure
sale, (ii) payment of a claim by any mortgage insurer, or (iii) the expiration
of any right of redemption, whichever occurs later, but in any event no later
than one year after demand has been made upon the mortgagor for accelerated
payment of principal. The obligation of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by the full faith and credit of
the U.S. government.

FHLMC Certificates represent a pro rata interest in a group of mortgage loans
(a "FHLMC Certificate group") purchased by FHLMC. The mortgage loans underlying
the FHLMC Certificates will consist of fixed rate or adjustable rate mortgage
loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC Certificate
group.

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the U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped Mortgage-Backed Securities issued by parties other than agencies or
instrumentalities of the U.S. Government are considered, under current
guidelines of the staff of the SEC, to be illiquid securities.

Stripped Mortgage-Backed Securities are structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of Mortgage Assets. A common type of Stripped Mortgage-Backed Securities
will have one class receiving a small portion of the interest and a larger
portion of the principal from the Mortgage Assets, while the other classes will
receive primarily interest and only a small portion of the principal. In the
most extreme case, one class will receive all of the interest (the interest-only
or "IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on IOs and POs are
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and principal payments may have a material
effect on yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the Fund may not fully recoup
its initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected. The market value of such Stripped
Mortgage-Backed Securities, including adjustable rate U.S. government IOs, are
subject to greater risk of fluctuation in response to changes in market interest
rates than other adjustable rate securities, and such greater risk of
fluctuation may adversely affect the ability of the Fund to achieve its
investment objective of maintaining a relatively stable net asset value.

Types of Credit Support. To lessen the effect of failures by obligors on
underlying mortgages to make payments, certain Mortgage-Backed Securities may
contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.

The ratings of securities for which third-party credit enhancement provides
liquidity protection or protection against losses from default are generally
dependent upon the continued creditworthiness of the enhancement provider. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment on the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets. Other
information which may be considered include demographic factors, loan
underwriting practices and general market and economic conditions. Delinquency
or loss in excess of that which is anticipated could adversely affect the return
on an investment in such a security.

Adjustable Rate Mortgage-Backed Securities. Adjustable rate Mortgage-Backed
Securities are debt securities having interest rates which are adjusted or reset
at periodic intervals ranging, in general, from one month to three years, based
on a spread over a specific interest rate or interest rate index. There are
three main categories of indices: (i) those based on U.S. Government Securities,
(ii) those derived from a calculated

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measure such as a cost of funds index and (iii) those based on a moving average
of interest rates, including mortgage rates. Commonly utilized indices include,
for example, the One Year Constant Maturity Treasury Index, the London Interbank
Offered Rate (LIBOR), the Federal Home Loan Bank Cost of Funds, the prime rate
and commercial paper rates.

Adjustable rate securities allow the Fund to participate in increases in
interest rates through periodic upward adjustments of the coupon rates of such
securities, resulting in higher yields. During periods of declining interest
rates, however, coupon rates may readjust downward resulting in lower yields to
the Fund. During periods of rising interest rates, changes in the coupon rate of
adjustable rate securities will lag behind changes in the market interest rate,
which may result in such security having a lower value until the coupon resets
to reflect more closely market interest rates. Investors who redeem shares of
the Fund prior to the time the coupon rates of the Fund's portfolio securities
are adjusted could suffer some loss on their investment in the Fund's shares.
Adjustable rate securities typically limit the maximum amount the coupon rate
may be adjusted during any adjustment period, in any one year and during the
term of the security. During periods of significant fluctuations in market rates
of interest the net asset value of the Fund may fluctuate more significantly
since these limits may prevent the Fund's portfolio securities from fully
adjusting to reflect market rates.

The Fund may invest in adjustable rate securities with interest rates that
adjust or vary inversely to changes in market interest rates. Such securities,
which are referred to as "inverse floating obligations," provide opportunities
for high current income, but the market value of such securities may be more
volatile in response to changes in market interest rates. Certain of such
inverse floating obligations have coupon rates that adjust to changes in market
interest rates to a greater degree than the change in the market rate and
accordingly have investment characteristics similar to investment leverage. As a
result, the market value of such inverse floating obligations are subject to
greater risk of fluctuation than other adjustable rate securities which do not
vary inversely to changes in market interest rates, and such greater risk of
fluctuation may adversely affect the ability of the Fund to achieve its
investment objective of maintaining a relatively stable net asset value.

ASSET-BACKED SECURITIES

"Asset-Backed Securities" have structural characteristics similar to
Mortgage-Backed Securities but have underlying assets that are not mortgage
loans or interests in mortgage loans. Through the use of trusts and special
purpose corporations, various types of assets, primarily automobile and credit
card receivables and home equity loans, have been securitized in pass-through
structures similar to the mortgage pass-through structures. In general, these
types of loans are of shorter average life than mortgage loans and are less
likely to have substantial prepayments.

Asset-Backed Securities present certain risks that are not presented by
Mortgage-Backed Securities, including the risk that these securities do not have
the benefit of a security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issues of Asset-Backed Securities backed
by automobile receivables permit the servicers of such receivable to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related Asset-Backed
Securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirement under state laws, the trustee for the
holders of Asset-Backed Securities backed by automobile receivables may not have
a proper security interest in the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

FLOATING AND VARIABLE RATE INCOME SECURITIES

Income securities may provide for floating or variable rate interest or
dividend payments. The floating or variable rate may be determined by reference
to a known lending rate, such as a bank's prime rate, a certificate of deposit
rate or the London Inter Bank Offered Rate (LIBOR). Alternatively, the rate may
be determined

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through an auction or remarketing process. The rate may also be indexed to
changes in the values of interest rate or securities indexes, currency exchange
rates or other commodities. The amount by which the rate paid on an income
security may increase or decrease may be subject to periodic or lifetime caps.
Floating and variable rate income securities include derivative securities whose
rates vary inversely with changes in market rates of interest. Such securities
may also pay a rate of interest determined by applying a multiple to the
variable rate. The extent of increases and decreases in the value of securities
whose rates vary inversely with changes in market rates of interest generally
will be larger than comparable changes in the value of an equal principal amount
of a fixed rate security having similar credit quality, redemption provisions
and maturity.

BRADY BONDS

The Fund may invest in Brady Bonds and other sovereign debt of countries that
have restructured or are in the process of restructuring sovereign debt pursuant
to the Brady Plan. "Brady Bonds" are debt securities issuer under the framework
of the Brady Plan, an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. The Brady Plan framework
contemplates the exchange of commercial bank debt for newly issued Brady Bonds.
Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. Certain Brady Bonds
have been collateralized as to principal due at maturity by U.S. Treasury zero
coupon bonds with a maturity equal to the final maturity of such Brady Bonds.

Brady Plan debt restructurings have been implemented to date in countries
including Mexico, Costa Rica, Venezuela, Uruguay, Nigeria, Argentina and the
Philippines. Brady Bonds have been issued only recently, and accordingly do not
have a long payment history. Agreements implemented under the Brady Plan to date
are designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. Brady Bonds issued to date include
bonds issued at 100% of face value of such debt, which carry a below-market
stated rate of interest (generally known as par bonds), bonds issued at a
discount from the face value of such debt (generally known as discount bonds),
bonds bearing an interest rate which increases over time and bonds issued in
exchange for the advancement of new money by existing lenders.

In light of the risk of Brady Bonds including, among other factors, the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are to be
viewed as speculative. The Fund may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) principal primarily on the
willingness and ability of the foreign government to make payment in accordance
with terms of the Brady Bonds. Many of the Brady Bonds and other income
securities in which the Fund invests are likely to be acquired at a discount.
See "Taxation."

The Salomon Brothers Brady Bond Index provides a benchmark that can be used to
compare returns of Brady Bonds with returns in other bond markets.

STRUCTURED INVESTMENTS

The Fund may invest a portion of its assets in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of other income securities, including income securities issued
by foreign governments. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of securities ("Structured Investments") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. The Fund may
invest in a class of Structured Investments that is subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.

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SPECIAL RISK FACTORS

INVESTMENT IN LOWER GRADE INCOME SECURITIES. The Fund may invest up to 20% of
its assets in lower grade securities, which securities are commonly known as
"junk bonds." Debt securities rated BB or lower by S&P or Ba or lower by Moody's
are deemed by S&P and Moody's to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal and may involve major
risk exposure to adverse conditions. The lower grade income securities in which
the Fund may invest may include securities having the lowest ratings assigned by
S&P or Moody's and, together with comparable unrated securities, may include
securities in default or that face the risk of default with respect to the
payment of principal or interest. The Fund may invest in income securities rated
in the lowest rating categories. These securities are considered to have
extremely poor prospects of ever attaining any real investment standing.

Lower grade income securities generally offer a higher yield than that
available from higher grade income securities. However, lower grade income
securities involve higher risks, in that they are especially subject to adverse
changes in general economic conditions, the industries in which the issuers are
engaged, the financial condition of the issuers and prevailing interest rates.
Issuers of lower grade securities are often highly leveraged and may not have
available to them more traditional methods of financing. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress which could adversely affect their ability to make
payments of principal and interest and increase the possibility of default. The
issuer's ability to service its debt obligations may also be adversely affected
by specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business or revenue forecasts. Similarly, certain
emerging market governments that issue lower grade income securities are among
the largest debtors to commercial banks, foreign governments and supranational
organizations and may not be able or willing to obtain additional financing.

Lower grade income securities frequently have call or buy-back features which
permit an issuer to call or repurchase the security prior to maturity. If an
issuer exercises these provisions in a declining interest rate environment, the
Fund may have to reinvest in lower yielding securities, resulting in a decrease
in income earned by the Fund. The risk of loss due to default by the issuer is
also significantly greater for the holders of lower grade securities because
such securities are generally unsecured and are often subordinated to other
income securities of the issuer. To the extent the Fund is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings, the Fund may incur additional expenses and, with respect to foreign
lower grade income securities, may have limited legal recourse in the event of a
default.

OTHER INVESTMENT STRATEGIES

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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.

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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.

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 15% of its assets in illiquid instruments.

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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.

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 will not enter into a futures contract or related option (except for
closing transactions) for other than bona fide hedging purposes 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. Certain state securities laws to which the Fund
may be subject may further restrict the Fund's ability to engage in transactions
in futures contracts and related options. The segregation requirements with
respect to futures and options thereon are described below.

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on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.

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 or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

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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.

B-16
<PAGE> 250

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.

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 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 cash or liquid securities sufficient to purchase
and deliver the securities if the call is exercised. A call option sold by the
Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash or liquid securities 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 cash or liquid
securities 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 cash or liquid securities 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 liquid
securities 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.

B-17
<PAGE> 251

segregation is required, but if it terminates prior to such time, assets equal
to any remaining obligation would need to be segregated.

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

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 payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation 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 creditor'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, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C"
is regarded as having significantly speculative
characteristics with respect to capacity to pay interest and
repay principal. "BB" indicates the least degree of
speculation and "C" the highest. While such debt will likely
have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to
adverse conditions.
</TABLE>

B-18
<PAGE> 252
BB Debt rated "BB" is less vulnerable 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.
B Debt rated "B" is more vulnerable 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" is currently vulnerable 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 Debt rated "CC" is currently highly vulnerable to
nonpayment. The rating "CC" is also used for debt
subordinated to senior debt that is assigned an actual or
implied "CCC" rating.
C The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service
payments are continued. The rating "C" typically is applied
to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating.
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.
NR Not rated
R This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to
principal or volatility of expected returns which are not
addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe payment risk --
such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as
inverse floaters.
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 S&P 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.
</TABLE>

B-19
<PAGE> 253
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 significant
speculative characteristics.
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.

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+").

4. NOTES

A S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:

-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics will be given a plus (+)
designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.

SP-3 Speculative capacity to pay principal and interest.

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

B-20
<PAGE> 254

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.

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 to B. 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.

2. SHORT-TERM DEBT

B-21
<PAGE> 255

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

-- 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.

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.

B-22
<PAGE> 256

TRUSTEES AND OFFICERS

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc.
Trustee/Director of each of the funds in the Fund
Complex.
Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
</TABLE>

B-23
<PAGE> 257

<TABLE>
<S> <C>
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a financial
423 Country Club Drive planning company and registered investment adviser. President, Nelson
Winter Park, FL 32789 Ivest Brokerage Services Inc., a member of the National Association of
Date of Birth: 02/13/36 Securities Dealers, Inc. ("NASD") and Securities Investors Protection
Corp. ("SIPC"). Trustee/Director of each of the funds in the Fund
Complex.
Don G. Powell*............................ Chairman, President, Chief Executive Officer and a Director of VKAC.
2800 Post Oak Blvd. Chairman, Chief Executive Officer and a Director of the Advisers and
Houston, TX 77056 the Distributor. Chairman and a Director of ACCESS. Director or officer
Date of Birth: 10/19/39 of certain other subsidiaries of VKAC. Chairman of the Board of
Governors and the Executive Committee of the Investment Company
Institute. Prior to November, 1996, President, Chief Executive Officer
and a Director of VKAC Holding. Trustee/Director of funds in the Fund
Complex advised by Advisory Corp. and prior to July 1996, President,
Chief Executive Officer and a Trustee of the funds in the Fund Complex.
Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a manufacturer and
115 River Road processor of welding alloys, supplies and equipment. Director,
Edgewater, NJ 07020 Pacesetter Software, a software programming company specializing in
Date of Birth: 10/10/22 white collar productivity. Director, Panasia Bank. Trustee/Director of
each of the funds in the Fund Complex.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company, a business and
One ServiceMaster Way consumer services. Director of Illinois Tool Works, Inc., a
Downers Grove, IL 60515 manufacturing company; the Urban Shopping Centers Inc., a retail mall
Date of Birth: 07/08/44 management company; and Stone Container Corp., a paper manufacturing
company. Trustee, University of Notre Dame. Formerly, President and
Chief Executive Officer, Waste Management Inc., an environmental
services company, and prior to that President and Chief Operating
Officer, Waste Management Inc. Trustee/Director of each of the funds in
the Fund Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the Graduate School,
155 Hickory Lane Stevens Institute of Technology. Director, Dynalysis of Princeton, a
Closter, NJ 07624 firm engaged in engineering research. Trustee/Director of each of the
Date of Birth: 08/02/24 funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive (Illinois), legal counsel to the funds in the Fund Complex, open-end
Chicago, IL 60606 funds advised by Van Kampen American Capital Management, Inc. and
Date of Birth: 08/22/39 closed-end funds advised by Advisory Corp. Trustee/Director of each of
the funds in the Fund Complex, open-end funds advised by Van Kampen
American Capital Management, Inc. and closed-end funds advised by
Advisory Corp.
</TABLE>

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

B-24
<PAGE> 258

OFFICERS

Peter W. Hegel.............. Vice President Executive Vice President of the Advisers.
Date of Birth: 06/25/56 Director of Asset Management. Officer of
certain other subsidiaries of VKAC. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

B-25
<PAGE> 259

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Paul R. Wolkenberg.......... Vice President Executive Vice President of the VKAC, the
Date of Birth: 11/10/44 Advisers and the Distributor. President,
Chief Executive Officer and a Director of
ACCESS. Director or officer of certain
other subsidiaries of VKAC. Vice President
of each of the funds in the Fund Complex
and certain other investment companies
advised by the Advisers or their
affiliates.

Nicholas Dalmaso............ Assistant Secretary Vice President and Assistant Secretary of
Date of Birth: 03/01/65 VKAC. Vice President and Assistant
Secretary of the Advisers and the
Distributor. Officer of certain other
subsidiaries of VKAC. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.

B-26
<PAGE> 260

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers and the Distributor. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

M. Robert Sullivan.......... Assistant Controller Assistant Vice President of the Advisers,
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>

Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 65 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex provides a deferred compensation
plan to its Non-Affiliated Trustees that allows trustees/directors to defer
receipt of their compensation and earn a return on such deferred amounts.
Deferring compensation has the economic effect as if the Non-Affiliated Trustee
reinvested his or her compensation into the funds. As of the date hereof, each
AC Fund and VK Fund provides a retirement plan to its Non-Affiliated Trustees
that provides Non-Affiliated Trustees with compensation after retirement,
provided that certain eligibility requirements are met as more fully described
below. As of January 1, 1998, it is anticipated that each fund in the Fund
Complex, except the money market series of the MS Funds, will provide such a
retirement plan to its Non-Affiliated Trustees.

B-27
<PAGE> 261

each AC Fund, in each case as of the last business day of the preceding calendar
quarter. Each AC Fund which is the subject of a special meeting of the trustees
generally pays each Non-Affiliated Trustee a per meeting fee in the amount of
$125 per special meeting attended by the Non-Affiliated Trustee, due on the date
of such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee
in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.

The trustees/directors were subject to a voluntary aggregate compensation cap
with respect to funds in the Fund Complex of $84,000 per Non-Affiliated Trustee
per year (excluding any retirement benefits) for the period July 22, 1995
through December 31, 1996, subject to the net assets and the number of funds in
the Fund Complex as of July 21, 1995 and certain other exceptions. For the
calendar year ended December 31, 1996, certain trustees/directors received
aggregate compensation from the funds in the Fund Complex over $84,000 due to
compensation received but not subject to the cap, including compensation from
new funds added to the Fund Complex after July 22, 1995 and certain special
meetings in 1996. In addition, each of Advisory Corp. or Asset Management, as
the case may be, agreed to reimburse each fund in the Fund Complex through
December 31, 1996 for any increase in the aggregate compensation over the
aggregate compensation paid by such fund in its 1994 fiscal year, provided that
if a fund did not exist for the entire 1994 fiscal year appropriate adjustments
will be made.

B-28
<PAGE> 262

retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.

COMPENSATION TABLE

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

B-29
<PAGE> 263

(4) For Messrs. Hilsman, Miller and Woodside, this is the actual annual benefits
payable from all three series of the Trust, including the Fund, in each year
of the 10-year period since such trustee's retirement. For the remaining
trustees, this is the estimated maximum annual benefits payable from all
three series of the Trust, including the Fund, in each year of the 10-year
period commencing in the year of such trustee's retirement from the Trust
assuming: the trustee has 10 or more years of service on the Board of
Trustees (including years of service prior to the adoption of the retirement
plan) 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 for the Fund
may receive reduced retirement benefits from the Fund. The actual annual
benefit may be less if the trustee is subject to the Fund Complex retirement
benefit cap or if the trustee is not fully vested at the time of retirement.
Each Non-Affiliated Trustee of the Board of Trustees has served as a member
of the Board of Trustees since he or she was first appointed or elected in
the year set forth in Table E below.

B-30
<PAGE> 264

TABLE A

FISCAL YEAR 1997 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

FISCAL YEAR 1997 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

TABLE C

FISCAL YEAR 1997 CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST)

FROM THE TRUST AND EACH SERIES

<CAPTION>
TRUSTEE
---------------------------

TABLE D

FISCAL YEAR 1997 RETIREMENT BENEFITS ACCRUED AS PART OF EXPENSES

FOR THE TRUST AND EACH SERIES

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME ROONEY SISTO WHALEN WOODSIDE
--------- ------ ----- ------ --------
<S> <C> <C> <C> <C>
High Yield Fund.............................. $0 $1,085 $293 $0
Short-Term Income Fund....................... 0 1,072 257 0
Strategic Income Fund........................ 0 1,043 220 0
Trust Total................................ $0 $3,200 $770 $0
</TABLE>

TABLE E

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-31
<PAGE> 265

Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and individual retirement accounts.

LEGAL COUNSEL

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

TRANSFER AGENCY

During the fiscal periods ended June 30, 1997 and 1996, ACCESS, shareholder
service agent and dividend disbursing agent for the Fund, received fees
aggregating $185,200 and 269,400, respectively, for these services. These
services are provided at cost plus a profit.

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's principal office is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, which is an indirect wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

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

The investment advisory agreement will remain in effect from year to year if
specifically approved by the trustees of the Trust, of which the Fund is a
separate series (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

B-32
<PAGE> 266

without penalty upon 60 days' written notice by either party thereto and will
automatically terminate in the event of assignment.

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. 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, 1997, 1996 and 1995, the Fund recognized advisory
expenses of $605,689, $882,054 and $1,616,498 respectively.

OTHER AGREEMENTS.

ACCOUNTING SERVICES 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 equally, together with the other funds advised by the Adviser or
its affiliates and distributed by the Distributor, in 25% of the cost of
providing such services, 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, 1997, 1996 and 1995, the Fund recognized expenses
of approximately $7,300, $9,900, and $9,900 respectively, representing the
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and other funds advised by the Adviser and
distributed by the Distributor have entered into Legal Services Agreements
pursuant to which Van Kampen American Capital provides legal services, including
without limitation: accurate maintenance of the funds' minute books and records,
preparation and oversight of the funds' regulatory reports, and other
information provided to shareholders, as well as responding to day-to-day legal
issues on behalf of the funds. It is expected that Van Kampen American Capital
can render such legal services on a more cost 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. Other funds distributed by the
Distributor also receive legal services from Van Kampen American Capital. Of the
total costs for legal services provided to funds distributed by the Distributor,
one half of such costs are allocated equally to each fund and the remaining one
half of such costs are allocated to specific funds based on monthly time
records.

For the years ended June 30, 1997, 1996 and 1995, the Fund recognized expenses
of approximately $15,300, $14,300, and $15,800 respectively, representing Van
Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-33
<PAGE> 267

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.

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.

During the year ended June 30, 1997, the Fund paid no brokerage commissions on
transactions to brokers related to research services provided to the Adviser.

<TABLE>
<CAPTION>
AFFILIATED BROKERS
----------------------------
BROKERS MORGAN STANLEY DEAN WITTER
------- -------------- -----------
<S> <C> <C> <C>
Commissions paid:
Fiscal year 1995.......................................... $0 N/A N/A
Fiscal year 1996.......................................... $0 N/A N/A
Fiscal year 1997.......................................... $0 $ 0 $ 0
Fiscal year 1997 Percentages:
Commissions with affiliate to total commissions........... 0% 0%
Value of brokerage transactions with affiliate to total
transactions........................................... 0% 0%
</TABLE>

B-34
<PAGE> 268

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, among other things, 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

<TABLE>
<CAPTION>
AMOUNTS
TOTAL UNDERWRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------------ --------------
<S> <C> <C>
Fiscal Year Ended June 30, 1997............................. $16,240 $ 694
Fiscal Year Ended June 30, 1996............................. $ 8,162 $1,543
</TABLE>

DISTRIBUTION AND SERVICE PLANS

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

B-35
<PAGE> 269

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. 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, 1995, the Fund recognized expenses under the Plans
of $263,818, $1,899,931 and $1,918 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $256,375, $469,537 and $672 represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares, Class B Shares and Class C Shares, respectively. For the year ended June
30, 1995, the Fund has reimbursed the Distributor $39,387, $63,700 and $0 for
advertising expenses, and $3,453, $5,441 and $0 for compensation of the
Distributor's sales personnel for the Class A Shares, Class B Shares and Class C
Shares, respectively.

For the year ended June 30, 1996, the Fund recognized expenses under the Plans
of $131,097, $1,019,724 and $1,665 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $123,267, $216,622 and $1,221 represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares, Class B Shares and Class C Shares, respectively.

For the year ended June 30, 1997, the Fund has recognized expenses under the
Plans of $140,600, $670,431 and $2,371 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $114,234, $175,242 and $1,410
represent payments to financial intermediaries under the Selling Agreements for
Class A Shares, Class B Shares and Class C Shares, respectively.

For the fiscal year ended June 30, 1997, the Fund's aggregate expenses under
the Class B Plan were $669,265 or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $494,023 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B shares of the Fund and $175,242
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Plans. For the fiscal year ended June 30, 1997, the Fund's
aggregate expenses under the Plans for Class C shares were $2,089 or 1.00% of
the Class C shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $679 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $1,410 for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Class C Plan.

PERFORMANCE INFORMATION

From time to time marketing materials may provide a portfolio manager update,
an adviser update and discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sectors, ten largest holdings and other Fund asset structures, such as
duration, maturity, coupon, NAV, rating breakdown, AMT exposure and number of
issues in the portfolio. Materials may also mention how Van Kampen American
Capital believes the Fund compares relative to other funds advised by the
Adviser or its affiliates. Materials may also discuss the Dalbar Financial
Services study from 1984 to 1994 which studied investor cash flow into and out
of all types of mutual funds. The ten year study found that investors who bought
mutual fund shares and held such shares outperformed investors who bought and
sold. The Dalbar study conclusions were consistent regardless of whether
shareholders purchased their funds in direct or sales force distribution
channels. The study showed that investors working with a professional
representative have tended over time to earn higher returns than those who
invested directly. The Fund will also be marketed on the Internet.

B-36
<PAGE> 270

CLASS A SHARES

The Fund's yield with respect to the Class A Shares for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.65%. 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, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 6.31%.

The Fund's average total return, including the payment of the maximum
front-end sales charge, with respect to the Class A Shares for the (i) the one
year period ended June 30, 1997 was 2.59%, (ii) the five year period ended June
30, 1997 was 2.21% and (iii) the approximately 81 month period from September
28, 1990 (the commencement of the sale of Class A Shares) through June 30, 1997
was 3.99%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum front-end sales charge, with respect to the Class A Shares from
September 28, 1990 (the commencement of the sale of Class A Shares) through June
30, 1997 (as calculated in the manner described in the Prospectus under the
heading "Fund Performance") was 30.26%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum front-end sales charge, with respect to the Class A Shares from
September 28, 1990 (the commencement of the sale of Class A Shares) through June
30, 1997 (as calculated in the manner described in the Prospectus under the
heading "Fund Performance") was 34.69%.

CLASS B SHARES

The Fund's yield with respect to the Class B Shares for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.05%. 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, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 5.75%.

The Fund's average total return, including the payment of the maximum CDSC,
with respect to the Class B Shares for (i) the one year period ended June 30,
1997 was 2.31%, (ii) the five year period ended June 30, 1997 was 2.10%, and
(iii) the approximately 72 month period from July 22, 1991 (the commencement of
the sale of Class B Shares) through June 30, 1997 was 3.49%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum CDSC, with respect to the Class B Shares from July 22, 1991 (the
commencement of the sale of Class B Shares) through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 22.60%.

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, with respect to the Class B Shares from July 22, 1991 (the
commencement of the sale of Class B Shares) through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 22.60%.

CLASS C SHARES

The Fund's yield with respect to the Class C Shares for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 4.05%. 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, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") was 5.75%.

The Fund's average total return, including the payment of the maximum CDSC,
with respect to the Class C Shares for (i) the one year period ended June 30,
1997 was 4.30%, and (ii) the approximately 47 month

B-37
<PAGE> 271

period from August 13, 1993 (the commencement of the sale of Class C Shares)
through June 30, 1997 was 1.57%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum CDSC, with respect to the Class C Shares from August 13, 1993 (the
commencement of the sale of Class C Shares) through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 6.25%.

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, with respect to the Class C Shares from August 13, 1993 (the
commencement of the sale of Class B Shares) through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance
was 6.25%.

B-38
<PAGE> 272

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Short-Term Global Income Fund (the "Fund"), including
the portfolio of investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Short-Term Global Income Fund as of June 30, 1997, 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 13, 1997

B-39
<PAGE> 273

PORTFOLIO OF INVESTMENTS

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES
ITALY 9.7% LIRA
Government/Agency
15,000,000 Vermilion International Trust-BTPS 144A
(b)......................................... 9.160% 12/01/97 $ 8,866,713
-----------
NEW ZEALAND 16.6% NZ$
Corporate
2,100 World Bank-European Bank for Recon & Dev.... 7.350 04/21/98 1,428,385
Government/Agency
5,500 New Zealand Government...................... 8.000 02/15/01 3,885,310
15,000 New Zealand T-Bill.......................... * 12/17/97 9,876,863
-----------
15,190,558
-----------
SPAIN 4.4% PESETA
Government/Agency
600,000 Kingdom of Spain............................ 7.300 07/30/97 4,075,777
-----------
UNITED STATES 63.2% US$
Government/Agency
20,000 U.S. Treasury Notes (a)..................... 5.000 01/31/98 19,932,400
18,500 U.S. Treasury Notes......................... 6.250 01/31/02 18,404,170
9,000 U.S. Treasury Notes......................... 6.375 05/15/00 9,035,820
7,500 U.S. Treasury Notes......................... 6.500 05/31/02 7,530,975
3,000 U.S. Treasury Notes......................... 6.625 05/15/07 3,026,790
-----------
57,930,155
-----------
REPURCHASE AGREEMENTS 3.8%
State Street Bank (Collateralized by U.S. Treasury Bonds,
$3,065,000 par, 8.125% coupon, due 08/15/19
dated 06/30/97, to be sold on 07/01/97 at $3,525,514)....................... 3,525,000
-----------
TOTAL INVESTMENTS 97.7%
(Cost $91,162,423).......................................................... 89,588,203
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3%................................... 2,143,988
-----------
NET ASSETS 100.0%............................................................ $91,732,191
===========
</TABLE>

* Zero coupon bond

(a) Assets segregated as collateral for open option and forward swap
transactions and forward currency contracts.

(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.

PORTFOLIO COMPOSITION BY CREDIT QUALITY

The following table summarizes the portfolio composition at June 30, 1997,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's as a percentage of Total Investments.

<TABLE>
<S> <C>
U.S. Government Obligations....... 64.7%
Repurchase Agreement.............. 3.9
AAA............................... 26.9
AA................................ 4.5
-----
100.0%
=====
</TABLE>

See Notes to Financial Statements

B-40
<PAGE> 274

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $91,162,423)........................ $ 89,588,203
Cash........................................................ 1,191,632
Receivables:
Interest.................................................. 1,510,906
Forward Currency Contracts and Swap Transactions.......... 290,939
Fund Shares Sold.......................................... 31,202
Options at Market Value (Net premiums paid of $27,698)...... 10,321
Other....................................................... 2,116
------------
Total Assets.......................................... 92,625,319
------------
LIABILITIES:
Payables:
Income Distributions...................................... 193,244
Fund Shares Repurchased................................... 168,219
Distributor and Affiliates................................ 130,688
Investment Advisory Fee................................... 41,905
Investments Purchased..................................... 27,698
Accrued Expenses............................................ 237,391
Deferred Compensation and Retirement Plans.................. 93,983
------------
Total Liabilities..................................... 893,128
------------
NET ASSETS.................................................. $ 91,732,191
============
NET ASSETS CONSIST OF:
Capital..................................................... $157,883,314
Accumulated Distributions in Excess of Net Investment
Income.................................................... (455,277)
Net Unrealized Depreciation................................. (1,420,976)
Accumulated Net Realized Loss............................... (64,274,870)
------------
NET ASSETS.................................................. $ 91,732,191
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $39,459,886 and 5,226,968 shares of
beneficial interest issued and outstanding)............. $ 7.55
Maximum sales charge (3.25%* of offering price)......... .25
------------
Maximum offering price to public........................ $ 7.80
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $52,093,077 and 6,903,293 shares of
beneficial interest issued and outstanding)............. $ 7.55
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $179,228 and 23,754 shares of beneficial
interest issued and outstanding)........................ $ 7.55
============
</TABLE>

*On sales of $25,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

B-41
<PAGE> 275
STATEMENT OF OPERATIONS

For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 7,357,023
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $110,695, $656,458 and $2,014,
respectively)............................................. 769,167
Investment Advisory Fee..................................... 605,689
Shareholder Services........................................ 270,802
Custody..................................................... 83,353
Trustees Fees and Expenses.................................. 38,650
Legal....................................................... 27,375
Interest.................................................... 16,565
Other....................................................... 188,145
-----------
Total Expenses.......................................... 1,999,746
Less: Expenses Reimbursed............................... 31,744
Earnings Credits on Cash Balances.................... 31,203
-----------
Net Expenses............................................ 1,936,799
-----------
NET INVESTMENT INCOME....................................... $ 5,420,224
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 461,188
Options................................................. (217,549)
Forwards................................................ 856,727
Foreign Currency Transactions........................... 625,624
-----------
Net Realized Gain........................................... 1,725,990
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (284,565)
-----------
End of the Period:
Investments............................................. (1,574,220)
Options................................................. (17,377)
Forwards................................................ 206,921
Forward Swaps........................................... (9,061)
Foreign Currency Translation............................ (27,239)
-----------
(1,420,976)
-----------
Net Unrealized Depreciation During the Period............... (1,136,411)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 589,579
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,009,803
===========
</TABLE>

See Notes to Financial Statements

B-42
<PAGE> 276

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 5,420,224 $ 9,665,816
Net Realized Gain/Loss...................................... 1,725,990 (16,200,811)
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (1,136,411) 20,009,929
------------ ------------
Change in Net Assets from Operations........................ 6,009,803 13,474,934
------------ ------------
Distributions from Net Investment Income.................... (5,420,224) -0-
Distributions in Excess of Net Investment Income............ (1,573,147) -0-
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................... (6,993,371) -0-
Return of Capital Distribution.............................. (91,680) (11,609,288)
------------ ------------
Total Distributions*........................................ (7,085,051) (11,609,288)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (1,075,248) 1,865,646
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 3,720,807 2,427,135
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 4,048,955 6,370,708
Cost of Shares Repurchased.................................. (46,302,530) (79,947,106)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (38,532,768) (71,149,263)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (39,608,016) (69,283,617)
NET ASSETS:
Beginning of the Period..................................... 131,340,207 200,623,824
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $455,277 and $358,000,
respectively)............................................. $ 91,732,191 $131,340,207
============ ============
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(3,003,963) $ -0-
Class B Shares...................... (3,977,304) -0-
Class C Shares...................... (12,104) -0-
----------- -----------
$(6,993,371) $ -0-
=========== ============
Return of Capital Distribution:
Class A Shares...................... $ (40,726) $ (4,481,275)
Class B Shares...................... (50,795) (7,116,453)
Class C Shares...................... (159) (11,560)
=========== ============
$ (91,680) $(11,609,288)
=========== ============
</TABLE>

See Notes to Financial Statements

B-43
<PAGE> 277

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $7.62 $7.56 $8.15 $9.11 $9.65
----- ----- ----- ----- -----
Net Investment Income.......................... .42 .49 .50 .59 .71
Net Realized and Unrealized Gain/Loss.......... .03 .16 (.45) (.89) (.46)
----- ----- ----- ----- -----
Total from Investment Operations............... .45 .65 .05 (.30) .25
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income.......................... .51 -0- .37 .35 .79
Return of Capital Distribution............... .01 .59 .27 .31 -0-
----- ----- ----- ----- -----
Total Distributions............................ .52 .59 .64 .66 .79
----- ----- ----- ----- -----
Net Asset Value, End of the Period............. $7.55 $7.62 $7.56 $8.15 $9.11
===== ===== ===== ===== =====
Total Return* (a).............................. 6.09% 8.81% .69% (3.61%) 2.86%
Net Assets at End of the Period (In
millions).................................... $39.5 $50.1 $72.5 $147.7 $205.9
Ratio of Expenses to Average Net Assets* (b)... 1.33% 1.31% 1.14% 1.13% 1.14%
Ratio of Net Investment Income to Average
Net Assets*.................................. 5.37% 6.54% 7.20% 6.64% 7.87%
Portfolio Turnover............................. 378% 225% 204% 259% 141%
</TABLE>

* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets (b).... 1.36% 1.34% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................... 5.34% 6.51% N/A N/A N/A
</TABLE>

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A = Not Applicable

See Notes to Financial Statements

B-44
<PAGE> 278

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
Class B Shares 1997(a) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $7.62 $7.56 $8.15 $9.10 $9.65
----- ----- ----- ----- -----
Net Investment Income........................... .35 .39 .41 .54 .67
Net Realized and Unrealized Gain/Loss........... .04 .20 (.42) (.90) (.49)
----- ----- ----- ----- -----
Total from Investment Operations................ .39 .59 (.01) (.36) .18
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income........................... .45 -0- .34 .32 .73
Return of Capital Distribution................ .01 .53 .24 .27 -0-
----- ----- ----- ----- -----
Total Distributions............................. .46 .53 .58 .59 .73
----- ----- ----- ----- -----
Net Asset Value, End of the Period.............. $7.55 $7.62 $7.56 $8.15 $9.10
===== ===== ===== ===== =====
Total Return* (b)............................... 5.29% 8.02% (.14%) (4.22%) 2.02%
Net Assets at End of the Period (In millions)... $52.1 $81.1 $127.9 $271.8 $393.1
Ratio of Expenses to Average Net Assets* (c).... 2.09% 2.09% 1.96% 1.85% 1.85%
Ratio of Net Investment Income to Average
Net Assets*................................... 4.62% 5.79% 6.42% 5.91% 7.20%
Portfolio Turnover.............................. 378% 225% 204% 259% 141%
</TABLE>

* If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets (c)..... 2.12% 2.12% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets.................................... 4.59% 5.76% N/A N/A N/A
</TABLE>

(a) Based on average month-end shares outstanding.

(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A = Not Applicable

See Notes to Financial Statements

B-45

<PAGE> 279

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
--------------------------------- Distribution) to
Class C Shares 1997(a) 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.62 $7.56 $8.16 $9.24
----- ----- ----- -----
Net Investment Income............... .35 .45 .50 .49
Net Realized and Unrealized
Gain/Loss......................... .04 .14 (.52) (1.05)
----- ----- ----- -----
Total from Investment Operations.... .39 .59 (.02) (.56)
----- ----- ----- -----
Less:
Distributions from and in Excess
of Net Investment Income........ .45 -0- .34 .27
Return of Capital Distribution.... .01 .53 .24 .25
----- ----- ----- -----
Total Distributions................. .46 .53 .58 .52
----- ----- ----- -----
Net Asset Value, End of the
Period............................ $7.55 $7.62 $7.56 $8.16
===== ===== ===== =====
Total Return* (b)................... 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the Period (In
millions)......................... $.2 $.2 $.2 $.2
Ratio of Expenses to Average Net
Assets* (c)....................... 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income to
Average
Net Assets*....................... 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover.................. 378% 225% 204% 259%
</TABLE>

* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (c)........................ 2.12% 2.09% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................ 4.60% 5.69% N/A N/A
</TABLE>

** Non-Annualized

(a) Based on average month-end shares outstanding.

(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.

N/A = Not Applicable

See Notes to Financial Statements

B-46
<PAGE> 280

NOTES TO FINANCIAL STATEMENTS

June 30, 1997
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is
organized as a series of Van Kampen American Capital Trust (the "Trust"), a
Delaware 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's investment objective is to seek a high level of current
income, consistent with prudent investment risk through investment in a global
portfolio of investment grade debt securities denominated in various currencies
and multi-national currency units and having an average duration of three years
or less. The Fund commenced investment operations on September 28, 1990. The
distribution of the Fund's Class B and Class C shares commenced on July 22,
1991, and August 13, 1993, respectively.

A. SECURITY VALUATION--Investments are stated at value using the last available
bid price, or if not available, yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.

The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account

B-47
<PAGE> 281

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

along with other investment companies advised by Van Kampen American Capital
Investment Advisory Corp. (the "Adviser") or its affiliates, the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such security only upon physical delivery or evidence of book entry transfer to
the account of the custodian bank. The seller is required to maintain the value
of the underlying security at not less than the repurchase proceeds due the
Fund.

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 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 prevailing when accrued.

E. 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, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $64,274,870 which will expire between June 30, 2001 and June
30, 2004. 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 and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options and forward transactions at June 30, 1997.

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $91,162,423; the aggregate gross unrealized
appreciation is $78,867 and the aggregate gross unrealized depreciation is
$1,640,659 resulting in net unrealized depreciation including open option and
forward swap transactions and forward currency contracts of $1,561,792.

B-48
<PAGE> 282

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

F. 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 foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Permanent book and tax basis differences relating to net realized currency gains
totaling $1,475,870 were reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income.

Net realized gains, if any, are distributed annually.

G. EXPENSE REDUCTIONS--During the year ended June 30, 1997, the Fund's custody
fee was reduced by approximately $31,200 as a result of credits earned on
overnight cash balances.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly of .55% of the
Fund's average net assets.

For the year ended June 30, 1997, Van Kampen American Capital Distributors,
Inc. or its affiliates (collectively "VKAC") has agreed to assume the Fund's
registration and filing fees. This waiver is voluntary and may be discontinued
at any time.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $11,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $28,500 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. Of this amount, approximately $900
has been assumed by VKAC.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $185,200, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.

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. For the year ended June 30, 1997, the Adviser reimbursed the Fund for
certain trustees' compensation in connection with the July 1995 increase in the
number of trustees of the Fund.

B-49
<PAGE> 283

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

3. CAPITAL TRANSACTIONS

The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.

At June 30, 1997, capital aggregated $61,586,362, $96,115,314 and $181,638,
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 258,752 $ 1,966,958
Class B.......................................... 212,311 1,604,749
Class C.......................................... 19,713 149,100
---------- ------------
Total Sales........................................ 490,776 $ 3,720,807
========== ============
Dividend Reinvestment:
Class A.......................................... 261,651 $ 1,982,096
Class B.......................................... 271,233 2,054,943
Class C.......................................... 1,572 11,916
---------- ------------
Total Dividend Reinvestment........................ 534,456 $ 4,048,955
========== ============
Repurchases:
Class A.......................................... (1,868,594) $(14,169,926)
Class B.......................................... (4,219,580) (31,987,407)
Class C.......................................... (19,067) (145,197)
---------- ------------
Total Repurchases.................................. (6,107,241) $(46,302,530)
========== ============
</TABLE>

B-50
<PAGE> 284

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

At June 30, 1996, capital aggregated $71,847,960, $124,493,824 and $165,978,
for Classes A, B and C, respectively. For the year ended June 30, 1996,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 162,018 $ 1,242,482
Class B.......................................... 153,961 1,176,596
Class C.......................................... 1,057 8,057
----------- ------------
Total Sales........................................ 317,036 $ 2,427,135
=========== ============
Dividend Reinvestment:
Class A.......................................... 356,105 $ 2,727,316
Class B.......................................... 474,434 3,632,026
Class C.......................................... 1,485 11,366
----------- ------------
Total Dividend Reinvestment........................ 832,024 $ 6,370,708
=========== ============
Repurchases:
Class A.......................................... (3,533,398) $(27,079,054)
Class B.......................................... (6,899,452) (52,839,746)
Class C.......................................... (3,684) (28,306)
----------- ------------
Total Repurchases.................................. (10,436,534) $(79,947,106)
=========== ============
</TABLE>

Class B and C 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 Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

B-51
<PAGE> 285

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately $700
and CDSC on redeemed shares of approximately $11,300. Sales charges do not
represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $375,134,019 and $406,241,491,
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 unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising an option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.

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.

B-52
<PAGE> 286

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

Transactions in options for the year ended June 30, 1997, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996...................... 1 $ (25,497)
Options Written and
Purchased (Net)................................. 6 (252,347)
Options Terminated in Closing
Transactions (Net).............................. (1) 25,497
Options Expired (Net)............................. (5) 224,649
--- ---------
Outstanding at June 30, 1997...................... 1 $ (27,698)
=== =========
</TABLE>

The description and market value of the option contract outstanding as of
June 30, 1997, are as follows:

<TABLE>
<CAPTION>
OPENING EXPIRATION STRIKE MARKET
DESCRIPTION TRANSACTION DATE PRICE VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEM Call/Lira Put....... Purchase 07/30/97 990 Lira / 1 DEM $10,321
=======
</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 as a component of realized
gain/loss on forwards.

At June 30, 1997, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
6,768,700 expiring 08/25/97-09/17/97..... $ 4,922,395 $ (44,986)
Japanese Yen,
954,268,500 expiring 07/16/97-08/27/97... 8,363,386 (73,489)
----------- ---------
$13,285,781 $(118,475)
=========== ---------
SHORT CONTRACTS:
Australian Dollar,
5,322,352 expiring 09/17/97.............. $ 4,025,933 $ (25,933)
French Franc,
40,568,300 expiring 09/29/97-10/01/97.... 6,944,961 55,039
Italian Lira,
15,000,000,000 expiring 09/15/97......... 8,805,917 (18,571)
</TABLE>

B-53
<PAGE> 287

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS (CONTINUED)
New Zealand Dollar,
24,842,926 expiring 07/31/97-09/26/97.... $16,853,926 $ 191,474
Spanish Peseta,
580,843,200 expiring 07/21/97............ 3,942,563 57,437
Swiss Franc,
7,847,600 expiring 09/30/97-10/01/97..... 5,434,049 65,950
----------- ---------
$46,007,349 325,396
=========== ---------
$ 206,921
=========
</TABLE>

At June 30, 1997, the Fund had realized gains on closed but unsettled
forward currency contracts of $93,079 scheduled to settle between July 1, 1997
and October 27, 1999.

C. SWAP TRANSACTIONS-- A swap represents an agreement between two parties to
exchange a series of cash flows based upon various indices at specified
intervals. A forward swap represents a commitment to enter into a swap agreement
at a future date.

The description of the forward swap transaction outstanding as of June 30,
1997, and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
DESCRIPTION DEPRECIATION
- ----------------------------------------------------------------------
<S> <C>
Goldman Sachs, 10.0 million US$ notional amount,
effective 10/11/99, payment based upon the spread
between the 3 year French Franc fixed swap interest rate
versus the 3 year German Deutsche Mark fixed swap
interest rate........................................... $9,061
======
</TABLE>

6. BORROWINGS

In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements to enable the Fund to satisfy
redemption requests and other temporary purposes.

The Fund was entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities but pays interest to
the counter-party based

B-54
<PAGE> 288

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

upon a short-term interest rate. The average daily balance of reverse repurchase
agreements during the period was approximately $343,700 with an average interest
rate of 4.760%. At June 30, 1997, there were no open reverse repurchase
agreements.

7. DISTRIBUTION AND SERVICE PLANS

Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 1997, are payments to VKAC of approximately
$517,900.

B-55
<PAGE> 289

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND

Van Kampen American Capital Strategic Income Fund (the "Fund") is a separate,
non-diversified series of Van Kampen American Capital Trust (the "Trust"), an
open end investment company. The Fund's primary investment objective is to seek
to provide its shareholders with high current income. The Fund has a secondary
investment objective of seeking capital appreciation. The Fund will seek to
achieve its investment objectives by investing primarily in a portfolio of
income securities selected by Van Kampen American Capital Investment Advisory
Corp., the Fund's investment adviser (the "Adviser"), from the following market
sectors: U.S. government securities; domestic investment grade income
securities; domestic lower grade income securities; foreign investment grade
income securities; and foreign lower grade income securities. The Adviser will
allocate the Fund's investments among these market sectors based on its
evaluation of the relative investment opportunities and investment risks
presented by such sectors from time to time. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in U.S. dollar-denominated
income securities and at least 40% of the Fund's total assets will be invested
in U.S. government securities and investment grade rated income securities. A
substantial portion of the Fund's assets may be invested in lower grade income
securities, including securities of issuers in emerging market countries and
securities rated in the lowest rating category. Investment in lower grade income
securities involves significant risks. Lower grade securities commonly are
referred to as "junk bonds." The Fund borrows money for investment purposes
which will create the opportunity for increased return but also involves special
risks. The Fund is allowed to invest in derivative mortgage back securities
without limitation. In addition, the Fund may invest up to 20% in defaulted bank
loans. There can be no assurance that the Fund will achieve its investment
objectives.

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the current Prospectus for the Fund (the "Prospectus")
dated as of the date hereof. 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 writing or calling Van Kampen American Capital Distributors,
Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181 at (800) 421-5666
((800) 421-2833 for the hearing impaired). 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. (the "SEC"). These items
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund and the Trust...................................... B-2
Investment Policies and Restrictions........................ B-3
Additional Investment Considerations........................ B-4
Description of Securities Ratings........................... B-26
Trustees and Officers....................................... B-33
Legal Counsel............................................... B-42
Transfer Agency............................................. B-42
Investment Advisory and Other Services...................... B-42
Custodian and Independent Accountants....................... B-44
Portfolio Transactions and Brokerage Allocation............. B-44
Tax Status of the Fund...................................... B-45
The Distributor............................................. B-48
Distribution and Service Plans.............................. B-49
Performance Information..................................... B-50
Report of Independent Accountants........................... B-53
Financial Statements........................................ B-54
Notes to Financial Statements............................... B-65
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1997.

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THE FUND AND THE TRUST

Van Kampen American Capital Strategic Income Fund (the "Fund") is a separate,
non-diversified series of Van Kampen American Capital Trust (the "Trust"), an
open-end management investment company. The Fund was established pursuant to a
designation of series dated May 10, 1995. At present, the Fund, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital Short-Term Global
Income Fund, are the only series of the Trust, although other series may be
organized and offered in the future. Each series of the Trust will be treated as
a separate corporation for Federal income tax purposes.

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

The Trust originally was organized as Van Kampen Merritt Trust, a
Massachusetts business trust created by a Declaration of Trust dated March 14,
1986 (the "Massachusetts Trust"). The Massachusetts Trust was reorganized into
the Trust and adopted its present name on July 31, 1995 pursuant to an Agreement
and Plan of Reorganization and Liquidation. The Trust was formed pursuant to an
Agreement and Declaration of Trust dated May 10, 1995 for the purpose of
facilitating the Massachusetts Trust's reorganization into a Delaware business
Trust. The Trust filed a Certificate of Trust with the Delaware Secretary of
State on July 28, 1995.

The Fund originally was organized under the name Van Kampen Merritt Strategic
Income Fund, as a sub-trust of the Massachusetts Trust. In connection with the
Massachusetts Trust's reorganization into a Delaware business trust, the Fund
was reorganized into a series of the Trust and renamed Van Kampen American
Capital Strategic Income Fund.

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.

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INVESTMENT POLICIES AND RESTRICTIONS

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

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

1. Invest 25% or more of the value of its total assets in any single industry.
(Neither the U.S. government nor any of its agencies or instrumentalities
will be considered an industry for purposes of this restriction.)

2. Issue senior securities, borrow money or enter into reverse repurchase
agreements or dollar rolls in the aggregate in excess of 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing); provided
that the Fund may, with respect to up to an additional 5% of its total
assets, borrow from and enter into reverse repurchase agreements and dollar
rolls with, any entity for temporary purposes. The Fund will not mortgage,
pledge or hypothecate any assets other than in connection with borrowings,
reverse repurchase agreements, dollar rolls, and Strategic Transactions.

3. Make loans of money or property to any person, except (i) to the extent the
securities in which the Fund may invest are considered to be loans, (ii)
through the loan of portfolio securities or the acquisition of securities
subject to repurchase agreements, and (iii) to the extent that the Fund may
lend money or property in connection with maintenance of the value of, or
the Fund's interest with respect to, the securities owned by the Fund.

4. Buy securities "on margin." Neither the deposit of initial or maintenance
margin in connection with Strategic Transactions, short term credits as may
be necessary for the clearance of transactions nor borrowing, entering into
reverse repurchase agreements or dollar rolls consistent with investment
restriction 2. above is considered the purchase of a security on margin.

5. 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.

6. Make investments for the purpose of exercising control or participation in
management of any company other than a CMO issuer, except to the extent
that exercise by the Fund of its rights under agreements related to
portfolio securities would be deemed to constitute such control or
participation, and except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

7. Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.

8. Invest in oil, gas or mineral leases or in equity interests in oil, gas, or
other mineral exploration or development programs except pursuant to the
exercise by the Fund of its rights under agreements relating to portfolio
securities.

9. Purchase or sell real estate, commodities or commodity contracts, except to
the extent that the securities that the Fund may invest in are considered
to be interests in real estate, commodities or commodity contracts or to
the extent the Fund exercises its rights under agreements relating to
portfolio securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent
that Strategic Transactions the Fund may engage in are considered to be
commodities or commodities contracts.

The Fund may not change any of these investment restrictions as they apply to
the Fund or the Fund's fundamental investment objectives 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

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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.

In addition, to comply with federal tax requirements for qualifications as a
"regulated investment company," the Fund's investments will be limited in a
manner such that at the close of each quarter of each fiscal year, (a) no more
than 25% of the Fund's total assets are invested in the securities of a single
issuer, and (b) with regard to at least 50% of the Fund's total assets, no more
than 5% of its total assets are invested in the securities of a single issuer.
These tax-related limitations may be changed by the Trustees to the extent
necessary to comply with changes to applicable tax requirements.

The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
deemed advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objectives. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates. Other than
for tax purposes, frequency of portfolio turnover will not be a limiting factor
if the Fund considers it advantageous to purchase or sell securities. The Fund
anticipates that its annual portfolio turnover rate will normally be less than
200%. Portfolio turnover will be calculated by dividing the lesser of purchases
or sales of portfolio securities by the monthly average value of the securities
in the portfolio during the year. Securities, including options, whose maturity
or expiration date at the time of acquisition were one year or less will be
excluded from such calculation. A high rate of portfolio turnover involves
correspondingly higher brokerage commissions and transaction expenses than a
lower rate, which expenses must be borne by the Fund and its Shareholders. A
high portfolio turnover rate may result in the realization of more short-term
capital gains than if the Fund had a lower portfolio turnover rate.

ADDITIONAL INVESTMENT CONSIDERATIONS

The following information supplements the information provided in the
Prospectus under the headings "Investment Objectives and Policies" and "Other
Investment Practices."

PORTFOLIO SECURITIES

U.S. GOVERNMENT SECURITIES. U.S. government securities include securities
issued by the U.S. government, such as U.S. Treasury securities, and securities
issued or guaranteed by agencies of the U.S. government. U.S. Treasury
securities are generally fixed rate securities. The Fund may invest in both
adjustable rate and fixed rate securities issued or guaranteed by agencies of
the U.S. government, including, but not limited to, Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA) and Federal
Home Loan Mortgage Corporation (FHLMC) securities. In the case of securities not
backed by the full faith and credit of the United States, the Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment.

U.S. government securities are considered among the most creditworthy of fixed
income investments. The yields available from U.S. government securities are
generally lower than the yields available from corporate debt securities. The
values of U.S. government securities will change as interest rates fluctuate. To
the extent U.S. government securities are not adjustable rate securities, these
changes in value in response to changes in interest rates generally will be more
pronounced. During periods of falling interest rates, the values of outstanding
long-term fixed rate U.S. government securities generally rise. Conversely,
during periods of rising interest rates, the values of such securities generally
decline. The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Although changes in the value of U.S.
government securities will not affect investment income from those securities,
they may affect the net asset value of the Fund.

MORTGAGE-BACKED SECURITIES. "Mortgage-Backed Securities" are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. There are currently three
basic types of Mortgage-Backed Securities: (i) those issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities, such as GNMA, FNMA
and FHLMC; (ii) those issued by private issuers that represent an interest in or
are collateralized by Mortgage-Backed Securities issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities; and (iii) those
issued

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by private issuers that represent an interest in or are collateralized by whole
mortgage loans or Mortgage-Backed Securities without a government guarantee but
usually having some form of private credit enhancement.

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lower yields than the prepaid Mortgage-Backed Securities. Moreover, prepayments
of mortgages which underlie securities purchased by the Fund at a premium would
result in capital losses.

GNMA Certificates will represent a pro rata interest in one or more pools of
the following types of mortgage loans: (i) fixed rate level payment mortgage
loans, (ii) fixed rate graduated payment mortgage loans; (iii) fixed rate
growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-
to four-family housing units.

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to the mortgage market primarily by purchasing home mortgage loans from local
lenders, thereby replenishing their funds for additional lending. FNMA acquires
funds to purchase home mortgage loans from many capital market investors that
may not ordinarily invest in mortgage loans directly, thereby expanding the
total amount of funds available for housing.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities.
Collateralized mortgage obligations ("CMOs") are debt obligations which are
secured by mortgage loans or other Mortgage-Backed Securities (such collateral
is collectively hereinafter referred to as "Mortgage Assets"). Multiclass pass-
through securities are equity interests in a trust composed of Mortgage Assets.
Unless the context indicates otherwise, all references herein to CMOs include
multiclass pass-through securities. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC"). All future references to CMOs shall also be
deemed to include REMICs.The Fund will not invest in REMIC residuals or other
CMO residuals.

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In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," may be issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the underlying Mortgage Assets may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrues on all classes of a CMO
on a monthly, quarterly or semi-annual basis. The principal of and interest on
the Mortgage Assets may be allocated among the several classes of a series of a
CMO in many ways. By investing in particular tranches of a CMO with specified
cash flows, the Fund may gain more predictability of cash flows than if it had
invested in the underlying Mortgage Assets. Generally, the more predictable the
cash flow of a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance relative to prevailing market yields on
Mortgage-Backed Securities. As part of the process of creating more predictable
cash flows on most of the tranches in a series of CMOs, one or more tranches
generally must be created that absorb most of the volatility in the cash flows
on the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on Mortgage-Backed Securities with similar
average lives. Because of the uncertainty of the cash flows on these tranches,
and the sensitivity thereof to changes in prepayment rates on the underlying
Mortgage Assets, the market prices of and yield on these tranches tend to be
more volatile.

One or more tranches of a CMO may have coupon rates which reset periodically
at a specified increment over an index such as LIBOR. These adjustable rate
tranches are known as "floating rate CMOs," "inverse floating CMOs" and
"interest only CMOs". Floating rate CMOs may be backed by fixed rate or
adjustable rate mortgages; to date, fixed rate mortgages have been more commonly
utilized for this purpose. Floating rate CMOs are typically issued with lifetime
caps on the coupon rate thereon. These caps, similar to the caps on adjustable
rate mortgages, represent a ceiling beyond which the coupon rate on a floating
rate CMO may not be increased regardless of increases in the interest rate index
to which the floating rate CMO is geared. Floating rate CMOs pay interest at
rates that vary inversely with changes in market rates of interest and may pay a
rate of interest determined by applying a multiple to the floating rate.
Accordingly, when market rates of interest decrease, the change in value of
inverse floating CMOs owned by the Fund will have a positive effect on the net
asset value of the Fund and when market rates of interest increase, the change
in value of inverse floating rate CMOs owned by the Fund will have a negative
effect on the net asset value of the Fund. In addition, the extent of increases
and decreases in the net asset value of the Fund in response to changes in
market rates of interest generally will be larger than comparable changes in the
net asset value of the Fund if the Fund held an equal principal amount of a
fixed rate CMO security having similar credit quality, redemption provisions and
maturity.

The Fund also may invest in, among other things, parallel pay CMOs and Planned
Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. The Fund will not, however,
invest in CMO residuals.

In reliance on an SEC interpretation, the Fund's investment in certain
qualifying collateralized mortgage obligations (CMOs), including CMOs that have
elected to be treated as Real Estate Mortgage Investment Conduits (REMICs), are
not subject to the 1940 Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities,
(c) operate under general exemptive orders exempting them from all provisions of
the 1940 Act, and (d) are not registered or regulated under the 1940 Act as
investment companies. To the extent that the Fund selects CMOs or REMICs that do
not meet the above requirements, the Fund may not invest more than 10% of its
assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.

Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities are
derivative multi-class mortgage securities. Stripped Mortgage-Backed Securities
may be issued by agencies or instrumentalities of the U.S. government, or by
private originators of, or investors in, mortgage loans, including savings and
loan

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associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Stripped Mortgage-Backed Securities
issued by parties other than agencies or instrumentalities of the U.S.
Government are considered, under current guidelines of the staff of the SEC, to
be illiquid securities.

Types of Credit Support. To lessen the effect of failures by obligors on
underlying mortgages to make payments, ARMS and other Mortgage-Backed Securities
may contain elements of credit support. Such credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Fund will not pay any additional fees for such credit support,
although the existence of credit support may increase the price of a security.

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ASSET-BACKED SECURITIES. "Asset-Backed Securities" have structural
characteristics similar to Mortgage-Backed Securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. Through the use of
trusts and special purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, have been
securitized in pass-through structures similar to the mortgage pass-through
structures or in a pay-through structure similar to the CMO structure. In
general, these types of loans are of shorter average life than mortgage loans
and are less likely to have substantial prepayments.

FLOATING AND VARIABLE RATE INCOME SECURITIES. Income securities may provide
for floating or variable rate interest or dividend payments. The floating or
variable rate may be determined by reference to a known lending rate, such as a
bank's prime rate, a certificate of deposit rate or the London Inter Bank
Offered Rate (LIBOR). Alternatively, the rate may be determined through an
auction or remarketing process. The rate may also be indexed to changes in the
values of interest rate or securities indexes, currency exchange rates or other
commodities. The amount by which the rate paid on an income security may
increase or decrease may

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be subject to periodic or lifetime caps. Floating and variable rate income
securities include derivative securities whose rates vary inversely with changes
in market rates of interest. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of increases
and decreases in the value of securities whose rates vary inversely with changes
in market rates of interest generally will be larger than comparable changes in
the value of an equal principal amount of a fixed rate security having similar
credit quality, redemption provisions and maturity.

Federal tax law requires that a holder of a zero coupon security accrue a
portion of the original issue discount on the security and to include the
"interest" on payment-in-kind securities as income each year, even though the
holder receives no interest payment on the security during the year. Federal tax
law also requires that entities such as the Fund which seek to qualify for
pass-through federal income tax treatment as regulated investment companies
distribute substantially all of their net investment income each year, including
non-cash income. Accordingly, although the Fund will receive no payments on its
zero coupon or payment-in-kind securities prior to their maturity or
disposition, it will have income attributable to such securities, and it will be
required, in order to maintain the desired tax treatment, to include in its
dividends an amount equal to the income attributable to its zero coupon and
payment-in-kind securities. Such dividends will be paid from the cash assets of
the Fund, from borrowings or by liquidation of portfolio securities, if
necessary, at a time that the Fund otherwise might not have done so. To the
extent the proceeds from any such dispositions are used by the Fund to pay
distributions, the Fund will not be able to purchase additional income-producing
securities with such proceeds, and as a result the Fund's current income
ultimately may be reduced. See "Taxation."

PREMIUM SECURITIES. The fund may invest in income securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. The Fund will not amortize the premium paid for such securities in
calculating its net investment income. As a result, in such cases the purchase
of such securities provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund purchased
securities bearing current market rates of interest. Although such securities
bear coupon rates higher than prevailing market rates, because they are
purchased at a price in excess of par value, the yield earned by the Fund on
such investments may not exceed prevailing market yields. If an issuer were to
redeem securities held by a Fund during a time of declining interest rates, the
Fund may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. If securities purchased by a Fund
at a premium are called or sold prior to maturity, the Fund will recognize a
capital loss to the extent the call or sale price is less than the purchase
price. Additionally, the Fund will recognize a capital loss if it holds such
securities to maturity.

CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures, notes,
preferred stocks or other securities that may be converted into or exchanged for
a specified amount of common stock of the same or a different issuer within a
particular period of time and at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics in that they generally (i) have higher yields
than common stocks, but lower yields than comparable non-convertible income
securities, (ii) are less subject to fluctuation in value than the underlying
stock since they have fixed income characteristics, and (iii) provide the
potential for capital appreciation if the market price of the underlying common
stock increases. Most convertible securities currently are issued by domestic
companies, although a substantial Eurodollar convertible securities market has
developed, and the markets for convertible securities denominated in local
currencies are increasing.

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The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.

EQUITY FEATURES. Income securities may involve equity features, such as
contingent interest or participations based on revenues, sales or profits (i.e.,
interest of other payments, often in addition to a fixed rate of return, that
are based on the borrower's attainment of specified levels of revenues, sales or
profits). At times, the Fund may also acquire warrants and other equity
securities in connection with the purchase of income securities. Warrants are
securities permitting, but not obligating, their holder to subscribe for other
securities or commodities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments.

PREFERRED STOCK. Preferred stock generally has a preference as to dividends
and upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may provide that, in the event the issuer
fails to make a specified number of dividend payments, the holders of the
preferred stock will have the right to elect a specified number of directors to
the issuer's board. Preferred stock also may be subject to optional or mandatory
redemption provisions.

COMMON STOCK. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
after making required payments to holders of such entity's preferred stock and
other senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund will focus both on the security's dividend paying capacity
and on its potential for appreciation.

BRADY BONDS. The Fund may invest in Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. "Brady Bonds" are debt securities
issuer under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
The Brady Plan framework contemplates the exchange of commercial bank debt for
newly issued Brady Bonds. Brady Bonds may also be issued in respect of new money
being advanced by existing lenders in connection with the debt restructuring.
Certain Brady Bonds have been collateralized as to principal due at maturity by
U.S. Treasury zero coupon bonds with a maturity equal to the final maturity of
such Brady Bonds.

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with its creditors. As a result, the financial packages offered by each country
differ. Brady Bonds issued to date include bonds issued at 100% of face value of
such debt, which carry a below-market stated rate of interest (generally known
as par bonds), bonds issued at a discount from the face value of such debt
(generally known as discount bonds), bonds bearing an interest rate which
increases over time and bonds issued in exchange for the advancement of new
money by existing lenders.

The Salomon Brothers Brady Bond Index provides a benchmark that can be used to
compare returns of Brady Bonds with returns in other bond markets.

OTHER SOVEREIGN-RELATED DEBT. In addition to Brady Bonds, the Fund may invest
in sovereign or sovereign-related income securities. Such obligations may
include, but are limited to, participations and assignments in sovereign bank
loans, restructured external debt that has not undergone a Brady-style debt
exchange, and internal government debt such as Mexican Treasury Bills known as
Certificados de la Tesoreira ("CETES"), Argentine Bonos del Tesoro ("BOTE"),
Bonos de Inversion y Crecimiento-Quinta Serie ("BIC V") and Venezuelan zero
coupon notes.

The sovereign related income securities in which the Fund may invest generally
consist of obligations issued or backed by national, state or provincial
governments or similar political subdivisions or central banks in foreign
countries. Sovereign related income securities also include debt obligations of
supranational entities, which include international organizations designated or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
World Bank), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.

Sovereign related income securities also include income securities of
"quasi-governmental agencies" and income securities denominated in multinational
currency units of an issuer (including supranational issuers). An example of a
multinational currency unit is the European Currency Unit ("ECU"). An ECU
represents specified amounts of the currencies of certain 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. European
supranational entities, in particular, issue ECU-denominated obligations. Income
securities of quasi-governmental agencies are issued by entities owned by either
a national, state or equivalent government or are obligations of a political
unit that is not backed by the national government's full faith and credit and
general taxing powers.

DEPOSITORY RECEIPTS. Some of the securities in the Fund may be in the form of
depository receipts. Depository receipts usually represent common stock or other
equity securities of non-domestic issuers deposited with a custodian in a
depository. The underlying securities are usually withdrawable at any time by
surrendering the depository receipt. Depository receipts are usually denominated
in U.S. dollars and dividends and other payments from the issuer are converted
by the custodian into U.S. dollars before payment to receipt holders. In other
respects depository receipts for foreign securities have the same
characteristics as the underlying securities. Depository receipts that are not
sponsored by the issuer may be less liquid and there may be less readily
available public information about the issuer.

STRUCTURED INVESTMENTS. The Fund may invest a portion of its assets in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of other income securities,
including income securities issued by foreign governments. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Investments") backed by, or representing interests in,
the underlying instruments. The cash flow on the

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underlying instruments may be apportioned among the newly issued Structured
Investments to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to Structured Investments is dependent
on the extent of the cash flow on the underlying instruments. The Fund may
invest in a class of Structured Investments that is subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.

INDEXED INCOME SECURITIES. The Fund may invest in income securities issued by
banks and other business entities that are indexed to certain specific foreign
currency exchange rates, interest rates or other reference rates. The terms of
such securities provide that their principal amount is adjusted upwards or
downwards (but ordinarily not below zero) at maturity to reflect changes in the
exchange rate between two currencies (or other rates) while the obligations are
outstanding. While such securities offer the potential for an attractive rate of
return, they also entail the risk of loss of principal.

INVESTMENT IN OTHER INVESTMENT COMPANIES. The Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Fund. In accordance with the 1940 Act, the Fund may invest up
to 10% of its total assets in securities of other investment companies. In
addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquires shares in investment companies,
stockholders would bear both their proportionate share of expenses in the Fund
(including investment advisory and administrative fees) and, indirectly, the
expenses of such investment companies (including investment advisory and
administrative fees).

SPECIAL RISK FACTORS

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leveraged and may not have available to them more traditional methods of
financing. During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default. The issuer's ability to service its debt obligations may
also be adversely affected by specific developments affecting the issuer, such
as the issuer's inability to meet specific projected business or revenue
forecasts. Similarly, certain emerging market governments that issue lower grade
income securities are among the largest debtors to commercial banks, foreign
governments and supranational organizations and may not be able or willing to
obtain additional financing.

INVESTMENTS IN FOREIGN INCOME SECURITIES. Investment in foreign income
securities involves certain special risks not usually associated with investment
in domestic income securities. The magnitude of such risks is generally greater
with respect to investment in emerging market countries. Investments in foreign
income securities involve risks relating to political and economic developments
abroad. The economies of individual foreign emerging market countries may differ
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by changes in the economic conditions in the countries
with which they trade.

With respect to many foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation, political instability,
increased governmental regulation, social instability or diplomatic developments
(including armed conflict) which could adversely affect the economies of such
countries or the value of the Fund's investments in those countries.

Foreign investment in certain countries is restricted or controlled to varying
degrees. These restrictions or controls may at times limit or preclude foreign
investment in certain emerging income securities and increase the costs and
expenses of the Fund. Certain countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign persons only to
a specific class of securities of an issuer that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain countries may also
restrict investment opportunities in industries deemed important to national
interests. In addition, certain countries may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. If a deterioration occurs in an emerging market
country's balance of payments, the country might impose temporary restrictions
on foreign capital remittances. Investing in local markets in certain countries
may require the Fund to adopt special procedures, seek local government
approvals or take other actions, each of which may involve additional costs to
the Fund.

Disclosure and regulatory standards in many respects are less stringent in
many countries than in the U.S. There also may be a lower level of monitoring
and regulation of securities markets and the activities of investors in such
markets, and enforcement of existing regulations has in many instances been
limited. Many of the foreign income securities held by the Fund will not be
registered with the SEC, nor will the issuers thereof be subject to SEC
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers than is available concerning domestic
companies. Foreign companies,

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and in particular, companies in emerging market countries are not generally
subject to uniform accounting, auditing and financial reporting standards or to
other regulatory requirements comparable to those applicable to domestic
companies.

Because the Fund may invest in non-U.S. dollars-denominated securities,
changes in foreign currency exchange rates will affect the Fund's net asset
value, the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income to be distributed to
shareholders. If the value of a foreign currency rises against the U.S. dollar,
the value of Fund assets denominated in such currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of Fund assets denominated in such currency will decrease. The
exchange rates between the U.S. dollar and other currencies can be volatile. In
addition, there may be less timely and accurate information with respect to
general economic conditions and trends in countries in which issuers of foreign
income securities are located, particularly in emerging market countries.

The costs associated with investing in foreign income securities frequently
are higher than those attributable to domestic investing. Investment income on
certain foreign securities in which the Fund may invest may be subject to
foreign, income withholding or other government taxes.

Foreign markets also have different clearance and settlement procedures, and
in certain markets settlement may fail 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 uninvested 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 a portfolio
security due to settlement problems could result in losses to the Fund due to
subsequent declines in the value of such portfolio security.

SOVEREIGN DEBT. Certain countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payment and trade
difficulties and extreme poverty and unemployment. The issuer of sovereign debt
or the governmental authorities that control the repayment of sovereign debt may
be unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt. Sovereign debt differs from debt obligations issued
by private entities in that, generally, remedies for defaults must be pursued in
the courts of the defaulting party. Legal recourse is therefore limited.

Certain emerging market countries are among the largest debtors to commercial
banks and foreign governments. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt.
Since 1982, certain emerging market countries have experienced difficulty in
servicing their sovereign debt on a timely basis which led to defaults on
certain obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds, and
obtaining new credit to finance interest payments. Holders of sovereign debt,
including the Fund, may be requested to participate in the rescheduling of such
debt and to extend further loans to sovereign debtors. The interests of holders
of sovereign debt could be adversely affected in the course of restructuring
arrangements. Furthermore, some of the participants in the secondary market for
sovereign debt may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.

INVESTMENT PRACTICES

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

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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, equity and income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
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 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.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of 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 use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.

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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 and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

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

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, 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 that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with United
States government securities dealers recognized by the Federal Reserve Bank of
New York as "primary dealers", or broker dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of "A-1" from S&P
or "P-1" from Moody's or an equivalent rating from any other nationally
recognized statistical rating organization ("NRSRO"). The staff of the SEC
currently takes the position that, in general, OTC options on

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securities other than U.S. Government securities purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its assets in illiquid securities.

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on domestic and foreign
securities exchanges and in the over-the-counter markets and on securities
indices, currencies and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold. In selling calls on securities not owned by the Fund, the Fund may be
required to acquire the underlying security at a disadvantageous price in order
to satisfy its obligations with respect to the call.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) and on securities indices, currencies and futures
contracts other than futures or individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.

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

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the mark to market value of the
contract fluctuates. The purchase of options on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If the Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be

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no assurance that the position can be offset prior to settlement at an
advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) for other than for bona fide hedging purposes 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. Certain state securities laws to
which the Fund may be subject may further restrict the Fund's ability to engage
in transactions in futures contracts and related options. The segregation
requirements with respect to futures contracts and options thereon are described
below.

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

CURRENCY TRANSACTIONS. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holding denominated in
particular 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 which have received (or the guarantors of the obligations of such
Counterparties have received) a credit rating of 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
currency 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 or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

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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. For example, if the Adviser
considers the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in schillings and the Adviser
believes that 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. Currency
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 those of other portfolio 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
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), multiple interest
rate transactions and any combination of futures, options, currency and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interest 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. 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.

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A collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates or values.

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

EURODOLLAR INSTRUMENTS. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and income
instruments are linked.

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 guarantee, 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.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
securities with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid 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 cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid securities 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 cash or liquid securities 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 cash or liquid securities equal to the amount of the Fund's
obligation.

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

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

REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under
which the Fund acquires securities and agrees to resell the securities at an
agreed upon time and at an agreed upon price. The Fund accrues as interest the
difference between the amount it pays for the securities and the amount it
receives upon resale. 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. The Adviser will monitor the
value of the underlying security in this regard. The Fund will enter into
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether to
enter into a repurchase agreement with a bank or broker-dealer, the Fund will
take into account the credit-worthiness of such party and will monitor its
credit-worthiness on an ongoing basis. In the event of default by such party,
the delays and expenses potentially involved in establishing the Fund's rights
to, and in liquidating, the security may result in loss to the Fund. The Fund's
ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment policy that limits the Fund's investments in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.

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"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 or is earned by the Fund on portfolio 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 such securities at delivery may be more or less than
their purchase price, and yields generally available on such securities when
delivery occurs may be higher or lower than yields on the such securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller, as the case may be, to consummate the transaction, failure by the other
party to complete the transaction may result in the Fund missing the opportunity
of obtaining a price or yield considered to be advantageous. When the Fund is
the buyer in such a transaction, however, it will maintain, in a segregated
account with its custodian, cash or liquid securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. The Fund
will make commitments to purchase securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. 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.

SHORT SALES. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales both to obtain capital gains from anticipated declines in securities
and as a form of hedging to offset potential declines in long positions in the
same or similar securities. The short sale of a security is considered a
speculative investment technique.

When the Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale in order to
satisfy its obligation to deliver the security upon conclusion of the sale. The
Fund may have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer of cash or liquid securities. The
Fund will also be required to deposit similar collateral with its Custodian to
the extent, if any, necessary so that the value of both collateral deposits in
the aggregate is at all times equal to the greater of the price at which the
security is sold short or 100% of the current market value of the security sold
short. Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over of any payments received by the
Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer. If the price of
the security sold short increases between the time of the short sale and the
time the Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. Any
gain will be decreased, and any loss increased, by the transaction costs
described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited.

The market value of the securities sold short of any one issuer will not
exceed either 5% of the Fund's total assets or 5% of such issuer's voting
securities. The Fund will not make a short sale, if, after giving effect to such
sale, the market value of all securities sold short exceeds 25% of the value of
its assets or the Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Fund may
also make short sales "against the box" without respect to such limitations. In
this type of short sale, at the time of the sale, the Fund owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security.

LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to selected commercial
banks or broker-dealers up to a maximum of 50% of the assets of the Fund. Such
loans must be callable at any time and be continuously secured by collateral
deposited by the borrower in a segregated account with the Fund's custodian
consisting of cash or of securities issued or guaranteed by the U.S. government
or its agencies, which collateral is equal at all times to at least 100% of the

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value of the securities loaned, including accrued interest. The Fund will
receive amounts equal to earned income for having made the loan. Any cash
collateral pursuant to these loans will be invested in short-term instruments.
The Fund is the beneficial owner of the loaned securities in that any gain or
loss in the market price during the loan inures to the Fund and its
shareholders. Thus, when the loan is terminated, the value of the securities may
be more or less than their value at the beginning of the loan. In determining
whether to lend its portfolio securities to a bank or broker-dealer, the Fund
will take into account the credit-worthiness of such borrower and will monitor
such credit-worthiness on an ongoing basis in as much as default by the other
party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.

BORROWINGS AND OTHER TECHNIQUES. The Fund may enter into reverse repurchase
agreements with respect to securities which could otherwise be sold by the Fund.
Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price which is greater than the sales price. During the
reverse repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities. Reverse repurchase agreements involve the
risk that the market value of the securities retained by the Fund may decline
below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
Fund's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities. Reverse repurchase
agreements will be treated as borrowings for the purposes of the Fund's
investment restriction on borrowings.

In order to seek high current income, the Fund may enter into dollar rolls in
which the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase, typically in 30 or 60 days,
substantially similar (same type and coupon) securities on a specified future
date from the same party at an agreed upon price which is less than the sales
price. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. The cash proceeds from the sale will be maintained by the Fund in
a segregated account with its custodian in which cash or liquid securities will
be equal in value to its obligations. Because such assets are maintained in a
segregated account, the Fund will not treat such obligations as senior
securities for purposes of the 1940 Act. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction. "Covered rolls" are not subject to these segregation
requirements. Dollar rolls will be treated as borrowings for purposes of the
Fund's investment restriction on borrowings.

Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as changes in the net
asset value of the Shares and in the yield on the Fund's portfolio. Although the
principal of such borrowings will be fixed, the Fund's assets may change in
value during the time the borrowing is outstanding. Borrowing will create
interest expenses for the Fund which can exceed the income from the assets
retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.

DEFENSIVE STRATEGIES. At times conditions in the markets may, in the Adviser's
judgment, make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times, the Adviser may use
alternative strategies primarily designed to reduce fluctuations in the value of
the Fund's assets. In implementing these "defensive" strategies, the Fund may
invest a portion or all of the Fund's assets in high-quality, short-term
obligations. Such obligations may include: obligations of the U.S. Government,
its agencies or instrumentalities; other debt securities rated within the four
highest grades by either S&P or Moody's (or comparably rated by any other
NRSROs); commercial paper rated in the highest grade by either rating service
(or comparably rated by any other nationally recognized statistical rating
organization); certificates of deposit and bankers' acceptances; repurchase
agreements with respect to any of the foregoing investments; or any other income
securities that the Adviser considers consistent with such strategy. The yield

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on these securities generally is lower than the yield on the types of income
securities in which the Fund will invest in normal market conditions.

CREDIT QUALITY. The Fund's policies with respect to credit quality of
portfolio investments will apply only at the time of purchase of a security, and
the Fund will not be required to dispose of a security in the event that S&P or
Moody's (or any other nationally recognized statistical rating organization) or,
in the case of unrated income securities, the Adviser, downgrades its assessment
of the credit characteristics of a particular issuer. In determining whether the
Fund will retain or sell such a security, the Adviser may consider such factors
as the Adviser's assessment of the credit quality of the issuer of such
security, the price at which such security could be sold and the rating, if any,
assigned to such security by other NRSROs.

LIQUIDITY. The Fund may invest up to 15% of its total assets in illiquid
securities, including 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 such 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. 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.
The Fund may invest in income securities not registered under the Securities Act
of 1933 (the "Securities Act"), but eligible for resale pursuant to Rule 144A
under the Securities Act. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. Institutional markets for
restricted securities have developed as a result of Rule 144A, providing both
readily ascertainable values for restricted securities and the ability to
liquidate an investment. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. ("NASD"). An insufficient number of qualified buyers
interested in purchasing Rule 144A-eligible restricted securities held by the
Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices. The Fund's limitations with respect to investment in
illiquid and restricted securities does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as
amended, which the Board of Trustees or the Fund's investment adviser has
determined under Board-approved guidelines to be liquid. The Fund's policy with
respect to investment in illiquid and restricted securities is not a fundamental
policy and may be changed by the Board of Trustees, in consultation with the
Adviser, without obtaining shareholder approval. Also excluded from this
limitation set forth above are the Fund's purchases of securities issued by
investment companies to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provision of the 1940 Act.

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

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.

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

1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation 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 creditor's rights.

LONG-TERM DEBT--INVESTMENT GRADE

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 the 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.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as
having significantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposures
to adverse conditions.

BB: Debt rated "BB" is less vulnerable 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.

B: Debt rated "B" is more vulnerable 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" is currently vulnerable 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: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.

C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued. The rating "C"
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating.

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

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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.

NR: Not rated.

R: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe payment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

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," "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 S&P 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:

A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety 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 significant speculative
characteristics.

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.

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 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.

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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-"). 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+").

4. NOTES

An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assignment:

-- Amortization schedule (the longer the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong safety characteristics will be given a
plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the
term of the notes.

SP-3 Speculative capacity to pay principal and interest.

5. PREFERRED STOCK

The preferred stock ratings are based on the following considerations:

2. Nature of, and provisions of, the issuer.

3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.

AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.

AA A preferred stock issue rated "AA" also qualifies as a
high-quality, fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA".

A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.

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BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.

BB Preferred stock rated "BB", "B", and "CCC" are regarded, on
B balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the
highest. While such issues will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments, but that is
currently paying.

C A preferred stock rated "C" is a nonpaying issue.

D A preferred stock rated "D" is a nonpaying issue with the
issuer in default on debt instruments.

NR: This indicates that no rating has been requested, that there
is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a
matter of policy.

PLUS (+) or MINUS (-): To provide more detailed indications
of preferred stock quality, 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.

A preferred stock 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.

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

1. LONG-TERM DEBT

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.

B-30
<PAGE> 319

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 the numerical modifiers 1, 2, and 3 in each generic
rating classification from AA to B. 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.

2. SHORT-TERM DEBT

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

--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.

B-31
<PAGE> 320

Variability in earnings and profitability may result in changes of 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.

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

AA: An issue which is rated "AA" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in the
foreseeable future.

A: An issue which is rated "A" is considered to be an
upper-medium-grade preferred stock. While risks are judged to be somewhat
greater than in the "AAA" and "AA" classifications, earnings and asset
protections are, nevertheless, expected to be maintained at adequate
levels.

BA: An issue which is rated "BA" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks in
this class.

B: An issue which is rated "B" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.

CAA: An issue which is rated "CAA" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.

CA: An issue which is rated "CA" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payment.

C: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from "AA" through "B" in its preferred stock 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.

B-32
<PAGE> 321

TRUSTEES AND OFFICERS

TRUSTEES

Richard M. DeMartini*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc.
Trustee/Director of each of the funds in the Fund
Complex.

Linda Hutton Heagy........................ Co-Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board, The
International House Board and the Women's Board of the
University of Chicago. Trustee/Director of each of the
funds in the Fund Complex.

R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.

Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
</TABLE>

B-33
<PAGE> 322

<TABLE>
<S> <C>
Don G. Powell*............................ Chairman, President, Chief Executive Officer and a Director of VKAC.
2800 Post Oak Blvd. Chairman, Chief Executive Officer and a Director of the Advisers and
Houston, TX 77056 the Distributor. Chairman and a Director of ACCESS. Director or officer
Date of Birth: 10/19/39 of certain other subsidiaries of VKAC. Chairman of the Board of
Governors and the Executive Committee of the Investment Company
Institute. Prior to November, 1996, President, Chief Executive Officer
and a Director of VKAC Holding. Trustee/Director of funds in the Fund
Complex advised by Advisory Corp. and prior to July 1996, President,
Chief Executive Officer and a Trustee of the funds in the Fund Complex.
Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a manufacturer and
115 River Road processor of welding alloys, supplies and equipment. Director,
Edgewater, NJ 07020 Pacesetter Software, a software programming company specializing in
Date of Birth: 10/10/22 white collar productivity. Director, Panasia Bank. Trustee/Director of
each of the funds in the Fund Complex.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company, a business and
One ServiceMaster Way consumer services. Director of Illinois Tool Works, Inc., a
Downers Grove, IL 60515 manufacturing company; the Urban Shopping Centers Inc., a retail mall
Date of Birth: 07/08/44 management company; and Stone Container Corp., a paper manufacturing
company. Trustee, University of Notre Dame. Formerly, President and
Chief Executive Officer, Waste Management Inc., an environmental
services company, and prior to that President and Chief Operating
Officer, Waste Management Inc. Trustee/Director of each of the funds in
the Fund Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the Graduate School,
155 Hickory Lane Stevens Institute of Technology. Director, Dynalysis of Princeton, a
Closter, NJ 07624 firm engaged in engineering research. Trustee/Director of each of the
Date of Birth: 08/02/24 funds in the Fund Complex.
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive (Illinois), legal counsel to the funds in the Fund Complex, open-end
Chicago, IL 60606 funds advised by Van Kampen American Capital Management, Inc. and
Date of Birth: 08/22/39 closed-end funds advised by Advisory Corp. Trustee/Director of each of
the funds in the Fund Complex, open-end funds advised by Van Kampen
American Capital Management, Inc. and closed-end funds advised by
Advisory Corp.
</TABLE>

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

B-34
<PAGE> 323

OFFICERS

B-35
<PAGE> 324

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Paul R. Wolkenberg.......... Vice President Executive Vice President of VKAC, the
Date of Birth: 11/10/44 Advisers and the Distributor. President,
Chief Executive Officer and a Director of
ACCESS. Director or officer of certain
other subsidiaries of VKAC. Vice President
of each of the funds in the Fund Complex
and certain other investment companies
advised by the Advisers or their
affiliates.

B-36
<PAGE> 325

B-37
<PAGE> 326

B-38
<PAGE> 327

COMPENSATION TABLE

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

B-39
<PAGE> 328

each Series, including the Fund, are shown in Table D below. Amounts accrued
during the Trust's last fiscal year for former trustees not named above was
$3,291.

B-40
<PAGE> 329

TABLE A

FISCAL YEAR 1997 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

FISCAL YEAR 1997 AGGREGATE COMPENSATION DEFERRED FROM

THE TRUST AND EACH SERIES

TABLE C

FISCAL YEAR 1997 CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST)

FROM THE TRUST AND EACH SERIES

<CAPTION>
TRUSTEE
---------------------------

TABLE D

FISCAL YEAR 1997 RETIREMENT BENEFITS ACCRUED AS PART OF EXPENSES

FOR THE TRUST AND EACH SERIES

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME ROONEY SISTO WHALEN WOODSIDE
--------- ------ ----- ------ --------
<S> <C> <C> <C> <C>
High Yield Fund.............................. $0 $1,085 $293 $0
Short-Term Income Fund....................... 0 1,072 257 0
Strategic Income Fund........................ 0 1,043 220 0
Trust Total................................ $0 $3,200 $770 $0
</TABLE>

TABLE E

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

B-41
<PAGE> 330

As of October 6, 1997, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund. As of October 6, 1997, no trustee or
officer of the Fund owns or would be able to acquire 5% or more of the common
stock of VK/AC Holding, Inc. Mr. McDonnell owns, or has the opportunity to
purchase, an equity interest in VK/AC Holding, Inc., the parent company of Van
Kampen American Capital, and has entered into an employment contract (for a term
until February 17, 1998) with Van Kampen American Capital.

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER OCTOBER 6, 1997 SHARES OWNERSHIP
- -------------------------- --------------- -------- ----------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company................... 442,224 A 12.22%
2800 Post Oak Blvd. 360,414 B 5.89%
Houston, TX 77056
Van Kampen American Capital TR.............................. 189,586 A 5.24%
IRA R/O Robert J Holuba
2 Hackensack Ave
Kearny, NJ 07032-4511
Edward D. Hones and Co. F/A/O............................... 18,380 C 6.22%
Edward D. Jones & Co. Custodian
FBO Herman L. Dumming IRA
EDJ #271-90019-1-5
P.O. Box 2500
Maryland Hts, MO 63043-8500
MLPF&S For the Sole......................................... 684,335 B 11.18%
Benefit of Its Customers 17,935 C 6.07%
Attn: Fund Administration
4800 Deer Lake Drive E
3rd Floor
Jacksonville, FL 32246-6484
</TABLE>

Van Kampen American Capital Trust Company acts as custodian for certain
employee benefit plans and independent retirement accounts.

LEGAL COUNSEL

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

TRANSFER AGENCY

During the fiscal periods ended June 30, 1997 and 1996, ACCESS, shareholder
service agent and dividend disbursing agent for the Fund, received fees
aggregating $158,700 and $128,300, respectively, for these services. These
services are provided at cost plus a profit.

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'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. ("Van Kampen American Capital"),
which is an indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.

The investment advisory agreement provides that the Adviser will supply
investment research and portfolio management, including the selection of
securities for the Fund to purchase. The Adviser also administers the business
affairs of the Fund, furnishes offices, necessary facilities and equipment,
provides administrative

B-42
<PAGE> 331

services, and permits its officers and employees to serve without compensation
as officers of the Fund and trustees of the Trust if duly elected to such
positions.

The investment advisory agreement for the Fund will continue in effect from
year to year if specifically approved by the trustees of the Trust, of which the
Fund is a separate series (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. 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 fiscal years ended June 30, 1997, 1996 and 1995, the Fund recognized
advisory expenses of $1,132,304, $927,893 and $798,331, respectively.

OTHER AGREEMENTS

ACCOUNTING SERVICES 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 equally, together with the other funds advised by the Adviser
and its affiliates and distributed by the Distributor, in 25% of the cost of
providing such services, 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 fiscal years ended June 30, 1997, 1996 and 1995, the Fund recognized
expenses of approximately $6,200, $5,000 and $4,500, respectively, representing
the Adviser's cost of providing accounting services.

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

B-43
<PAGE> 332

For the fiscal years ended June 30, 1997, 1996 and 1995, the Fund recognized
expenses of approximately $13,600, $8,700 and $12,000, respectively,
representing Van Kampen American Capital, Inc.'s cost of providing legal
services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

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 Fund's Adviser, the amount
of additional commission or increased cost is reasonable in relation to the
value of such services.

In selecting among the firms believed to meet the criteria for handling a
particular transaction, the Adviser may take into consideration that certain
firms (i) provide market, statistical or other research information such as that
set forth above to the Fund and the Adviser, (ii) have sold or are selling
shares of the Fund and (iii) may select firms that are affiliated with the Fund,
its investment adviser or its distributor and other principal underwriters. If
purchases or sales of securities of the Fund and of one or more other investment
companies or clients supervised by the Adviser are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Adviser, taking into account the respective sizes of the 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.

B-44
<PAGE> 333

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.

During the year ended June 30, 1997, the Fund paid no brokerage commissions on
transactions to brokers related to research services provided to the Adviser.

<TABLE>
<CAPTION>
AFFILIATED BROKERS
----------------------------
BROKERS MORGAN STANLEY DEAN WITTER
------- -------------- -----------
<S> <C> <C> <C>
Commissions paid:
Fiscal year 1995........................................ $ 0 N/A N/A
Fiscal year 1996........................................ $ 0 N/A N/A
Fiscal year 1997........................................ $53,126 $ 0 $ 0
Fiscal year 1997 Percentages:
Commissions with affiliate to total commissions......... 0% 0%
Value of brokerage transactions with affiliate to total
transactions......................................... 0% 0%
</TABLE>

TAX STATUS OF THE FUND

FEDERAL INCOME TAXATION. The Fund has qualified and intends to continue to
qualify each year 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 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 so qualifies and distributes each year to its Shareholders at
least 90% of its net investment income (which includes tax-exempt income and net
short-term capital gain, 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 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to Shareholders.

In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally 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 gain net income retained by and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.

B-45
<PAGE> 334

(even if such income were 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 may be required to pay an interest charge on 50% of its earnings and
profits attributable to non-regulated investment company years and would be
required to distribute such earnings and profits to Shareholders (less any
interest charge). 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, including
items of income, 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 recognize income or gain without
receiving cash with which to make distributions in amounts necessary to satisfy
the 90% distribution requirement and the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions and may make
certain tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.

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

The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months. Under recently enacted legislation,
this requirement will no longer be applicable to the Fund beginning on July 1,
1998.

PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive income or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a regulated investment company that holds stock of a PFIC
will be subject to federal income tax on a portion of any "excess distribution"
received on such stock or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the regulated investment company
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the regulated investment
company's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If
the Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing
fund," then in lieu of the foregoing tax and interest obligation, the Fund would
be required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain, which most likely
would have to be distributed to satisfy the 90% distribution requirement and the
distribution requirement for avoiding income and excise taxes. In most instances
it will be very difficult to make this election due to certain requirements
imposed with respect to the election.

Under provisions of the Taxpayer Relief Act of 1997 (the "1997 Tax Act")
generally effective for taxable years ending after 1997, the Fund may make an
election to annually mark-to-market certain publicly traded PFIC stock (a "PFIC
Mark-to-Market Election"). "Marking-to-market," in this context, means
recognizing as ordinary income or loss each year an amount equal to the
difference between the Fund's adjusted tax basis in such PFIC stock and its fair
market value. Losses will be allowed only to the extent of net mark-to-market
gain previously included by the Fund pursuant to the election for prior taxable
years. The Fund may be

B-46
<PAGE> 335

required to include in its taxable income for the first taxable year in which it
makes a PFIC Mark-to-Market Election an amount equal to the interest charge that
would otherwise accrue with respect to distributions on, or dispositions of, the
PFIC stock. This amount would not be deductible from the Fund's taxable income.
The PFIC Mark-to-Market Election applies to the taxable year for which made and
to all subsequent taxable years, unless the PFIC stock ceases to be publicly
traded or the Internal Revenue Service consents to revocation of the election.
By making the PFIC Mark-to-Market Election, the Fund could ameliorate the
adverse tax consequences arising from its ownership of PFIC stock, but in any
particular year may be required to recognize income in excess of the
distributions it receives from the PFIC and proceeds from the dispositions of
PFIC stock.

DISTRIBUTIONS. Distribution of the Fund's net investment income are taxable to
Shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional Shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to Shareholders at the rates applicable to long-term capital gains regardless of
the length of time Shares of the Fund have been held by such Shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's Shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
Shares are held as a capital asset). For a summary of the tax rates applicable
to capital gains (including capital gains dividends), see "Capital Gains Rates
Under the 1997 Tax Act" below. The Fund will inform Shareholders of the source
and tax status of all distributions promptly after the close of each calendar
year. A portion of the distributions from the Fund will be eligible for the
dividends received deduction for corporations if the Fund receives qualifying
dividends during the year and if certain other requirements of the Code are
satisfied.

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. The basis of such Shares will equal the
fair market value on the distribution date.

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 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 was actually made.

The Fund is required, is certain circumstances, to withhold 31% of taxable
dividends and certain other payments, including redemptions, paid to
Shareholders who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain required certifications or who are otherwise subject to backup
withholding.

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

B-47
<PAGE> 336

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
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.

SALES OF SHARES. The sale of Shares (including transfers in connection with a
redemption or repurchase of Shares) will be a taxable transaction for federal
income tax purposes. Selling Shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
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. For a summary of the tax rates
applicable to capital gains, see "Capital Gains Rates Under the 1997 Tax Act"
below. Any loss recognized 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. For purposes of
determining whether Shares have been held for six months or less, the holding
period is suspended for any periods during which the Shareholder's risk of loss
is diminished as a result of holding one or more other positions in
substantially similar or related property or through certain options or short
sales.

CAPITAL GAINS RATES UNDER THE 1997 TAX ACT. Under the 1997 Tax Act, the
maximum tax rates applicable to net capital gains recognized by individuals and
other non-corporate taxpayers are (i) the same as ordinary income rates for
capital assets held for one year or less, (ii) 28% for capital assets held for
more than one year but not more than 18 months and (iii) 20% for capital assets
held for more than 18 months. Under the 1997 Tax Act, the Treasury is authorized
to issue regulations that address the application of the new capital gains rates
to sales and exchanges by regulated investment companies and to sales and
exchanges of interests in regulated investment companies, but no such
regulations have been issued as of the date hereof. It is expected that the new
tax rates for capital gains under the 1997 Tax Act described above will apply to
distributions of capital gains dividends by regulated investment companies such
as the Fund as well as to sales and exchanges of shares in regulated investment
companies such as the Fund. With respect to capital losses recognized on
dispositions of shares held six months or less where such losses are treated as
long-term capital losses to the extent of prior capital gains dividends received
on such shares (see "Sale of Shares" above), it is unclear how such capital
losses offset the capital gains referred to above. Shareholders should consult
their own tax advisors as to the application of the new capital gains rates to
their particular circumstances.

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

THE DISTRIBUTOR

B-48
<PAGE> 337

The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
dealers. The Distributor's obligation is an agency or "best efforts" arrangement
under which the Distributor is required to take and pay for only such shares of
the Fund as may be sold to the public. The Distributor is not obligated to sell
any stated number of shares. The Distributor bears the cost of printing (but not
typesetting) prospectuses used in connection with this offering and certain
other costs, including the cost of supplemental sales literature and
advertising. The Distribution and Service Agreement is renewable from year to
year if approved (a) by the Fund's Trustees or by a vote of a majority of the
Fund's outstanding voting securities and (b) by the affirmative vote of a
majority of Trustees who are not parties to the Distribution and Service
Agreement or interested persons of any party, by votes cast in person at a
meeting called for such purpose. The Distribution and Service Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 90 days' written notice. Total underwriting
commissions on the sale of shares of the Fund for the fiscal periods indicated
are as follows:

<TABLE>
<CAPTION>
AMOUNTS
TOTAL UNDERWRITING RETAINED
COMMISSIONS BY DISTRIBUTOR
------------------ --------------
<S> <C> <C>
Fiscal Year Ended June 30, 1997............................. $214,184 $26,483
Fiscal Year Ended June 30, 1996............................. $195,066 $28,532
</TABLE>

DISTRIBUTION AND SERVICE PLANS

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan 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 the Distribution and
Service Agreement with the Distributor, sub-agreements between the Distributor
and members of the NASD acting as securities dealers and NASD members or
eligible non-members who are acting as brokers or agents and similar agreements
between the Fund and financial intermediaries 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 financial intermediaries that have entered into
sub-agreements with the Distributor and sell shares of the Fund are referred to
herein as "financial intermediaries."

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 it 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. 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 of the Plans must be
approved by the Trustees and also by the disinterested Trustees. 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, 1995, the Fund has recognized expenses under the
Plans of $74,777, $487,064 and $20,370 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $64,495, $119,407 and $2,755
represent payments to financial intermediaries under the Selling Agreements for
Class A Shares, Class B Shares and Class C Shares, respectively. For the year
ended June 30, 1995, the Fund has reimbursed the Distributor $5,464, $15,985 and
$0 for advertising expenses, and $7,717, $10,727 and $0 for

B-49
<PAGE> 338

compensation of the Distributor's sales personnel for the Class A Shares, Class
B Shares and Class C Shares, respectively.

For the year ended June 30, 1996, the Fund has recognized expenses under the
Plans of $79,707, $569,681 and $25,454 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $65,647, $115,828 and $9,418
represent payments to financial intermediaries under the Selling Agreements for
Class A Shares, Class B Shares and Class C Shares, respectively.

For the period ended June 30, 1997, the Fund has recognized expenses under the
Plans of $92,954, $693,534 and $34,770 for the Class A Shares, Class B Shares
and Class C Shares, respectively, of which $92,954, $168,821 and $16,770
represent payments to financial intermediaries under the Selling Agreements for
Class A Shares, Class B Shares and Class C Shares, respectively.

For the fiscal year ended June 30, 1997, the Fund's aggregate expenses under
the Class B Plan were $693,534 or 1.00% of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the following
payments: $524,713 for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B shares of the Fund and $168,821
for fees paid to financial intermediaries for servicing Class B shareholders and
administering the Plans. For the fiscal year ended June 30, 1997, the Fund's
aggregate expenses under the Plans for Class C shares were $34,770 or 1.00% of
the Class C shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $18,000 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $16,770 for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Class C Plan.

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period, and yield 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 a given
class of shares accrued for the period (net of any reimbursements), and dividing
the result by the average daily number of the shares of each class outstanding
during the period that were entitled to receive dividends. The yield calculation
formula assumes net investment income is earned and reinvested at a constant
rate and annualized at the end of a six month period. Yield will be computed
separately for each class of shares. Class B Shares redeemed during the first
five years after their issuance and Class C Shares redeemed during the first
year after their issuance may be subject to a CDSC 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 CDSC, and if
any such CDSC imposed at the time of redemption were reflected, it would reduce
the performance quoted.

B-50
<PAGE> 339

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 CDSC, 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 compare its performance to certain indices or
utilize such indices to illustrate market trends in U.S. interest rates,
including indices with respect to interest rates on 90 day U.S. Treasury bills
and 30 year Treasury bonds. In addition, the Fund may include in advertisements,
charts, graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to, foreign
securities, stocks, bonds, treasury bills and shares of the Fund.

CLASS A SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class A Shares was 6.81%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class A Shares was 7.38%.

The Fund's average total return, including payment of the maximum sales
charge, for (i) the one year ended June 30, 1997 was 9.47% and (ii) the three
year, six month period from December 31, 1993, the commencement of investment
operations for Class A Shares of the Fund, through June 30, 1997 was 4.56%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum sales charge, for Class A Shares from inception through June 30,
1997 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was 22.69%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum sales charge, for Class A Shares from inception through June 30,
1997 (as calculated in the manner described in the Prospectus under the heading
"Fund Performance") was 16.89%.

CLASS B SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class B Shares was 6.38%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class B Shares was 7.00%.

The Fund's average total return, including the payment of the CDSC, for (i)
the one year ended June 30, 1997 was 9.98% and (ii) the three year, six month
period from December 31, 1993, the commencement of investment operations for
Class B Shares of the Fund, through June 30, 1997 was 4.60%.

B-51
<PAGE> 340

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, for Class B Shares from inception through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 19.30%.

The Fund's cumulative non-standardized total return, including the payment of
the CDSC, for Class B Shares from inception through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 17.07%.

CLASS C SHARES

The Fund's yield for the 30-day period ending June 30, 1997 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") for
Class C Shares was 6.38%. 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 distribution rate for the 30-day period
ending June 30, 1997 (calculated in the manner described in the Prospectus under
the heading "Fund Performance") for Class C Shares was 7.00%.

The Fund's average total return, including the payment of the CDSC, for (i)
the one year ended June 30, 1997 was 12.99% and (ii) the three year, six month
period from December 31, 1993, the commencement of investment operations for
Class C Shares of the Fund, through June 30, 1997 was 5.15%.

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, for Class C Shares from inception through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 19.22%.

The Fund's cumulative non-standardized total return, including the payment of
the CDSC, for Class C Shares from inception through June 30, 1997 (as calculated
in the manner described in the Prospectus under the heading "Fund Performance")
was 19.22%.

B-52
<PAGE> 341

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders of
Van Kampen American Capital Strategic Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Strategic Income Fund (the "Fund"), including the
portfolio of investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Strategic Income Fund as of June 30, 1997, 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 13, 1997

B-53
<PAGE> 342

PORTFOLIO OF INVESTMENTS

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS 93.4%
BANKING 9.6%
2,000 Banco Bansud - US$....................... 9.250% 12/01/99 $ 2,075,000
2,000 Banco Credito Argentino 144A - US$ (e)... 9.500 04/24/20 2,070,000
1,500 Bank United Corp. - US$.................. 8.875 05/01/07 1,541,715
2,000 Hubco Capital Trust I 144A - US$ (e)..... 8.980 02/01/27 2,046,000
4,100 Western Financial Savings - US$ (b)...... 8.500 07/01/03 4,175,416
------------
11,908,131
------------
BEVERAGE, FOOD & TOBACCO 2.5%
500 Azteca Holdings 144A - US$ (e)........... 11.000 06/15/02 505,005
2,500 Pepsi - Gemex 144A - US$ (b)(e).......... 9.750 03/01/04 2,581,250
------------
3,086,255
------------
BUILDINGS AND REAL ESTATE 0.2%
200 Clark Material - US$..................... 10.750 05/15/06 210,500
------------
DIVERSIFIED/CONGLOMERATE
MANUFACTURING 0.9%
1,000 Aetna Industries - US$................... 11.875 10/01/06 1,092,500
------------
ELECTRONICS 1.1%
500 Bell & Howell Co. - US$ (b)(c)........... 0/11.500 03/01/05 400,000
1,000 Philippine Long Distance Telephone Co. -
US$...................................... 8.350 03/06/17 947,600
------------
1,347,600
------------
FINANCE 26.0%
1,500 Advanta Capital Trust I 144A - US$
(b)(e)................................... 8.990 12/17/26 1,462,128
3,000 Advanta Corp. - US$ (b).................. 7.000 05/01/01 2,929,140
5,000 Banco Bilbao Vizcaya International Fin -
US$ (b).................................. 6.875 10/27/05 4,867,500
2,500 Contifinancial Corp. 144A - US$ (e)...... 7.500 03/15/02 2,475,325
2,000 Financiera Energetica Nacional - US$..... 9.375 06/15/06 2,140,000
2,000 Guangdong Enterprises 144A - US$ (e)..... 8.875 05/22/07 2,054,540
4,000 Lehman Brothers, Inc. - US$ (b).......... 7.250 04/15/03 4,023,952
5,000 Paine Webber Group MTN - US$ (b)......... 7.740 01/30/12 4,993,750
3,000 Rolls-Royce Cap - US$ (b)................ 7.125 07/29/03 3,013,500
3,945 Westinghouse Credit Corp - US$ (b)....... 8.875 06/14/14 4,272,475
------------
32,232,310
------------
HEALTHCARE 0.5%
500 Tenet Healthcare - US$................... 10.125 03/01/05 547,500
------------
INSURANCE 4.1%
1,000 American Annuity 144A - US$ (e).......... 7.250 09/28/01 1,006,520
4,000 Orion Capital Trust - US$ (b)............ 8.730 01/01/37 4,076,500
------------
5,083,020
------------
</TABLE>

See Notes to Financial Statements

B-54
<PAGE> 343

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LEISURE AND AMUSEMENT 1.5%
2,000 Viacom, Inc. - US$ (b)................... 7.625% 01/15/16 $ 1,886,138
------------
MINING 0.8%
500 Algoma Steel - US$....................... 12.375 07/15/05 556,250
400 Carbide/Graphite Group, Inc. - US$ (b)... 11.500 09/01/03 438,000
------------
994,250
------------
OIL & GAS 13.8%
1,500 Camuzzi Gas - US$ (b).................... 9.250 12/01/01 1,571,250
2,000 Chesapeake Energy - US$ (b).............. 8.500 03/15/12 1,890,000
500 Dawson Product Services - US$............ 9.375 02/01/07 510,000
500 Global Marine - US$ (b).................. 12.750 12/15/99 525,000
450 KCS Energy - US$......................... 11.000 01/15/03 487,125
1,500 Oleoducto Central S.A. 144A - US$ (e).... 9.350 09/01/05 1,550,625
500 Pacalta Resources Ltd. 144A - US$ (e).... 10.750 06/15/04 507,500
2,000 Perez Companc - US$...................... 9.000 01/30/04 2,072,840
2,500 Soc Comercial De Plata - US$............. 11.500 05/09/00 2,690,625
5,000 Triton Energy - US$ (b).................. 9.250 04/15/05 5,322,100
------------
17,127,065
------------
PAPER 1.7%
1,000 Doman Industries Ltd. - US$ (b).......... 8.750 03/15/04 970,000
1,000 Tjiwi Kimia International BV - US$....... 13.250 08/01/01 1,140,000
------------
2,110,000
------------
PERSONAL AND NON DURABLE CONSUMER GOODS 0.4%
500 Cole National Group - US$................ 9.875 12/31/06 526,250
------------
PRINTING, PUBLISHING & BROADCASTING 1.1%
500 International Cabletel - US$............. * 02/01/06 345,000
1,000 SCI Television - US$..................... 11.000 06/30/05 1,052,500
------------
1,397,500
------------
RETAIL 4.8%
3,500 Grupo Elektra sa de CV - US$............. 12.750 05/15/01 3,858,750
2,000 Shopko Stores - US$ (b).................. 8.500 03/15/02 2,102,580
------------
5,961,330
------------
</TABLE>

See Notes to Financial Statements

B-55
<PAGE> 344

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS 11.3%
1,000 Cablevision Systems - US$................ 9.875% 05/15/06 $ 1,065,000
5,000 Comcast Cablevision 144A - US$ (e)....... 8.500 05/01/27 5,398,950
5,000 MFS Communications - US$ (b)............. * 01/15/06 3,975,000
750 Millicom International - US$............. * 06/01/06 541,875
1,000 Panamsat L.P. - US$ (b).................. 9.750 08/01/00 1,050,000
600 Pricellular Wireless Corp. - US$ (c)..... 0/12.250 10/01/03 562,500
2,000 Viatel, Inc. - US$ (b)................... * 01/15/05 1,350,000
------------
13,943,325
------------
TEXTILES 0.4%
500 Anvil Knitware 144A - US$ (b)(e)......... 10.875 03/15/07 506,250
------------
UTILITIES 12.7%
500 AES Corp. - US$.......................... 10.250 07/15/06 547,500
1,000 Bridas Corp. - US$ (b)................... 12.500 11/15/99 1,098,750
500 Central Puerto S.A. 144A - US$ (e)....... 10.700 08/01/01 537,240
1,000 Central Termica Guemes S.A. 144A - US$
(e)...................................... 12.000 11/26/01 1,050,000
3,500 Companhia Energetica Sao Paul 144A - US$
(e)...................................... 9.125 06/26/07 3,447,500
1,250 Companhia Paranaense De Energ 144A - US$
(e)...................................... 9.750 05/01/05 1,293,750
2,000 Enersis S.A. - US$....................... 6.600 12/01/26 1,956,052
1,500 Midland Funding Corp II - US$ (b)........ 11.750 07/23/05 1,747,500
300 National Energy Group - US$ (b).......... 10.750 11/01/06 310,500
1,000 Sodigas - US$............................ 10.500 07/06/99 1,045,000
1,000 Sodigas 144A - US$ (e)................... 10.500 07/06/99 1,045,000
1,586 Subic Power Corp. 144A - US$ (e)......... 9.500 12/28/08 1,649,877
------------
15,728,669
------------
Total Corporate Bonds............................................ 115,688,593
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 31.4%
ARGENTINA 3.2%
2,000 Argentina Par Bond - US$ (d)............. 5.500 03/31/23 1,387,500
2,000 Bonos del Tesoro - US$................... 8.750 05/09/02 2,000,000
500 Republic of Argentina - ARS.............. 11.750 02/12/07 554,486
------------
3,941,986
------------
AUSTRALIA 1.2%
2,000 Australian Government - AU$.............. 6.750 11/15/06 1,487,709
------------
BRAZIL 2.5%
1,980 Republic of Brazil - US$ (d)............. 7.250 04/15/06 1,827,778
1,380 Republic of Brazil - US$................. 10.125 05/15/27 1,328,250
------------
3,156,028
------------
CANADA 0.8%
1,250 Canadian Government - CA$................ 7.500 03/01/01 964,372
------------
</TABLE>

See Notes to Financial Statements

B-56
<PAGE> 345

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLOMBIA 2.1%
1,000 Republic of Colombia - US$............... 7.625% 02/15/07 $ 974,690
1,500 Republic of Colombia - US$............... 8.660 10/07/16 1,588,050
------------
2,562,740
------------
COSTA RICA 0.7%
1,000 Banco Central Costa Rica - US$ (d)....... 6.250 05/21/10 850,000
------------
CROATIA 4.0%
5,000 Republic of Croatia 144A - US$ (b)(e).... 7.000 02/27/02 4,918,750
------------
ITALY 0.8%
1,500,000 Republic of Italy BTPS - ITL............. 9.500 05/01/01 977,629
------------
MEXICO 1.4%
1,500 Mexico Global Bond - US$................. 11.500 05/15/26 1,713,750
------------
NEW ZEALAND 1.2%
2,000 New Zealand Government - NZ$............. 8.000 11/15/06 1,454,274
------------
PANAMA 4.0%
5,000 Republic of Panama 144A - US$ (e)........ 7.875 02/13/02 4,975,000
------------
RUSSIA 4.3%
5,000 DLJ Emerging Markets LDC - US$........... 5.500 12/30/97 5,363,000
------------
SLOVAKIA 2.7%
3,500 New Slovakia Euro Bond 144A - US$ (e).... 7.250 12/19/06 3,405,500
------------
UNITED KINGDOM 1.8%
1,000 UK Treasury Bonds - GBP (b).............. 7.000 11/06/01 1,658,536
350 UK Treasury Bonds - GBP.................. 6.750 11/26/04 571,745
------------
2,230,281
------------
URUGUAY 0.7%
1,000 Banco Central del Uruguay Ser B - US$
(d)...................................... 6.750 02/19/21 897,500
------------
Total Foreign Government and Agency Securities................... 38,898,519
------------
MORTGAGE BACKED SECURITIES (U.S.) 9.4%
2,337 DLJ Mortgage Acceptance Corp 1996-E1..... 8.517 09/28/25 2,381,275
75 FNMA REMIC #93-55 M PAC (Interest
Only).................................... 727.220 09/25/06 1,449,633
3,541 FNMA REMIC #93-175 S..................... 8.142 05/25/07 3,394,682
3,256 FNMA REMIC #93-180 SB (Inverse Fltg)
(b)...................................... 3.883 09/25/00 2,950,309
23,985 FNMA REMIC #97-20 IB (Interest Only)..... 1.840 03/25/27 1,460,689
------------
Total Mortgage Backed Securities (U.S.).......................... 11,636,588
------------
</TABLE>

See Notes to Financial Statements

B-57
<PAGE> 346

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 5.1%
Avalon Properties - Preferred - US$......................... 50,000 $ 1,287,500
Grupo Casa Autrey - ADR (Mexico) - US$...................... 8,500 172,656
MEPC International Capital L.P. - Preferred - US$ (b)....... 100,000 2,587,500
Time Warner, Inc. - Preferred - US$ (a)..................... 2,000 2,266,620
Thai Military Bank - THB.................................... 15,000 16,792
------------
Total Common and Preferred Stocks................................ 6,331,068
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 40.0 million US$ notional amount, maturing 01/23/00,
payment based upon the spread between the 6 year French Franc fixed
swap interest rate versus the 6 year German Mark fixed swap interest
rate................................................................. (65,217)
------------
TOTAL LONG-TERM INVESTMENTS 139.3%
(Cost $169,602,085)................................................ 172,489,551
LIABILITIES IN EXCESS OF OTHER ASSETS (39.3%)....................... (48,622,679)
------------
NET ASSETS 100.0%................................................... $123,866,872
============
</TABLE>

* Zero coupon bond

(a) Securities purchased on a when issued or delayed delivery basis.

(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option, futures, forwards or swaps transactions or
borrowings of the Fund.

(d) Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have
converted their outstanding external defaulted commercial bank loans into
bonds. Certain Brady Bonds have been collateralized, as to principal due at
maturity, by U.S. Treasury zero coupon bonds with a maturity date equal to
the final maturity date of such Brady Bonds.

(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.

PORTFOLIO COMPOSITION BY CREDIT QUALITY

The following table summarizes the portfolio composition at June 30, 1997,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.

<TABLE>
<S> <C>
U.S. Government and
Government Agency
Obligations................ 6.8%
AAA.......................... 4.1
AA........................... 2.8
A............................ 6.7
BBB.......................... 22.7
BB........................... 23.4
B............................ 11.7
Non-Rated.................... 21.8
-----
100.0%
=====
</TABLE>

See Notes to Financial Statements

B-58
<PAGE> 347

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $169,602,085)....................... $172,489,551
Receivables:
Interest.................................................. 3,481,239
Fund Shares Sold.......................................... 310,467
Variation Margin on Futures............................... 148,489
Options at Market Value (Net premiums paid of $246,766)..... 253,950
Unamortized Organizational Costs............................ 51,018
Other....................................................... 1,068
------------
Total Assets............................................ 176,735,782
------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 50,983,397
Income Distributions...................................... 430,721
Investments Purchased..................................... 371,264
Distributor and Affiliates................................ 169,090
Investment Advisory Fee................................... 105,874
Fund Shares Repurchased................................... 82,595
Forward Currency Contracts.................................. 201,614
Accrued Expenses............................................ 444,074
Deferred Compensation and Retirement Plans.................. 80,281
------------
Total Liabilities....................................... 52,868,910
------------
NET ASSETS.................................................. $123,866,872
============
NET ASSETS CONSIST OF:
Capital..................................................... $126,195,708
Net Unrealized Appreciation................................. 2,587,120
Accumulated Undistributed Net Investment Income............. 150,395
Accumulated Net Realized Loss............................... (5,066,351)
------------
NET ASSETS.................................................. $123,866,872
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $43,810,221 and 3,428,615 shares of
beneficial interest issued and outstanding)............. $ 12.78
Maximum sales charge (4.75%* of offering price)......... .64
------------
Maximum offering price to public........................ $ 13.42
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $76,222,552 and 5,964,656 shares of
beneficial interest issued and outstanding)............. $ 12.78
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,834,099 and 300,301 shares of
beneficial interest issued and outstanding)............. $ 12.77
============
</TABLE>

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

See Notes to Financial Statements

B-59
<PAGE> 348

STATEMENT OF OPERATIONS

For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $20,787)...... $12,861,325
Dividends (Net of foreign withholding taxes of $568)........ 560,482
-----------
Total Income.......................................... 13,421,807
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,132,304
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $97,970, $699,251 and $35,618,
respectively)............................................. 832,839
Shareholder Services........................................ 208,244
Custody..................................................... 163,379
Trustees Fees and Expenses.................................. 38,650
Amortization of Organizational Costs........................ 33,982
Legal....................................................... 18,250
Other....................................................... 222,781
-----------
Total Operating Expenses.............................. 2,650,429
Less Expenses Reimbursed.............................. 49,624
-----------
Net Operating Expenses................................ 2,600,805
Interest Expense...................................... 2,239,645
-----------
NET INVESTMENT INCOME....................................... $ 8,581,357
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 5,129,577
Options................................................... (483,643)
Futures................................................... (1,998,211)
Forwards.................................................. 603,111
Foreign Currency Transactions............................. (251,444)
-----------
Net Realized Gain........................................... 2,999,390
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... (794,446)
-----------
End of the Period:
Investments............................................... 2,887,466
Options................................................... 7,184
Futures................................................... (105,472)
Forwards.................................................. (209,912)
Foreign Currency Translation.............................. 7,854
-----------
2,587,120
-----------
Net Unrealized Appreciation During the Period............... 3,381,566
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,380,956
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $14,962,313
===========
</TABLE>

See Notes to Financial Statements

B-60
<PAGE> 349

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 8,581,357 $ 7,166,242
Net Realized Gain........................................ 2,999,390 2,088,097
Net Unrealized Appreciation During the Period............ 3,381,566 1,185,450
------------ ------------
Change in Net Assets from Operations..................... 14,962,313 10,439,789
------------ ------------
Distributions from Net Investment Income................. (8,604,269) (7,166,242)
Distributions in Excess of Net Investment Income......... (27,347) (721,843)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................. (8,631,616) (7,888,085)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 6,330,697 2,551,704
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 40,557,345 29,338,222
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 3,498,095 3,220,366
Cost of Shares Repurchased............................... (25,388,033) (20,206,493)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 18,667,407 12,352,095
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 24,998,104 14,903,799
NET ASSETS:
Beginning of the Period.................................. 98,868,768 83,964,969
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $150,395 and $22,912,
respectively)........................................... $123,866,872 $ 98,868,768
============ ============
</TABLE>

See Notes to Financial Statements

B-61
<PAGE> 350

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class A Shares 1997 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.065 $11.704 $11.975 $14.300
------- ------- ------- -------
Net Investment Income....................... 1.019 1.013 .657 .566
Net Realized and Unrealized Gain/Loss....... .714 .446 .272 (2.391)
------- ------- ------- -------
Total from Investment Operations............ 1.733 1.459 .929 (1.825)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... 1.020 1.098 .793 .500
Return of Capital Distribution............ -0- -0- .407 -0-
------- ------- ------- -------
Total Distributions......................... 1.020 1.098 1.200 .500
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.778 $12.065 $11.704 $11.975
======= ======= ======= =======
Total Return* (a)........................... 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the Period (In
millions)................................. $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses to Average Net
Assets*................................... 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to Average Net
Assets.................................... 1.99% 2.27% 2.38% .96%
Ratio of Net Investment Income to Average
Net Assets*............................... 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.......................... 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Operating Expenses to Average Net
Assets.................................... 1.86% 1.92% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 8.07% 8.26% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

See Notes to Financial Statements

B-62
<PAGE> 351

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class B Shares 1997 1996 1995 June 30, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.069 $11.706 $11.968 $14.300
------- ------- ------- -------
Net Investment Income....................... .920 .926 .585 .515
Net Realized and Unrealized Gain/Loss....... .717 .443 .245 (2.392)
------- ------- ------- -------
Total from Investment Operations............ 1.637 1.369 .830 (1.877)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .927 1.006 .722 .455
Return of Capital Distribution............ -0- -0- .370 -0-
------- ------- ------- -------
Total Distributions......................... .927 1.006 1.092 .455
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.779 $12.069 $11.706 $11.968
======= ======= ======= =======
Total Return* (a)........................... 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the Period (In
millions)................................. $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating Expenses to Average Net
Assets*................................... 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense to Average Net
Assets.................................... 1.98% 2.26% 2.38% .96%
Ratio of Net Investment Income to Average
Net Assets*............................... 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover.......................... 474% 343% 253% 114%**

* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower
and the ratios would have been as follows:

Ratio of Operating Expenses to Average Net
Assets.................................... 2.61% 2.67% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 7.28% 7.50% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

See Notes to Financial Statements

B-63
<PAGE> 352

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class C Shares 1997 1996 1995 June 30, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.059 $11.699 $11.966 $14.300
------- ------- ------- -------
Net Investment Income....................... .913 .944 .598 .509
Net Realized and Unrealized Gain/Loss....... .723 .422 .227 (2.388)
------- ------- ------- -------
Total from Investment Operations............ 1.636 1.366 .825 (1.879)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .927 1.006 .722 .455
Return of Capital Distribution............ -0- -0- .370 -0-
------- ------- ------- -------
Total Distributions......................... .927 1.006 1.092 .455
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.768 $12.059 $11.699 $11.966
======= ======= ======= =======
Total Return* (a)........................... 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the Period (In
millions)................................. $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses to Average Net
Assets*................................... 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense to Average Net
Assets.................................... 1.98% 2.22% 2.38% .95%
Ratio of Net Investment Income to Average
Net Assets*............................... 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover.......................... 474% 343% 253% 114%**

* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower
and the ratios would have been as follows:

Ratio of Operating Expenses to Average Net
Assets.................................... 2.61% 2.66% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 7.27% 7.41% N/A N/A
</TABLE>

** Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

N/A = Not Applicable

See Notes to Financial Statements

B-64
<PAGE> 353

NOTES TO FINANCIAL STATEMENTS

June 30, 1997
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Strategic Income Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust (the "Trust"), a Delaware 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's primary
investment objective is to seek to provide shareholders with high current
income, while its' secondary investment objective is to seek capital
appreciation. The Fund will allocate its investments among the following market
sectors: U.S. government securities, domestic investment grade income
securities, domestic lower grade income securities, foreign investment grade
income securities and foreign lower grade income securities. The Fund borrows
money for investment purposes which will create the opportunity for enhanced
return, but also should be considered a speculative technique and may increase
the Fund's volatility. The Fund commenced investment operations on December 31,
1993, with three classes of common shares, Class A, Class B and Class C shares.

A. SECURITY VALUATION--Investments are stated at value using market quotations,
prices provided by market makers or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.

B-65
<PAGE> 354

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

with its custodian, assets having an aggregate value at least equal to the
amount of the when issued or delayed delivery purchase commitments until payment
is made.

C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security.

E. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $170,000. These costs
are being amortized on a straight line basis over the 60 month period ending
December 31, 1998. 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 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, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $5,050,946 which will expire between June 30, 2003 and June
30, 2004. 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 and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options, futures and forward transactions at June 30, 1997.

B-66
<PAGE> 355

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

At June 30, 1997, for federal income tax purposes, cost of long-term
investments is $169,602,085; the aggregate gross unrealized appreciation is
$3,907,013 and the aggregate gross unrealized depreciation is $1,114,313,
resulting in net unrealized appreciation on investments, swap, option and
futures transactions of $2,792,700.

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 foreign
currencies and options and futures on foreign currencies. These realized gains
and losses are included as net realized gains or losses for financial reporting
purposes. Permanent book and tax basis differences relating to net currency
gains totaling $177,742 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.

Net realized gains, if any, are distributed annually.

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 as follows:

<TABLE>
<CAPTION>
AVERAGE MANAGED ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $500 million...................................... .75 of 1%

Next $500 million....................................... .70 of 1%

Over $1 billion......................................... .65 of 1%
</TABLE>

For the year ended June 30, 1997, VKAC has agreed to assume a portion of the
Fund's registration and filing fees. This waiver is voluntary and may be
discontinued at any time.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $6,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended June 30, 1997, the Fund recognized expenses of
approximately $25,300 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. Of this amount, approximately $800
has been assumed by VKAC.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $158,700, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.

B-67
<PAGE> 356

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

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. During the year ended June 30, 1997, the Adviser reimbursed the Fund for
certain trustees' compensation in connection with the July 1995 increase in the
number of trustees of the Fund.

At June 30, 1997, VKAC owned 100 shares each of Classes A, B and C.

At June 30, 1997, capital aggregated $44,483,168, $77,747,304 and $3,965,236
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,136,784 $ 14,246,123
Class B.................................... 1,951,416 24,358,899
Class C.................................... 156,283 1,952,323
---------- ------------
Total Sales.................................. 3,244,483 $ 40,557,345
========== ============
Dividend Reinvestment:
Class A.................................... 102,757 $ 1,289,971
Class B.................................... 163,577 2,052,790
Class C.................................... 12,383 155,334
---------- ------------
Total Dividend Reinvestment.................. 278,717 $ 3,498,095
========== ============
Repurchases:
Class A.................................... (614,505) $ (7,723,135)
Class B.................................... (1,282,624) (16,096,646)
Class C.................................... (125,528) (1,568,252)
---------- ------------
Total Repurchases............................ (2,022,657) $(25,388,033)
========== ============
</TABLE>

B-68
<PAGE> 357

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

At June 30, 1996, capital aggregated $36,670,209, $67,432,261 and $3,425,831
for Classes A, B and C, respectively. For the year ended June 30, 1996,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 751,977 $ 9,046,110
Class B.................................... 1,498,860 18,147,281
Class C.................................... 178,450 2,144,831
---------- ------------
Total Sales.................................. 2,429,287 $ 29,338,222
========== ============
Dividend Reinvestment:
Class A.................................... 94,962 $ 1,139,581
Class B.................................... 163,856 1,965,307
Class C.................................... 9,612 115,478
---------- ------------
Total Dividend Reinvestment.................. 268,430 $ 3,220,366
========== ============
Repurchases:
Class A.................................... (575,267) $ (6,903,393)
Class B.................................... (1,024,433) (12,352,105)
Class C.................................... (78,275) (950,995)
---------- ------------
Total Repurchases............................ (1,677,975) $(20,206,493)
========== ============
</TABLE>

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>

B-69
<PAGE> 358

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$26,500 and CDSC on redeemed shares of approximately $296,300. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $745,551,022 and $715,779,945,
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, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising an option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.

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-70
<PAGE> 359

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

Transactions in options for the year ended June 30, 1997, were as follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996................... 3 $ (458,000)
Options Written and Purchased (Net)............ 9,182 (2,797,571)
Options Terminated in Closing
Transactions (Net)........................... (6,742) 2,225,052
Options Exercised.............................. (303) 226,532
Options Expired (Net).......................... (513) 557,221
------ -----------
Outstanding at June 30, 1997................... 1,627 $ (246,766)
====== ===========
</TABLE>

The descriptions and market values of the option contracts outstanding as of
June 30, 1997, are as follows:

<TABLE>
<CAPTION>
STRIKE
EXPIRATION PRICE/ MARKET
DESCRIPTION CONTRACTS DATE YIELD VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EURO $ FUTURES
Dec. 1997 - Purchased
Call...................... 600 12/15/97 94 $157,500
Dec. 1997 - Written
Call...................... 900 12/15/97 94.25 (67,500)
J.P. MORGAN EMERGING
MARKETS INDEX
Purchased Put............. 1 08/11/97 329.37 119,700
Written Put............... 1 08/11/97 321.14 (49,500)
U.S. TREASURY BOND FUTURES
Aug. 1997 - Purchased
Put....................... 125 07/19/97 111 93,750
----- --------
1,627 $253,950
===== ========
</TABLE>

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

Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.

B-71
<PAGE> 360

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

Transactions in futures contracts for the year ended June 30, 1997, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1996............................... 231
Futures Opened............................................. 8,160
Futures Closed............................................. (7,702)
------
Outstanding at June 30, 1997............................... 689
======
</TABLE>

The futures contracts outstanding as of June 30, 1997, and the descriptions
and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
U.S. Treasury Bond Future Dec 1997
(Current notional value $110,656 per
contract)................................... 200 $ 487,500
SHORT CONTRACTS:
10-Year British Gilt Future Sept 1997
(Current notional value $94,870 per
contract)................................... 10 (25,134)
10-Year German Mark Future Sept 1997
(Current notional value $145,476 per
contract)................................... 10 (18,928)
10-Year Japanese Bond Future Sept 1997
(Current notional value $1,082,708 per
contract)................................... 3 (30,832)
U.S. Treasury Bond Future Sept 1997
(Current notional value $111,063 per
contract)................................... 300 (355,156)
2-Year U.S. Treasury Note Future Sept 1997
(Current notional value $206,016 per
contract)................................... 41 (39,250)
5-Year U.S. Treasury Note Future Sept 1997
(Current notional value $105,891 per
contract)................................... 125 (123,672)
--- ---------
689 $(105,472)
=== =========
</TABLE>

C. 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 as a component of realized
gain/loss on forwards.

B-72
<PAGE> 361

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

At June 30, 1997, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
2,751,100 expiring 09/30/97.............. $ 2,003,277 $ (1,752)
French Franc,
57,760,000 expiring 08/01/97............. 9,850,285 (321,953)
German Mark,
29,954,750 expiring 08/04/97-12/30/97.... 17,331,744 (534,622)
Japanese Yen,
1,142,000,000 expiring 08/27/97.......... 10,046,845 46,845
----------- ---------
$39,232,151 $(811,482)
=========== ---------
SHORT CONTRACTS:
British Pound Sterling,
1,536,731 expiring 08/28/97.............. $ 2,554,657 $ (54,657)
French Franc,
85,979,900 expiring 08/04/97-12/30/97.... 14,762,058 416,786
German Mark,
15,000,000 expiring 07/30/97............. 8,619,942 286,205
Japanese Yen,
1,071,700,000 expiring 11/27/98.......... 10,046,764 (46,764)
----------- ---------
$35,983,421 601,570
=========== ---------
$(209,912)
=========
</TABLE>

At June 30, 1997, the Fund has realized gains on closed but unsettled
forward currency contracts of $8,298 scheduled to settle between July 1, 1997
and March 16, 1998.

D. SWAP TRANSACTIONS--These securities, which are identified in the portfolio of
investments, represent an agreement between two parties to exchange a series of
cash flows based upon various indices at specified intervals.

E. INVERSE FLOATING SECURITY--These instruments, which are identified in the
portfolio of investments, have a coupon which is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these

B-73
<PAGE> 362

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

securities may be more volatile than the price of a comparable fixed rate
security. These instruments are typically used by the Fund to enhance the yield
of the portfolio.

6. MORTGAGE-BACKED SECURITIES

A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).

A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.

A MBS may also be stripped to create an Interest Only (IO) security. An IO
represents ownership in the cash flows of the interest payments made from a
specific pool of MBS. The cash flow on this instrument decreases as the mortgage
principal balance is repaid by the borrower. IO's are typically used to manage
interest rate exposure in the Fund's portfolio.

7. DISTRIBUTION AND SERVICE PLANS

8. BORROWINGS

In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.

The Fund has entered into a $60,000,000 revolving credit agreement which
expires on March 31, 1998. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at June 30,
1997, was 6.675%. An annual commitment fee of .075% is charged on the unused
portion of the credit line.

B-74
<PAGE> 363

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997
- --------------------------------------------------------------------------------

The Fund has entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. At June 30, 1997, there were no open reverse repurchase agreements.

The average daily balance of bank borrowings and reverse repurchase
agreements for the year ended June 30, 1997, was approximately $38,213,200 with
an average interest rate of 5.78%.

At June 30, 1997, these agreements represented 28.8% of the Fund's total
assets.

B-75
<PAGE> 364

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 each of the following funds:

Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund

Included in Part A of Registration Statement:

Financial Highlights

Included in Part B of Registration Statement:

Independent Accountants' Report
Financial Statements
Notes to Financial Statements

(B) EXHIBITS:
(1)(a) Agreement and Declaration of Trust(39)

(b) Amended and Restated Certificate of Designation for:

(i) Van Kampen American Capital High Yield Fund+

(ii) Van Kampen American Capital Short-Term Global Income
Fund+

(iii) Van Kampen American Capital Strategic Income Fund+
(2) By-Laws(39)
(4) Specimen Share Certificates for:
(a) Van Kampen American Capital High Yield Fund

(i) Class A Shares(41)

(ii) Class B Shares(41)

(iii) Class C Shares(41)

(b) Van Kampen American Capital Short-Term Global Income Fund
(i) Class A Shares(39)
(ii) Class B Shares(39)
(iii) Class C Shares(39)
(c) Van Kampen American Capital Strategic Income Fund

(i) Class A Shares(41)

(ii) Class B Shares(41)

(iii) Class C Shares(41)

(5)(a) Investment Advisory Agreement for:
(i) Van Kampen American Capital High Yield Fund+

(ii) Van Kampen American Capital Short-Term Global Income
Fund+

(iii) Van Kampen American Capital Strategic Income Fund+
(6)(a) Distribution and Service Agreement for:
(i) Van Kampen American Capital High Yield Fund+

(ii) Van Kampen American Capital Short-Term Global Income
Fund+

(iii) Van Kampen American Capital Strategic Income Fund+
(b) Form of Dealer Agreement(32)

(d) Form of Bank Fully Disclosed Selling Agreement(32)

(8)(a) Custodian Contract+

(b) Transfer Agency and Service Agreement+

(9)(a) Fund Accounting Agreement+

(b) Amended and Restated Legal Services Agreement+

C-1
<PAGE> 365

(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom:
(a) Van Kampen American Capital High Yield Fund(36)
(b) Van Kampen American Capital Short-Term Global Income Fund(35)
(c) Van Kampen American Capital Strategic Income Fund(36)
(11) Consent of KPMG Peat Marwick LLP:
(a) Van Kampen American Capital High Yield Fund+
(b) Van Kampen American Capital Short-Term Global Income Fund+
(c) Van Kampen American Capital Strategic Income Fund+

(13) Letter of Understanding relating to initial capital(41)

(15)(a) Distribution Plan Pursuant to Rule 12b-1 for:

(i) Van Kampen American Capital High Yield Fund(41)

(ii) Van Kampen American Capital Short-Term Global Income
Fund(39)

(iii) Van Kampen American Capital Strategic Income Fund(41)

(b) Form of Shareholder Assistance Agreement(41)

(d) Service Plan for:

(i) Van Kampen American Capital High Yield Fund(41)

(ii) Van Kampen American Capital Short-Term Global Income
Fund(39)

(iii) Van Kampen American Capital Strategic Income Fund(41)

(16)(a) Computation of Performance Quotations:
(i) Van Kampen American Capital High Yield Fund+
(ii) Van Kampen American Capital Short-Term Global Income
Fund+
(iii) Van Kampen American Capital Strategic Income Fund+
(17)(a) List of certain investment companies in response to Item
29(a)+
(b) List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b)+

(18) Amended Multi-Class Plan+

(24) Power of Attorney+

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

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

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

(32) Incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(35) Incorporated herein by reference to Post-Effective Amendment No. 35 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(36) Incorporated herein by reference to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(39) Incorporated herein by reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410.

(41) Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A, File Number 33-4410, as
Filed on October 28, 1996.

+ Filed herewith.

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

See the Statement of Additional Information.

C-2
<PAGE> 366

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of October 6, 1997:

<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Shares of Beneficial Interest, $0.01 par value
(i) Van Kampen American Capital High Yield Fund:
Class A Shares.................................... 14,626
Class B Shares.................................... 5,363
Class C Shares.................................... 427
(ii) Van Kampen American Capital Short-Term Global
Income Fund:
Class A Shares.................................... 2,407
Class B Shares.................................... 3,569
Class C Shares.................................... 20
(iii) Van Kampen American Capital Strategic Income Fund:
Class A Shares.................................... 2,310
Class B Shares.................................... 3,552
Class C Shares.................................... 187
</TABLE>

ITEM 27. INDEMNIFICATION.

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

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

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

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

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or

C-3
<PAGE> 367

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, therefor unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Investment Advisory Services" in the Prospectus and "Investment
Advisory and Other Services" and "Trustees and Officers" 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 each of the officers and directors of Van Kampen American
Capital Investment Advisory Corp., 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(a) incorporated by
reference herein.

(b) Van Kampen American Capital Distributors, Inc., which is an affiliated
person of an affiliated person of Registrant, is the sole 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 17(b). Except as disclosed under the
heading, "Trustees and Officers" in Part B of this Registration Statement, none
of such persons has any position or office with Registrant.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

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

C-4
<PAGE> 368

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN AMERICAN CAPITAL
TRUST, certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Oakbrook Terrace and the State of Illinois, on the
27th day of October, 1997.

VAN KAMPEN AMERICAN CAPITAL 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 the Registration Statement has been signed on October 27, 1997 by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Principal Executive Officer:

/s/ DENNIS J. MCDONNELL* President
- -----------------------------------------------------
Dennis J. McDonnell

Principal Financial Officer:

/s/ EDWARD C. WOOD III* Vice President and Chief Financial Officer
- -----------------------------------------------------
Edward C. Wood III
Trustees:

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

/s/ RICHARD M. DeMARTINI* Trustee
- -----------------------------------------------------
Richard M. DeMartini

/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
Linda Hutton Heagy

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

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

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

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

/s/ PHILLIP B. ROONEY* Trustee
- -----------------------------------------------------
Phillip B. Rooney

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

/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
Wayne W. Whalen
- ------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney.

/s/ RONALD A. NYBERG October 27, 1997
- -----------------------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
</TABLE>

<PAGE> 369

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 42 TO FORM N-1A

AS SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON OCTOBER 28, 1997

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
(1)(b) Amended and Restated Certificate of Designation for:
(i) Van Kampen American Capital High Yield Fund
(ii) Van Kampen American Capital Short-Term Global Fund
(iii) Van Kampen American Capital Strategic Income Fund
(5)(a) Investment Advisory Agreement for:
(i) Van Kampen American Capital High Yield Fund
(ii) Van Kampen American Capital Short-Term Global Fund
(iii) Van Kampen American Capital Strategic Income Fund
(6)(a) Distribution and Service Agreement for:
(i) Van Kampen American Capital High Yield Fund
(ii) Van Kampen American Capital Short-Term Global Fund
(iii) Van Kampen American Capital Strategic Income Fund
(8)(a) Custodian Contract
(b) Transfer Agency and Service Agreement
(9)(a) Fund Accounting Agreement
(b) Amended and Restated Legal Services Agreement
(11) Consent of KPMG Peat Marwick LLP:
(a) Van Kampen American Capital High Yield Fund
(b) Van Kampen American Capital Short-Term Global Income Fund
(c) Van Kampen American Capital Strategic Income Fund
(16)(a) Computation of Performance Quotations:
(i) Van Kampen American Capital High Yield Fund
(ii) Van Kampen American Capital Short-Term Global Income
Fund
(iii) Van Kampen American Capital Strategic Income Fund
(17)(a) List of certain investment companies in response to Item
29(a)
(b) List of officers and directors of Van Kampen American
Capital Distributors, Inc. in response to Item 29(b)
(18) Amended Multi-Class Plan
(24) Power of Attorney
(27) Financial Data Schedules
</TABLE>

<PAGE> 1

EXHIBIT 1(b)(i)
VAN KAMPEN AMERICAN CAPITAL TRUST
Amended and Restated Certificate of Designation
of
Van Kampen American Capital High Yield Fund

The undersigned, being the Secretary of Van Kampen American Capital
Trust, a Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby amend and restate in its entirety the
Certificate of Designation of the Van Kampen American Capital High Yield Fund
Series of the Trust dated May 10, 1995 by redesignating the following classes
of Shares of the Van Kampen American Capital High Yield Fund (the "Fund") with
the following rights, preferences and characteristics:

1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.

2. Classes of Shares. The Shares of the Fund shall be initially divided into
three classes--Class A, Class B and Class C. The Trustees shall have the
authority from time to time to authorize additional Classes of Shares of the
Fund

3. Sales Charges. Each Class A, Class B and Class C Share shall be subject to
such sales charges, if any, as may be established from time to time by the
Trustees in accordance with the Investment Company Act of 1940 (the "1940 Act")
and applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.

4. Conversion. Each Class B Share and Class C Share of the Fund shall be
converted automatically, and without any action or choice on the part of
the Shareholder thereof, into Class A Shares of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be established by
the Trustees and as set forth in the Fund's Prospectus.

5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by that Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.

6. Special Meetings. A special meeting of Shareholders of a Class of the Fund
may be called with respect to the Rule 12b-1 distribution plan applicable to
such Class or with respect to any other proper purpose affecting only holders
of shares of such Class

1
<PAGE> 2
at any time by a Majority of the Trustees.

7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall govern.

8. Amendments, etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
and officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.

9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.

December 12, 1996
- ------------

/s/Ronald A. Nyberg
- ----------------------
Ronald A. Nyberg,
Secretary

<PAGE> 1

EXHIBIT 1(b)(ii)
VAN KAMPEN AMERICAN CAPITAL TRUST
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Short-Term Global Income Fund

The undersigned, being the Secretary of Van Kampen American Capital Trust, a
Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby amend and restate in its entirety the
Certificate of Designation of the Van Kampen American Capital Short-Term Global
Income Fund Series of the Trust dated May 10, 1995 by redesignating the
following classes of Shares of the Van Kampen American Capital Short-Term
Global Income Fund (the "Fund") with the following rights, preferences and
characteristics:

1
<PAGE> 2
at any time by a Majority of the Trustees.

9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.

December 12, 1996
- ------------

/s/Ronald A. Nyberg
- ----------------------
Ronald A. Nyberg,
Secretary

<PAGE> 1

EXHIBIT 1(b)(iii)
VAN KAMPEN AMERICAN CAPITAL TRUST
Amended and Restated Certificate of Designation
of
Van Kampen American Capital Strategic Income Fund

The undersigned, being the Secretary of Van Kampen American Capital Trust, a
Delaware business trust (the "Trust"), pursuant to the authority
conferred upon the Trustees of the Trust by Section 6.1 of the Trust's
Agreement and Declaration of Trust ("Declaration"), and by the affirmative vote
of a Majority of the Trustees does hereby amend and restate in its entirety the
Certificate of Designation of the Van Kampen American Capital Strategic Income
Fund Series of the Trust dated May 10, 1995 by redesignating the following
classes of Shares of the Van Kampen American Capital Strategic Income Fund (the
"Fund") with the following rights, preferences and characteristics:

1
<PAGE> 2
at any time by a Majority of the Trustees.

9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.

December 12, 1996
- ------------

/s/Ronald A. Nyberg
- ----------------------
Ronald A. Nyberg,
Secretary

<PAGE> 1
EXHIBIT (5)(a)(i)

INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT, dated as of May 31, 1997 (the "Agreement"),
by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware business trust
(the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN CAPITAL HIGH YIELD
FUND (the "Fund") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
(the "ADVISER"), a Delaware corporation.

1. (a) RETENTION OF ADVISER BY FUND. Subject to the terms and
conditions set forth herein, the Fund hereby employs the Adviser to act as the
investment adviser for and to manage the investment and reinvestment of the
assets of the Fund in accordance with the Fund's investment objectives and
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Trustees of the
Fund for the period and upon the terms herein set forth. The investment of
funds shall be subject to all applicable restrictions of applicable law and of
the Declaration of Trust and By-Laws of the Trust, and resolutions of the
Board of Trustees of the Fund as may from time to time be in force and
delivered or made available to the Adviser.

(b) ADVISER'S ACCEPTANCE OF EMPLOYMENT. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation 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, in accordance with the policies adopted by the Fund and its Board of
Trustees), to administer the business affairs of the Fund, to furnish offices
and necessary facilities and equipment to the Fund, to provide administrative
services for the Fund, to render periodic reports to the Board of Trustees of
the Fund, and to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.

(c) ESSENTIAL PERSONNEL. For a period of one year commencing on the
effective date of this Agreement, the Adviser and the Fund agree that the
retention of (i) the chief executive officer, president, chief financial
officer and secretary of the Adviser and (ii) each director, officer and
employee of the Adviser or any of its Affiliates (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) who serves as an officer of
the Fund (each person referred to in (i) or (ii) hereinafter being referred to
as an "Essential Person"), in his or her current capacities, is in the best
interest of the Fund and the Fund's shareholders. In connection with the
Adviser's acceptance of employment hereunder, the Adviser hereby agrees and
covenants for itself and on behalf of its Affiliates that neither the Adviser
nor any of its Affiliates shall make any material or significant personnel
changes or replace or seek to replace any Essential Person or cause to be
replaced any Essential Person, in each case without first informing the Board
of Trustees of the Fund in a timely manner. In Addition, neither the Adviser
nor any Affiliate of the Adviser shall change or seek to change or cause to be
changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of Trustees of
the Fund in a timely manner.

(d) INDEPENDENT CONTRACTOR. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed as agent of the Fund.

(e) NON-EXCLUSIVE AGREEMENT. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.

<PAGE> 2

2. (a) FEE. For the services and facilities described in Section 1,
the Fund will accrue daily and pay to the Adviser at the end of each calendar
month an investment management fee computed based on a fee rate (expressed as a
percentage per annum) applied to the average daily net assets of the Fund as
follows:

FEE PERCENT
PER ANNUM OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS (MILLIONS) NET ASSETS
--------------------- ----------
First $500 0.75 of 1.00%
Over $500 0.65 of 1.00%

(b) EXPENSE LIMITATION. The adviser's compensation for any fiscal year
of the Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense limitation
in any jurisdiction in which the Fund's shares are qualified for offer and sale,
as such limitations set forth in the most recent notice thereof furnished by the
Adviser to the Fund. For purposes of this paragraph there shall be excluded
from computation of the Fund's expenses any amount borne directly or indirectly
by the Fund which is permitted to be excluded from the computation of such
limitation by such statue or regulatory authority. If for any month expenses of
the Fund properly included in such calculation exceed 1/12 of the amount
permitted annually by the most restrictive applicable expense limitation, the
payment to the Adviser for that month shall be reduced, and, if necessary, the
Adviser shall make a refund payment to the Fund, so that the total net expense
for the month will not exceed 1/12 of such amount. As of the end of the Fund's
fiscal year, however, the computations and payments shall be readjusted so that
the aggregate compensation payable to the Adviser for the year is equal to the
fee set forth in subsection (a) of this Section 2, diminished to the extent
necessary so that the expenses for the year do not exceed those permitted by the
applicable expense limitation.

(c) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund
shall be calculated as of on each day the Exchange is open for
trading or such other time or times as the trustees may determine in accordance
with the provisions of applicable law and the Declaration of Trust and By-Laws
of the Trust, and resolutions of the Board of Trustees of the Fund as from time
to time in force. For the purpose of the foregoing computations, on each such
day when net asset value is not calculated, the net asset value of a share of
beneficial interest of the Fund shall be deemed to be the net asset value of
such share as of the close of business of the last day on which such calculation
was made.

(d) PRORATION. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.

<PAGE> 3

listing shares on the New York Stock Exchange or other exchange, interest (if
any) on obligations incurred by the Fund, costs of shares certificates,
membership dues in the Investment Company Institute or any similar organization,
costs of reports and notices to shareholders, cost 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 on account of the
registration of securities issued by the Fund, filing of corporate documents or
otherwise. The Fund shall not pay or incur any obligation for any management or
administrative expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the Adviser. The
Adviser shall arrange, if desired by the Fund, for officers or employees of the
Adviser to serve, without compensation from the Fund, as trustees, officers or
agents of the Fund if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by the law.

4. INTERESTED PERSONS. Subject to applicable statutes and regulations,
it is understood that trustees, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents of
the Adviser may be interested in the Fund as trustees, officers, shareholders,
agents or otherwise.

5. LIABILITY. 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 this 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 this Agreement.

6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until May 31, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved as
least annually, in the manner required by the 1940 Act.

(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination by action of
the Board of Trustees or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice. This Agreement may be
terminated at any time without the payment of any penalty and without advance
notice by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.

(c) PAYMENT UPON TERMINATION. Termination of this Agreement shall not
affect the right of the Adviser to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.

7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder shall
not thereby be affected.

8. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.

9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided
by Section 8.1 of the Declaration of Trust of the Trust, (i) this Agreement has
been executed by officers of the Trust in their capacity as officers, and not
individually, and (ii) the shareholders, trustees, officers, employees and other
agents of the Trust and the Fund shall not personally be bound by or liable
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder and that any such resort may
only be had upon the assets and property of the Fund.

<PAGE> 4

10. GOVERNING LAW. All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.

11. NAME. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CAPITAL TRUST,
CORP. on behalf of its series,
HIGH YIELD FUND

By: /s/ Dennis J. McDonnell By: /s/ Ronald A. Nyberg
---------------------------- ----------------------------
Name: Dennis J. McDonnell Name: Ronald A. Nyberg
Title: President Title: Vice President & Secretary

<PAGE> 1
EXHIBIT (5)(a)(ii)

INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT, dated as of May 31, 1997 (the "Agreement"),
by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware business trust
(the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN CAPITAL SHORT-TERM
GLOBAL INCOME FUND (the "Fund") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT
ADVISORY CORP. (the "ADVISER"), a Delaware corporation.

1. (a) RETENTION OF ADVISER BY FUND. Subject to the terms and conditions
set forth herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objectives and policies and
limitations, and to administer its affairs to the extent requested by, and
subject to the review and supervision of, the Board of Trustees of the Fund for
the period and upon the terms herein set forth. The investment of funds shall
be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.

<PAGE> 2
2. (a) FEE. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee equal to .55% of the average daily net assets of
the Fund.

(b) EXPENSE LIMITATION. The adviser's compensation for any fiscal year
of the Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense limitation
in any jurisdiction in which the Fund's shares are qualified for offer and
sale, as such limitations set forth in the most recent notice thereof furnished
by the Adviser to the Fund. For purposes of this paragraph there shall be
excluded from computation of the Fund's expenses any amount borne directly or
indirectly by the Fund which is permitted to be excluded from the computation
of such limitation by such statue or regulatory authority. If for any month
expenses of the Fund properly included in such calculation exceed 1/12 of the
amount permitted annually by the most restrictive applicable expense
limitation, the payment to the Adviser for that month shall be reduced, and, if
necessary, the Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such amount. As of the
end of the Fund's fiscal year, however, the computations and payments shall be
readjusted so that the aggregate compensation payable to the Adviser for the
year is equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the year do not
exceed those permitted by the applicable expense limitation.

(c) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund
shall be calculated as of on each day the Exchange is open for
trading or such other time or times as the trustees may determine in
accordance with the provisions of applicable law and the Declaration of Trust
and By-Laws of the Trust, and resolutions of the Board of Trustees of the Fund
as from time to time in force. For the purpose of the foregoing computations,
on each such day when net asset value is not calculated, the net asset value of
a share of beneficial interest of the Fund shall be deemed to be the net asset
value of such share as of the close of business of the last day on which such
calculation was made.

3. EXPENSES. In addition to the fee of the Adviser, the Fund shall
assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books
of account, for any other changes of the custodian and for calculating the net
asset value of the Fund as provided above. The adviser shall not be required
to pay, and the Fund shall assume and pay, the charges and expenses of its
operations, including compensation of the trustees (other than those who are
interested persons of the Adviser and other than those who are interested
persons of the distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and expenses of
independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, costs of acquiring and disposing of portfolio securities,
cost of listing shares on the New York Stock Exchange or other exchange,
interest (if any) on obligations incurred by the Fund, costs of shares
certificates, membership dues in the Investment Company Institute or any
similar organization, costs of reports and notices to shareholders, cost 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 on account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not pay or incur
any obligation for any management or administrative expenses for which the Fund
intends to seek reimbursement from the Adviser without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by the law.

<PAGE> 3

4. INTERESTED PERSONS. Subject to applicable statutes and regulations,
it is understood that trustees, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interested in the Fund as trustees, officers,
shareholders, agents or otherwise.

5. LIABILITY. 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 this 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 this Agreement.

6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until May 31, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved
as least annually, in the manner required by the 1940 Act.

(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination by action
of the Board of Trustees or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice. This Agreement may be
terminated at any time without the payment of any penalty and without advance
notice by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.

7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder
shall not thereby be affected.

9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided by
Section 8.1 of the Declaration of Trust of the Trust, (i) this Agreement has
been executed by officers of the Trust in their capacity as officers, and not
individually, and (ii) the shareholders, trustees, officers, employees and
other agents of the Trust and the Fund shall not personally be bound by or
liable hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder and that any such resort may
only be had upon the assets and property of the Fund.

11. NAME. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees of the Fund.

<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CAPITAL TRUST,
CORP. on behalf of its series,
SHORT-TERM GLOBAL INCOME FUND

By: /s/ Dennis J. McDonnell By: /s/ Ronald A. Nyberg
------------------------- -------------------------
Name: Dennis J. McDonnell Name: Ronald A. Nyberg
Title: President Title: Vice President & Secretary

<PAGE> 1
EXHIBIT (5)(a)(iii)

INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT, dated as of May 31, 1997 (the "Agreement"),
by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware business trust
(the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN CAPITAL STRATEGIC
INCOME FUND (the "Fund") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY
CORP. (the "ADVISER"), a Delaware corporation.

1. (a) RETENTION OF ADVISER BY FUND. Subject to the terms and conditions
set forth herein, the Fund hereby employs the Adviser to act as the investment
adviser for and to manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objectives and policies and
limitations, and to administer its affairs to the extent requested by, and
subject to the review and supervision of, the Board of Trustees of the Fund for
the period and upon the terms herein set forth. The investment of funds shall
be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Adviser.

<PAGE> 2

2. (a) FEE. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee computed based on a fee rate (expressed as a
percentage per annum) applied to the average daily net assets of the Fund as
follows:

FEE PERCENT
PER ANNUM OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS (MILLIONS) NET ASSETS
--------------------- -------------
First $500 0.75 of 1.00%
Next $500 0.70 of 1.00%
Over $1 billion 0.65 of 1.00%

(b) EXPENSE LIMITATION. The adviser's compensation for any fiscal year
of the Fund shall be reduced by the amount, if any, by which the Fund's expense
for such fiscal year exceeds the most restrictive applicable expense limitation
in any jurisdiction in which the Fund's shares are qualified for offer and
sale, as such limitations set forth in the most recent notice thereof furnished
by the Adviser to the Fund. For purposes of this paragraph there shall be
excluded from computation of the Fund's expenses any amount borne directly or
indirectly by the Fund which is permitted to be excluded from the computation
of such limitation by such statue or regulatory authority. If for any month
expenses of the Fund properly included in such calculation exceed 1/12 of the
amount permitted annually by the most restrictive applicable expense
limitation, the payment to the Adviser for that month shall be reduced, and, if
necessary, the Adviser shall make a refund payment to the Fund, so that the
total net expense for the month will not exceed 1/12 of such amount. As of the
end of the Fund's fiscal year, however, the computations and payments shall be
readjusted so that the aggregate compensation payable to the Adviser for the
year is equal to the fee set forth in subsection (a) of this Section 2,
diminished to the extent necessary so that the expenses for the year do not
exceed those permitted by the applicable expense limitation.

(c) DETERMINATION OF NET ASSET VALUE. The net asset value of the Fund
shall be calculated as of on each day the Exchange is open for
trading or such other time or times as the trustees may determine in
accordance with the provisions of applicable law and the Declaration of Trust
and By-Laws of the Trust, and resolutions of the Board of Trustees of the Fund
as from time to time in force. For the purpose of the foregoing computations,
on each such day when net asset value is not calculated, the net asset value of
a share of beneficial interest of the Fund shall be deemed to be the net asset
value of such share as of the close of business of the last day on which
such calculation was made.

<PAGE> 3

the federal securities laws, miscellaneous expenses and all taxes and fees
to federal, state or other governmental agencies on account of the registration
of securities issued by the Fund, filing of corporate documents or otherwise.
The Fund shall not pay or incur any obligation for any management or
administrative expenses for which the Fund intends to seek reimbursement from
the Adviser without first obtaining the written approval of the Adviser. The
Adviser shall arrange, if desired by the Fund, for officers or employees of the
Adviser to serve, without compensation from the Fund, as trustees, officers or
agents of the Fund if duly elected or appointed to such positions and subject
to their individual consent and to any limitations imposed by the law.

4. INTERESTED PERSONS. Subject to applicable statutes and regulations,
it is understood that trustees, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents
of the Adviser may be interested in the Fund as trustees, officers,
shareholders, agents or otherwise.

5. LIABILITY. 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 this 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 this Agreement.

6. (a) TERM. This Agreement shall become effective on the date hereof
and shall remain in full force until May 31, 1999 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only for so long as such continuance is specifically approved
as least annually, in the manner required by the 1940 Act.

(b) TERMINATION. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination by action
of the Board of Trustees or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice. This Agreement may be
terminated at any time without the payment of any penalty and without advance
notice by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.

7. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statue, rule or otherwise, the remainder
shall not thereby be affected.

9. DISCLAIMER. The Adviser acknowledges and agrees that, as provided by
Section 8.1 of the Declaration of Trust of the Trust, (i) this Agreement has
been executed by officers of the Trust in their capacity as officers, and not
individually, and (ii) the shareholders, trustees, officers, employees and
other agents of the Trust and the Fund shall not personally be bound by or
liable hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder and that any such resort may
only be had upon the assets and property of the Fund.

<PAGE> 4

11. NAME. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Trustees of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CAPITAL TRUST,
CORP. on behalf of its series,
STRATEGIC INCOME FUND

By: /s/ Dennis J. McDonnell By: /s/ Ronald A. Nyberg
----------------------------- ------------------------------
Name: Dennis J. McDonnell Name: Ronald A. Nyberg
Title: President Title: Vice President & Secretary

<PAGE> 1
EXHIBIT (6)(a)(i)

DISTRIBUTION AND SERVICE AGREEMENT

THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997(the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware
business trust (the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN
CAPITAL HIGH YIELD FUND (the "Fund"), and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").

1. Appointment of Distributor. The Fund appoints the Distributor as a
principal underwriter and exclusive distributor of each class of its shares of
beneficial interest (the "Shares") offered for sale from time to time pursuant
to the then current prospectus of the Fund, subject to different combinations
of front-end sales charges, distribution fees, service fees and contingent
deferred sales charges. Classes of shares, if any, subject to a front-end
sales charge and a distribution and/or service fee are referred to herein as
"FESC Classes" and the Shares of such classes are referred to herein as "FESC
Shares." Classes of shares, if any, subject to a contingent-deferred sales
charge and a distribution and/or a service fee are referred to herein as "CDSC
Classes" and Shares of such classes are referred to herein as "CDSC Shares."
Classes of shares, if any, subject to a front-end sales charge, a
contingent-deferred sales charge and a distribution and/or service fee are
referred to herein as "Combination Classes" and Shares of such class are
referred to herein as "Combination Shares." The Fund reserves the right to
refuse at any time or times to sell Shares hereunder for any reason deemed
adequate by the Board of Trustees of the Fund.

The Distributor will use its best efforts to sell, through its
organization and through other dealers and agents, the Shares which the
Distributor has the right to purchase under Section 2 hereof, but the
Distributor does not undertake to sell any specific number of Shares.

The Distributor agrees that it will not take any long or short
positions in the Shares, except for long positions in those Shares purchased by
the Distributor in accordance with any systematic sales plan described in the
then current Prospectus of the Fund and except as permitted by Section 2
hereof, and that so far as it can control the situation, it will prevent any of
its trustees, officers or shareholders from taking any long or short positions
in the Shares, except for legitimate investment purposes.

2. Sale of Shares to Distributor. The Fund hereby grants to the
Distributor the exclusive right, except as herein otherwise provided, to
purchase Shares directly from the Fund upon the terms herein set forth. Such
exclusive right hereby granted shall not apply to Shares issued or transferred
or sold at net asset value: (a) in connection with the merger or consolidation
of the Fund with any other investment company or the acquisition by the Fund of
all or substantially all of the assets of or the outstanding Shares of any
investment company; (b) in connection with a pro rata distribution directly to
the holders of Fund Shares in the nature of a stock dividend or stock split or
in connection with any other recapitalization approved by the Board of
Trustees; (c) upon the exercise of purchase or subscription rights granted to
the holders of Shares on a pro rata basis; (d) in connection with the automatic
reinvestment of dividends and distributions from the Fund; or (e) in connection
with the issue and sale of Shares to trustees, officers and employees of the
Fund; to directors, officers and employees of the investment adviser of the
Fund or any principal underwriter (including the Distributor) of the Fund; to
retirees of the Distributor that purchased shares of any mutual fund
distributed by the Distributor prior to retirement; to directors, officers and
employees of Van Kampen American Capital, Inc. (formerly The Van Kampen Merritt
Companies, Inc.) (the parent of the Distributor), VK/AC Holding, Inc. (formerly
VKM Holdings, Inc.)(the parent of The Van Kampen Merritt Companies, Inc.) and
to the subsidiaries of VK/AC Holding, Inc.; and to any trust, pension,
profit-sharing or other benefit plan for any of the aforesaid persons as
permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940
Act").

The Distributor shall have the right to buy from the Fund the Shares
needed, but not more than the Shares needed (except for reasonable allowances
for clerical errors, delays and errors of transmission

1
<PAGE> 2

and cancellation of orders) to fill unconditional orders for Shares received by
the Distributor from dealers, agents and investors during each period when
particular net asset values and public offering prices are in effect as
provided in Section 3 hereof; and the price which the Distributor shall pay for
the Shares so purchased shall be the respective net asset value used in
determining the public offering price on which such orders were based. The
Distributor shall notify the Fund at the end of each such period, or as soon
thereafter on that business day as the orders received in such period have been
compiled, of the number of Shares of each class that the Distributor elects to
purchase hereunder.

3. Public Offering Price. The public offering price per Share shall
be determined in accordance with the then current Prospectus of the Fund. In
no event shall the public offering price exceed the net asset value per Share,
plus, with respect to the FESC Shares, a front-end sales charge not in excess
of the applicable maximum sales charge permitted under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., as in effect
from time to time. The net asset value per share for each class of Shares,
respectively, shall be determined in the manner provided in the Declaration of
Trust and By-Laws of the Trust as then amended, the Certificate of Designation
with respect to the Fund, as amended, and in accordance with the then current
Prospectus of the Fund consistent with the terms and conditions of the
exemptive order with respect to the Fund (Release No. IC-19600) issued by the
Securities and Exchange Commission on July 28, 1993, as it may be amended from
time to time or succeeded by other exemptive orders or rules promulgated by the
Securities and Exchange Commission under the 1940 Act. The Fund will cause
immediate notice to be given to the Distributor of each change in net asset
value as soon as it is determined. Discounts to dealers purchasing FESC Shares
from the Distributor for resale and to brokers and other eligible agents making
sales of FESC Shares to investors and compensation payable from the Distributor
to dealers, brokers and other eligible agents making sales of CDSC Shares and
Combination Shares shall be set forth in the selling agreements between the
Distributor and such dealers or agents, respectively, as from time to time
amended, and, if such discounts and compensation are described in the then
current Prospectus for the Fund, shall be as so set forth.

4. Compliance with NASD Rules, SEC Orders, etc. In selling Fund
Shares, the Distributor will in all respects duly comply with all state and
federal laws relating to the sale of such securities and with all applicable
rules and regulations of all regulatory bodies, including without limitation
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and all applicable rules and regulations of the Securities and Exchange
Commission under the 1940 Act, and will indemnify and save the Fund harmless
from any damage or expense on account of any unlawful act by the Distributor or
its agents or employees. The Distributor is not, however, to be responsible
for the acts of other dealers or agents, except to the extent that they shall
be acting for the Distributor or under its direction or authority. None of the
Distributor, any dealer, any agent or any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the Registration Statement or Prospectus heretofore or hereafter
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1933 Act") (as any such Registration Statement and
Prospectus may have been or may be amended from time to time), covering the
Shares, and in any supplemental information to any such Prospectus approved by
the Fund in connection with the offer or sale of Shares. None of the
Distributor, any dealer, any broker or any other person is authorized to act as
agent for the Fund in connection with the offering or sale of Shares to the
public or otherwise. All such sales shall be made by the Distributor as
principal for its own account.

In selling Shares to investors, the Distributor will adopt and comply
with certain standards, as set forth in Exhibit III attached hereto as to when
each respective class of Shares may appropriately be sold to particular
investors. The Distributor will require every broker, dealer and other
eligible agent participating in the offering of the Shares to agree to adopt
and comply with such standards as a condition precedent to their participation
in the offering.

<PAGE> 3
5. Expenses.

(a) The Fund will pay or cause to be paid:

(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund
will exercise its best efforts to obtain said
registration and qualification;

(ii) all expenses in connection with the printing of any
notices of shareholders' meetings, proxy and proxy
statements and enclosures therewith, as well as any
other notice or communication sent to shareholders in
connection with any meeting of the shareholders or
otherwise, any annual, semiannual or other reports or
communications sent to the shareholders, and the
expenses of sending prospectuses relating to the Shares
to existing shareholders;

(iii) all expenses of any federal or state original-issue tax
or transfer tax payable upon the issuance, transfer or
delivery of Shares from the Fund to the Distributor;
and

(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.

(b) The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.

(c) The Fund shall reimburse the Distributor for out-of-pocket
costs and expenses actually incurred by it in connection with distribution of
each class of Shares respectively in accordance with the terms of a plan (the
"12b-1 Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act as
such 12b-1 Plan may be in effect from time to time; provided, however, that no
payments shall be due or paid to the Distributor hereunder with respect to a
class of Shares unless and until this Agreement shall have been approved for
each such class by a majority of the Board of Trustees of the Fund and by a
majority of the "Disinterested Trustees" (as such term is defined in such 12b-1
Plan) by vote cast in person at a meeting called for the purpose of voting on
this Agreement. A copy of such 12b-1 Plan as in effect on the date of this
Agreement is attached as Exhibit I hereto. The Fund reserves the right to
terminate such 12b-1 Plan with respect to a class of Shares at any time, as
specified in the Plan. The persons authorized to direct the payment of funds
pursuant to this Agreement and the 12b-1 Plan shall provide to the Fund's Board
of Trustees, and the Trustees shall review, at least quarterly, a written
report with respect to each of the classes of Shares of the amounts so paid and
the purposes for which such expenditures were made for each such class of
Shares.

(d) The Fund shall compensate the Distributor for providing
services to, and the maintenance of, shareholder accounts in the Fund
(including prepaying service fees to eligible brokers, dealers and financial
intermediaries and expenses incurred in connection therewith) and the
Distributor may pay as agent for and on behalf of the Fund a service fee with
respect to each class of Shares to brokers, dealers and financial
intermediaries for the provision of shareholder services and the maintenance of
shareholder accounts in the Fund in the amount with respect to each class of
Shares set forth from time to time in the Fund's prospectus. The Fund shall
compensate the Distributor for such expenses in accordance with the terms of a
service plan (the "Service Plan"), as such Service Plan may be in effect from
time to time; provided, however, that no service fee payments shall be due or
paid to the Distributor hereunder with respect to a class of Shares unless and
until this Agreement shall have been approved for each such class by a majority
of the Board of Trustees of the Fund and by a majority of the Disinterested
Trustees by vote cast in person at a meeting called for the purpose of voting
on this Agreement. A copy of such Service Plan as in effect on the date of
this Agreement is attached as Exhibit II hereto. The Fund reserves the right
to terminate such Service Plan with respect to a class of Shares at any time,
as specified in the Plan. The persons authorized to direct the payment of
funds pursuant to this Agreement and the Service Plan shall provide to the
Fund's Board of Trustees, and the Trustees shall

<PAGE> 4

review, at least quarterly, a written report with respect to each of the
classes of Shares of the amounts paid as service fees for each such class of
Shares.

6. Redemption of Shares. In connection with the Fund's redemption of
its Shares, the Fund hereby authorizes the Distributor to repurchase, upon the
terms and conditions hereinafter set forth, as the Fund's agent and for the
Fund's account, such Shares as may be offered for sale to the Fund from time to
time by holders of such Shares or their agents.

(a) Subject to and in conformity with all applicable federal
and state legislation, any applicable rules of the National Association of
Securities Dealers, Inc., and any applicable rules and regulations of the
Securities and Exchange Commission under the 1940 Act, the Distributor may
accept offers of holders of Shares to resell such Shares to the Fund on such
terms and conditions and at such prices as described and provided for in the
then current Prospectus of the Fund.

(b) The Distributor agrees to notify the Fund at such times as
the Fund may specify of the number of each class of Shares, respectively,
repurchased for the Fund's account and the time or times of such repurchases,
and the Fund shall notify the Distributor of the prices and, in the case of a
class of CDSC Shares or Combination Shares, of the deferred sales charge as
described below, if any, applicable to repurchases of Shares of such class.

(c) The Fund shall have the right to suspend or revoke the
foregoing authorization at any time; unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by telegraph or by written instrument from any of the Fund's officers.
In the event that the Distributor's authorization is, by the terms of such
notice, suspended for more than twenty-four hours or until further notice, the
authorization given by this Section 6 shall not be revived except by vote of
the Board of Trustees of the Fund.

(d) The Distributor agrees that all repurchases of Shares made
by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.

(e) The Fund agrees to authorize and direct its Custodian to
pay, for the Fund's account, the repurchase price (together with any applicable
contingent deferred sales charge) of any Shares so repurchased for the Fund
against the authorized transfer of book shares from an open account and against
delivery of any other documentation required by the Board of Trustees of the
Fund or, in the case of certificated Shares, against delivery of the
certificates representing such Shares in proper form for transfer to the Fund.

(f) The Distributor shall receive no commissions or other
compensation in respect of any repurchases of FESC Shares for the Fund under
the foregoing authorization and appointment as agent. With respect to any
repurchase of CDSC Shares or Combination Shares, the Distributor shall receive
the deferred sales charge, if any, applicable to the respective class of Shares
that have been held for less than a specified period of time with respect to
such class as set forth from time to time in the Fund's Prospectus. The
Distributor shall receive no other commission or other compensation in respect
of any repurchases of CDSC Shares or Combination Shares for the Fund under the
foregoing authorization and appointment as agent.

(g) If any FESC Shares sold to the Distributor under the terms
of this Agreement are redeemed or repurchased by the Fund or by the Distributor
as agent or are tendered for redemption within seven business days after the
date of the Distributor's confirmation of the original purchase by the
Distributor, the Distributor shall forfeit the amount above the net asset value
received by it in respect of such Shares, provided that the portion, if any, of
such amount re-allowed by the Distributor to dealers or agents shall be
repayable to the Fund only to the extent recovered by the Distributor from the
dealer or agent concerned. The Distributor shall include in agreements with
such dealers and agents a corresponding provision for the forfeiture by them of
their concession with respect to FESC Shares

4
<PAGE> 5

purchased by them or their principals and redeemed or repurchased by the
Fund or by the Distributor as agent within seven business days after the date
of the Distributor's confirmation of such initial purchases.

7. Indemnification. The Fund agrees to indemnify and hold harmless
the Distributor and each of its trustees and officers and each person, if any,
who controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damage,
or expense and reasonable counsel fees incurred in connection therewith),
arising by reason of any person acquiring any Shares, based upon the ground
that the registration statement, Prospectus, shareholder reports or other
information filed or made public by the Fund (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading under the 1933 Act or any other statute or the common law. However,
the Fund does not agree to indemnify the Distributor or hold it harmless to the
extent that the statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor
or any person against any liability to the Fund or its securityholders to which
the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable under its indemnity agreement
contained in this Section with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or any such person
shall have notified the Fund in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Distributor or any such
person (or after the Distributor or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which it may have to the
Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund shall
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense, of any suit brought to enforce any claims, but
if the Fund elects to assume the defense, the defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any suit and retain counsel, the Distributor, officers or
trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them.
If the Fund does not elect to assume the defense of any suit, it will reimburse
the Distributor, officers or trustees or controlling person or persons,
defendant or defendants in the suit for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees to notify the Distributor promptly
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of the
Shares.

The Distributor also covenants and agrees that it will indemnify and
hold harmless the Fund and each of its trustees and officers and each person,
if any, who controls the Fund within the meaning of Section 15 of the 1933 Act
against any loss, liability, damage, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damage, claim
or expense and reasonable counsel fees incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the 1933 Act
or any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, shareholder reports or other information filed or made
public by the Fund (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, insofar as the
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund by or on behalf of the Distributor. In no
case (i) is the indemnity of the Distributor in favor of the Fund or any person
indemnified to be deemed to protect the Fund or any such person against any
liability to which the Fund or such person would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligation and duties
under this Amended Agreement, or (ii) is the Distributor to be liable under its

5
<PAGE> 6

indemnity agreement contained in this paragraph with respect to any claim made
against the Fund or any person indemnified unless the Fund or person, as the
case may be, shall have notified the Distributor in writing of the claim within
a reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the Fund or
person (or after the Fund or such person shall have received notice of service
on any designated agent). However, failure to notify the Distributor of any
claim shall not relieve the Distributor from any liability which it may have to
the Fund or any person against whom the action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. In the case of
any notice to the Distributor, it shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce the claim, but if the Distributor elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and trustees and to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any suit and retain counsel, the
Fund or controlling persons, defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does
not elect to assume the defense of any suit, it will reimburse the Fund,
officers and trustees or controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained by
them. The Distributor agrees to notify the Fund promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Shares.

8. Continuation, Amendment or Termination of This Agreement. This
Agreement shall become effective on the Effective Date and thereafter shall
continue in full force and effect year to year with respect to each class of
Shares so long as such continuance is approved at least annually (i) by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the respective class of Shares of the Fund, and (ii) by
vote of a majority of the Trustees who are not parties to this Agreement or
interested persons in any such party (the "Independent Trustee") cast in person
at a meeting called for the purpose of voting on such approval, provided,
however, that (a) this Agreement may at any time be terminated with respect to
either class of Shares of the Fund without the payment of any penalty either by
vote of a majority of the Disinterested Trustees, or by vote of a majority of
the outstanding voting securities of the respective class of Shares of the
Fund, on written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment; and (c) this Agreement
may be terminated by the Distributor on ninety (90) days' written notice to the
Fund. Upon termination of this Agreement with respect to either class of
Shares of the Fund, the obligations of the parties hereunder shall cease and
terminate with respect to such class of Shares as of the date of such
termination, except for any obligation to respond for a breach of this
Agreement committed prior to such termination.

This Agreement may be amended with respect to either class of Shares at
any time by mutual consent of the parties, provided that such consent on the
part of the Fund shall have been approved (i) by the Board of Trustees of the
Fund, or by a vote of the majority of the outstanding voting securities of the
respective class of Shares of the Fund, and (ii) by vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such amendment.

For the purpose of this section, the terms "vote of a majority of the
outstanding voting securities", "interested persons" and "assignment" shall
have the meanings defined in the 1940 Act, as amended.

9. Limited Liability of Shareholder. Notwithstanding anything to the
contrary contained in this Agreement, you acknowledge and agree that, as
provided by Section 8.1 of the Agreement and Declaration of Trust of the Trust,
this Agreement is executed by the Trustees of the Trust and/or Officers of the
Fund by them not individually but as such Trustees and/or Officers, and the
obligations of the Fund hereunder are not binding upon any of the Trustees,
Officers or Shareholders individually, but bind only the trust estate.

10. Notice. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party or at such other address as such party shall have
designated in writing.

<PAGE> 7

11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF
LAWS.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN CAPITAL TRUST,
on behalf of its series,
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND

By: /s/ Dennis J. McDonnell
------------------------------------
Name: Dennis J. McDonnell
Title: President

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

By: /s/ Ronald A. Nyberg
------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President

<PAGE> 1
EXHIBIT (6)(a)(ii)

DISTRIBUTION AND SERVICE AGREEMENT

THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997(the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware
business trust (the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN
CAPITAL SHORT-TERM GLOBAL INCOME FUND (the "Fund"), and VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").

1
<PAGE> 2

<PAGE> 3
5. Expenses.

(a) The Fund will pay or cause to be paid:

(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund
will exercise its best efforts to obtain said
registration and qualification;

(iii) all expenses of any federal or state original-issue tax
or transfer tax payable upon the issuance, transfer or
delivery of Shares from the Fund to the Distributor;
and

(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.

(b) The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.

<PAGE> 4

review, at least quarterly, a written report with respect to each of the
classes of Shares of the amounts paid as service fees for each such class of
Shares.

(d) The Distributor agrees that all repurchases of Shares made
by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.

4
<PAGE> 5

5
<PAGE> 6

<PAGE> 7

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN CAPITAL TRUST,
on behalf of its series,
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL
INCOME FUND

By: /s/ Dennis J. McDonnell
------------------------------------
Name: Dennis J. McDonnell
Title: President

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

By: /s/ Ronald A. Nyberg
------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President

<PAGE> 1
EXHIBIT (6)(a)(iii)

DISTRIBUTION AND SERVICE AGREEMENT

THIS DISTRIBUTION AND SERVICE AGREEMENT dated as of May 31, 1997(the
"Agreement") by and between VAN KAMPEN AMERICAN CAPITAL TRUST, a Delaware
business trust (the "Trust"), on behalf of its series, VAN KAMPEN AMERICAN
CAPITAL STRATEGIC INCOME FUND (the "Fund"), and VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").

1
<PAGE> 2

<PAGE> 3
5. Expenses.

(a) The Fund will pay or cause to be paid:

(i) all expenses in connection with the registration of
Shares under the federal securities laws, and the Fund
will exercise its best efforts to obtain said
registration and qualification;

(iii) all expenses of any federal or state original-issue tax
or transfer tax payable upon the issuance, transfer or
delivery of Shares from the Fund to the Distributor;
and

(iv) the cost of preparing and issuing any Share
certificates which may be issued to represent Shares.

(b) The Distributor will also permit its officers and employees
to serve without compensation as trustees and officers of the Fund if duly
elected to such positions.

<PAGE> 4

review, at least quarterly, a written report with respect to each of the
classes of Shares of the amounts paid as service fees for each such class of
Shares.

(d) The Distributor agrees that all repurchases of Shares made
by the Distributor shall be made only as agent for the Fund's account and
pursuant to the terms and conditions herein set forth.

4
<PAGE> 5

5
<PAGE> 6

<PAGE> 7

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

VAN KAMPEN AMERICAN CAPITAL TRUST,
on behalf of its series,
VAN KAMPEN AMERICAN CAPITAL STRATEGIC
INCOME FUND

By: /s/ Dennis J. McDonnell
------------------------------------
Name: Dennis J. McDonnell
Title: President

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

By: /s/ Ronald A. Nyberg
------------------------------------
Name: Ronald A. Nyberg
Title: Executive Vice President

<PAGE> 1
EXHIBIT (8)(a)

CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States . . . . . . 2

2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities . . . . . . . . . . . . . . . . 4
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Availability of Federal Funds . . . . . . . . . . . . . . 5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . 5
2.7 Payment of Fund Moneys . . . . . . . . . . . . . . . . . . 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . 7
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . 7
2.10 Deposit of Fund Assets in Securities System . . . . . . . 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . 10
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . 10
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Communications Relating to Fund Securities . . . . . . . . 11

3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States . . . . . . . . . . . . 11

3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . 11
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . 12
3.4 Agreements with Foreign Banking Institutions . . . . . . . 12
3.5 Access of Independent Accountants of the Fund . . . . . . 12
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . . 12
3.7 Transactions in Foreign Custody Account . . . . . . . . . 13
3.8 Liability of Foreign Sub-Custodians . . . . . . . . . . . 13
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . . 13
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.11 Monitoring Responsibilities . . . . . . . . . . . . . . . 14
3.12 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.13 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . 15

4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . 15

5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 16

6. Actions Permitted Without Express Authority . . . . . . . . . . . 16

7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 17

8. Duties of Custodian With Respect to the Books
of Account and Calculation of Net Asset Value
and Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . 17

9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . 18

11. Reports to Fund by Independent Public Accountants . . . . . . . . 18

12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . 18

13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . 18

14. Effective Period, Termination and Amendment . . . . . . . . . . . 19

15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . 20

16. Interpretive and Additional Provisions . . . . . . . . . . . . . . 21

17. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 21

18. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . 22

19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22

20. Shareholder Communications . . . . . . . . . . . . . . . . . . . . 22

21. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT

This Contract between each fund or series of a fund listed on
Appendix A which evidences its agreement to be bound hereby by executing a copy
of this Contract (each such fund is individually hereafter referred to as
the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",

WITNESSETH:

WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Fund hereby employs the Custodian as the custodian of the assets
of the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to the
provisions of the Fund's governing documents. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, beneficial
interest or partnership interest, as applicable, of the Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by the Fund and not
delivered to the Custodian.

Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Fund(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund, and
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.

1
<PAGE> 5
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States

2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property to be held by it in
the United States including all domestic securities owned by such Fund
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury
(and certain federal agencies collectively referred to herein as
"Securities System") and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.

2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:

1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;

2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;

3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;

4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;

5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;

6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee

2
<PAGE> 6
name of any agent appointed pursuant to Section 2.9 or into
the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;

7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;

8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;

9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;

10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;

11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;

3
<PAGE> 7
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;

13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;

14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption;

15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees,
specifying the securities of the Fund to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made; and

16) Upon termination of the Contract.

2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to

4
<PAGE> 8
Article 1. All securities accepted by the Custodian on behalf of the
Fund under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the Custodian
to maintain securities in "street name", the Custodian shall utilize
its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.

2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund ,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for a
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Fund be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.

2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to such Fund
as of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for Shares
of such Fund which are deposited into the Fund's account.

2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when

5
<PAGE> 9
due on securities held hereunder. Income due each Fund on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Fund is properly entitled.

2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Fund in the
following cases only:

1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase effected
through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case
of repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Fund or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Article 5;

2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;

6
<PAGE> 10
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;

4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;

5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;

6) For payment of the amount of dividends received in respect of
securities sold short;

7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified copy
of a resolution of the Board of Trustees, specifying the amount
of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment
is to be made; and

8) Upon termination of this Contract.

2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.

2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.

7
<PAGE> 11
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:

1) The Custodian may keep securities of the Fund in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;

2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;

3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the U.S. Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund.

4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;

8
<PAGE> 12
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;

6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has
not been made whole for any such loss or damage.

2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Fund in
the Direct Paper System of the Custodian subject to the following
provisions:

1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund ;

2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in an
account of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;

3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;

4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;

9
<PAGE> 13
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the account of
the Fund;

6) The Custodian shall provide the Fund with any report on its
system of internal accounting control as the Fund may
reasonably request from time to time.

2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each such Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund , the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund , a certified copy of a
resolution of the Board of Trustees setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.

2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.

10
<PAGE> 14
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.

2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at
least three business days prior to the date on which the Custodian is
to take such action.

3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States

3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.

3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in

11
<PAGE> 15
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.

3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities
located outside of the United States (each a "Foreign Securities
System") only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof
(Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.

3.4 Holding Securities. The Custodian may hold cash, securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (1) the records of the Custodian with respect to cash,
securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry the cash,
securities and other non-cash property belonging to the Fund and (ii)
the Custodian shall require that cash, securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the Custodian, the foreign sub-custodian or of others.

3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of
each Fund will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Fund will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Fund; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund(s) held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.

3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.

3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund(s) securities and other assets
and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking

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<PAGE> 16
institution for the Custodian on behalf of each applicable Fund
indicating, as to securities acquired for a Fund, the identity of the
entity having physical possession of such securities.

3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians. (b) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for securities
received for the account of each applicable Fund and delivery of
securities maintained for the account of each applicable Fund may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. In addition, and
whether or not such practice is a customary established trading
practice in the relevany jurisdictions, the Custodian will, upon
Proper Instructions from the Fund, deliver cash to securities brokers
in foreign jurisdictions who will effect securities trades for the
Fund and cause the securities purchased to be delivered to the
applicable foreign sub-custodian at some later date. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained
in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.

3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.

3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this

13
<PAGE> 17
paragraph 3.10, in delegating custody duties to State Street London
Ltd., the Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.

3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Fund's assets to the extent necessary to obtain
reimbursement.

3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).

3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Fund's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of

14
<PAGE> 18
said Act. The appointment of any such branch as a sub-custodian shall
be governed by paragraph 1 of this Contract. (b) Cash held for each
Fund in the United Kingdom shall be maintained in an interest bearing
account established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.

3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.

4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund

The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Fund and the Transfer Agent of
any receipt by it of payments for Shares of such Fund.

From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable
votes of the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection
with the redemption or repurchase of Shares of a Fund, the Custodian is
authorized upon receipt of instructions from the Transfer Agent to wire funds
to or through a commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.

15
<PAGE> 19
5. Proper Instructions

Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Funds' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.

6. Actions Permitted without Express Authority

The Custodian may in its discretion, without express authority from
the Fund:

1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund ;

2) surrender securities in temporary form for securities in
definitive form;

3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and

4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees of the Fund.

16
<PAGE> 20
7. Evidence of Authority

The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the governing documents of
the Fund as described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to the
contrary.

8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income

The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Fund and/or compute the net asset value per share
of the outstanding shares of each Fund or, if the Custodian and the Fund
execute the applicable Price Source Authorization (the "Authorization"), the
Custodian shall keep such books of account and/or compute such net asset value
per share pursuant to the terms of the Authorization and the attachments
thereto. If so directed, the Custodian shall also calculate daily the net
income of the Fund as described in the Fund's currently effective Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Fund's currently effective Prospectus
related to such Fund.

9. Records

The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to

17
<PAGE> 21
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.

10. Opinion of Fund's Independent Accountant

The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with respect
to any other requirements of such Commission.

11. Reports to Fund by Independent Public Accountants

The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.

12. Compensation of Custodian

The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.

13. Responsibility of Custodian

So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in

18
<PAGE> 22
good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by: (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
its investment adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a Securities System; (iv) any delay or failure of any
broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.

The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.

If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or incurring liability of
some other form, the Fund, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.

14. Effective Period, Termination and Amendment

This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30)

19
<PAGE> 23
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of the Fund has approved the initial use of a
particular Securities System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of the
Fund has reviewed any subsequent change regarding the use by such Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Fund act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Fund and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of the Fund has reviewed the use by such Fund of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Fund's governing documents, and further provided, that the Fund
on behalf of one or more of the Funds may at any time by action of its Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.

Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.

15. Successor Custodian

If a successor custodian for a Fund shall be appointed by the Board
of Trustees of such Fund, the Custodian shall, upon termination, deliver to
such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities, Funds and other properties of each
applicable Fund then held by it hereunder and shall transfer to an account of
the successor custodian all of the securities of each Fund held in a Securities
System.

If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.

In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such

20
<PAGE> 24
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Fund and all instruments held by the Custodian relative thereto and
all other property held by it under this Contract on behalf of each applicable
Fund and to transfer to an account of such successor custodian all of the
securities of each such Fund held in any Securities System. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Contract.

In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.

16. Interpretive and Additional Provisions

In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision
of the governing documents of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.

17. Additional Funds

In the event that Van Kampen American Capital Distributors , Inc.
establishes any funds in addition to the Funds listed on Appendix A with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references herein to
the "Fund" are to each of the Funds listed on Appendix A individually, as if

21
<PAGE> 25
this Contract were between each such individual Fund and the Custodian. With
respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.

18. Massachusetts Law to Apply

This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.

19. Prior Contracts

This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Funds and the Custodian relating to the custody of
the Fund's assets.

20. Reproduction of Documents

This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

21. Shareholder Communications

Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please
indicate below whether the Fund consent or object by checking one of the
alternatives below.

YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions of each Fund listed on
Exhibit A.

NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions of each Fund listed
on Exhibit A.

22
<PAGE> 26
22. Limitation of Liability.

The execution of this Contract has been authorized by each Fund's
Board of Trustees. This Contract is executed on behalf of each Fund or the
trustees of such Fund as trustees and not individually and the obligations of
the Fund under this Contract are not binding upon any of the Fund's trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.

IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 1st day of August, 1997.

ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A

/s/ Nicholas Dalmaso By: /s/ Ronald A. Nyberg
- ------------------------ -----------------------------------
Ronald A. Nyberg, Vice President
and Secretary

ATTEST STATE STREET BANK AND TRUST COMPANY

/s/ Francine Hayes By: [ILLEGIBLE]
- ------------------------ -----------------------------------
Executive Vice President

23
<PAGE> 27
APPENDIX A
FUND NAMES

VAN KAMPEN AMERICAN CAPITAL COMSTOCK FUND
VAN KAMPEN AMERICAN CAPITAL CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL EMERGING GROWTH FUND
VAN KAMPEN AMERICAN CAPITAL ENTERPRISE FUND
VAN KAMPEN AMERICAN CAPITAL EQUITY INCOME FUND
VAN KAMPEN AMERICAN CAPITAL GLOBAL MANAGED ASSETS FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND
VAN KAMPEN AMERICAN CAPITAL GROWTH AND INCOME FUND
VAN KAMPEN AMERICAN CAPITAL HARBOR FUND
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
Asset Allocation Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Global Equity Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN AMERICAN CAPITAL PACE FUND
VAN KAMPEN AMERICAN CAPITAL REAL ESTATE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL RESERVE FUND
VAN KAMPEN AMERICAN CAPITAL SMALL CAPITALIZATION FUND
VAN KAMPEN AMERICAN CAPITAL TAX-EXEMPT TRUST
Van Kampen American Capital High Yield Municipal Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN AMERICAN CAPITAL UTILITIES INCOME FUND
VAN KAMPEN AMERICAN CAPITAL WORLD PORTFOLIO SERIES TRUST
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST
Van Kampen American Capital U.S. Government Fund
VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal
Income Fund
Van Kampen American Capital Florida Insured Tax Free
Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
VAN KAMPEN AMERICAN CAPITAL TRUST
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND

24
<PAGE> 28
THE EXPLORER INSTITUTIONAL TRUST
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund
VAN KAMPEN AMERICAN CAPITAL NAVIGATOR FUNDS
Emerging Markets Equity Portfolio
Emerging Markets Fixed Income Portfolio
U.S. QUALITY FUNDS
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL TRUST FOR PENNSYLVANIA MUNICIPALS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN AMERICAN CAPITAL BOND FUND
VAN KAMPEN AMERICAN CAPITAL CONVERTIBLE SECURITIES FUND
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST

<PAGE> 1
EXHIBIT (8)(b)

TRANSFER AGENCY AND SERVICE AGREEMENT

AGREEMENT made as of the 31st day of May, 1997 by and between each of the
VAN KAMPEN AMERICAN CAPITAL OPEN END FUNDS set forth on Schedule "A" hereto,
which are organized under the laws of the state and as the entities set forth
in Schedule "A" hereto (collectively, the "Funds"), and ACCESS INVESTOR
SERVICES, INC., a Delaware corporation ("ACCESS").

R E C I T A L:
-------------

WHEREAS, each of the Funds desires to appoint ACCESS as its transfer
agent, dividend disbursing agent and shareholder service agent and ACCESS
desires to accept such appointments;

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:

Article 1. Terms of Appointment; Duties of ACCESS.
---------------------------------------

1.01 Subject to the terms and conditions set forth in this Agreement, each
of the Funds hereby employs and appoints ACCESS as its transfer agent, dividend
disbursing agent and shareholder service agent.

1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder service agent for
each of the Funds on the terms and conditions set forth herein.

1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence
in accordance with reasonable industry practice, and that the necessary
facilities, equipment and personnel for such performance will be provided.

1.04 For a period of one year commencing on the effective date of this
Agreement, ACCESS and each of the Funds agree that the retention of (i) the
chief executive officer, president, chief financial officer, chief operating
officer and secretary of ACCESS and (ii) each director, officer and employee of
ACCESS or any of its Affiliates (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) who serves as an officer of the Funds (each
person referred to in (i) or (ii) hereinafter being referred to as an
"Essential Person"), in his or her current capacities, is in the best interest

<PAGE> 2

of the Funds and the Funds' shareholders. In connection with ACCESS's
acceptance of employment hereunder, ACCESS hereby agrees and covenants for
itself and on behalf of its Affiliates that neither ACCESS nor any of its
Affiliates shall make any material or significant personnel changes or replace
or seek to replace any Essential Person or cause to be replaced any Essential
Person, in each case without first informing the Board of Trustees of the Funds
in a timely manner. In addition, neither ACCESS nor any Affiliate of ACCESS
shall change or seek to change or cause to be changed, in any material
respect, the duties and responsibilities of any Essential Person, in each case
without first informing the Board of Trustees of the Funds in a timely
manner.

1.05 In order to assure compliance with section 1.03 and to implement a
cooperative effort to improve and maintain the quality of transfer agency,
dividend disbursing and shareholder services received by each of the Funds and
their shareholders, ACCESS agrees to provide and maintain quantitative
performance objectives, including maximum target turn-around times and maximum
target error rates, for the various services provided hereunder. ACCESS also
agrees to provide a reporting system designed to provide the Board of Trustees
of each of the Funds (the "Board") on a quarterly basis with quantitative data
comparing actual performance for the period with the performance objectives.
The foregoing procedures are designed to provide a basis for continuing
monitoring by the Board of the quality of services rendered hereunder.

Article 2. Fees and Expenses.
------------------

2.01 For the services to be performed by ACCESS pursuant to this
Agreement, each of the Funds agrees to pay ACCESS the fees provided in the fee
schedules agreed upon from time to time by each of the Funds and ACCESS.

2.02 In addition to the amounts paid under section 2.01 above, each of the
Funds agrees to reimburse ACCESS promptly for such Fund's reasonable
out-of-pocket expenses or advances paid on its behalf by ACCESS in connection
with its performance under this Agreement for postage, freight, envelopes,
checks, drafts, continuous forms, reports and statements, telephone, telegraph,
costs of outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfilm, microfiche and computer tapes) and
printing costs incurred due to special requirements of such Fund. In addition,
any other special out-of-pocket expenses paid by ACCESS at the specific request
of any of the Funds will be promptly reimbursed by the requesting Fund.
Postage for mailings of dividends, proxies, Fund reports and other mailings

Page 2

<PAGE> 3

to all shareholder accounts shall be advanced to ACCESS by the concerned Fund
three business days prior to the mailing date of such materials.

Article 3. Representations and Warranties of Access.
-----------------------------------------

ACCESS represents and warrants to each of the Funds that:

3.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.

3.02 It is duly qualified to carry on its business in each jurisdiction in
which the nature of its business requires it to be so qualified.

3.03 It is empowered under applicable laws and regulations and by its
charter and bylaws to enter into and perform this Agreement.

3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.

3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform its
duties and obligations hereunder.

3.06 It will maintain a system regarding "as of" transactions as follows:

(a) Each "as of" transaction effected at a price other than that in
effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error,
or delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month.
If, on any day during the month, the cumulative net effect upon any Fund
is negative and exceeds an amount equivalent to 1/2 of 1 cent per share
of such Fund, ACCESS shall promptly make a payment to such Fund (in cash
or through use of a credit as described in paragraph (c) below) in such
amount as necessary to reduce the negative cumulative net effect to less
than 1/2 of 1 cent per share of such Fund. If on the last business day
of the month the cumulative net effect (adjusted by the amount of any
payments or credits used pursuant to the preceding sentence) upon any
Fund is negative, such Fund shall be entitled to a reduction in the
monthly transfer agency fee next payable by an equivalent amount, except
as provided in paragraph (c) below. If on the last

Page 3

<PAGE> 4

business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain
past payments, credits used and reductions in fees, and to a credit
against all future payments and fee reductions made under this paragraph
to such Fund, as described in paragraph (c) below.

(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first
be applied to recover any payments, credits used and fee reductions made
by ACCESS to such Fund under paragraph (b) above during the calendar year
by increasing the amount of the monthly transfer agency fee next payable
in an amount equal to prior payments, credits used and fee reductions
made during such year, but not exceeding the sum of that month's credit
and credits arising in prior months during such year to the extent such
prior credits have not previously been utilized as contemplated by this
paragraph (c). Any portion of a credit to ACCESS not so used shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects which would otherwise require a payment,
use of a credit or fee reduction to such Fund pursuant to paragraph (b)
above.

Article 4. Representations and Warranties of the Funds.
--------------------------------------------

Each of the Funds hereby represents and warrants on behalf of itself
only and not on behalf of any other Funds which are a party to this Agreement
that:

4.01 It is duly organized and existing and in good standing under the laws
of the commonwealth or state set forth in Schedule "A" hereto.

4.02 It is empowered under applicable laws and regulations and by its
Declaration of Trust and by-laws to enter into and perform this Agreement.

4.03 All requisite proceedings have been taken by its Board to authorize
it to enter into and perform this Agreement.

4.04 It is an open-end, management investment company registered under the
Investment Company Act of 1940, as amended.

Page 4
<PAGE> 5

4.05 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate
state securities laws filings have been made and will continue to be made, with
respect to all of its shares being offered for sale.

Article 5. Indemnification.
---------------
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liabilities (collectively, "Losses") arising out of or attributable to:

(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided that ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.

(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS
by or on behalf of such Fund.

(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless
such violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares
be made in general or to the residents of a particular state.

(e) Such Fund's refusal or failure to comply with the terms of this
Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder. Notwithstanding the foregoing, no Fund shall be required to
indemnify or hold ACCESS harmless from and against any Losses arising out
of or attributable to any action or failure to take action, or any
information, records or

Page 5
<PAGE> 6

documents prepared or maintained, on behalf of
the Fund by the Fund's investment adviser or distributor, or any person
providing fund accounting or legal services to the Fund that is also an
officer or employee of Van Kampen American Capital, Inc. or its
subsidiaries unless such person or entity is otherwise entitled to
indemnification from the Fund.

5.02 ACCESS shall indemnify and hold harmless each of the Funds from and
against any and all Losses arising out of or attributable to ACCESS' refusal or
failure to comply with the terms of this Agreement, or ACCESS' lack of good
faith, or its negligence or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.

5.03 At any time ACCESS may apply to any authorized officer of any of the
Funds for instructions, and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement,
and ACCESS shall not be liable and shall be indemnified by such concerned Fund
for any action taken or omitted by it in good faith in reasonable reliance upon
such instructions or upon the opinion of such counsel. ACCESS shall be
protected and indemnified in acting upon any paper or document reasonably
believed by ACCESS to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the concerned Fund.
ACCESS shall also be protected and indemnified in recognizing stock
certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.

5.04 In the event that any party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.

5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.

5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party
advised with respect to all developments concerning such claim.

Page 6
<PAGE> 7

The party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.

Article 6. Covenants of Each of the Funds and ACCESS.
------------------------------------------
6.01 Each of the Funds shall promptly furnish to ACCESS the following:

(a) Certified copies of the resolution of its Board authorizing the
appointment of ACCESS and the execution and delivery of this Agreement.
(b) Certified copies of its Declaration of Trust or Articles of
Incorporation and by-laws and all amendments thereto.

6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to each of the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.

6.03 ACCESS shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable times as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its
performance hereunder as may be reasonably requested by the Board.

Page 7
<PAGE> 8

6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.

6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned
Funds and to secure instructions from an authorized officer of each of the
concerned Funds as to such inspection. ACCESS reserves the right, however, to
exhibit such Fund Records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit such Fund records to such
person.

Article 7. Term and Termination Of Agreement.
----------------------------------
7.01 The initial term of this Agreement shall expire May 31, 1999,
and thereafter this Agreement shall automatically be renewed for
successive one year periods to begin on June 1 of each year unless any party
provides notice to the other party at least 120 days in advance of that date
that this Agreement is not to be renewed.

7.02 Notwithstanding the foregoing, any party may terminate this
Agreement for good and reasonable cause at any time by giving written
notice to the other party at least 60 days prior to the date on which such
termination is to be effective or such shorter period as may be required by
law.

7.03 Any unpaid fees or reimbursable expenses payable to ACCESS at
the termination date of this Agreement shall be due on that termination date.
ACCESS agrees to use its best efforts to cooperate with the Funds and the
successor transfer, dividend disbursement, or shareholder servicing agent
or agents in accomplishing an orderly transition.

Article 8. Miscellaneous.
--------------
8.01 Except as provided in section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by any party
without the written consent of ACCESS or the concerned Fund, as the case may
be; provided, however, that no consent shall be required for any merger of any
of the Funds with, or any sale of all or substantially all the assets of
any of the Funds to, another investment company.

8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.

Page 8
<PAGE> 9

8.03 ACCESS may, without further consent on the part of any of the
Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities;
provided, however, that ACCESS shall be as fully responsible to each of
the Funds for the acts and omissions of DST, Inc. or other qualified
servicer as it is for its own acts and omissions.

8.04 Without the prior approval of the Boards of Trustees of the
Funds, ACCESS shall not, directly or indirectly, provide services,
including services such as transfer agent, dividend disbursing agent or
shareholder service agent, to any investment companies.

8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes
any prior agreement with respect thereto, whether oral or written, and
this Agreement may not be modified except by written instrument executed
by the affected parties.

8.06 The execution of this Agreement has been authorized by the
Funds' Trustees. This Plan is executed on behalf of the Funds or the
Trustees of the Funds as Trustees and not individually and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Funds individually but are binding only
upon the assets and property of the Funds. A Certificate of Trust in
respect of each of the Funds is on file with the appropriate state
agency.

8.07 For each of those Funds which have one or more portfolios as
set forth in Schedule "A" hereto, all obligations of those Funds under
this Agreement shall apply only on a portfolio-by-portfolio basis and the
assets of one portfolio shall not be liable for the obligations of any
other.

8.08 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties
hereto agree to renegotiate such affected portions in good faith.

8.09 All questions concerning the validity, meaning and effect of
this Agreement shall be determined in accordance with the laws (without
giving effect to the conflict-of-law principles thereof) of the State of
Delaware applicable to contracts made and to be performed in that state.

8.10 (a) Any dispute, controversy, or claim arising out of or
relating to this Agreement, or the breach, termination or validity
thereof, shall be finally settled by arbitration in accordance with
the Expedited Procedures

Page 9

<PAGE> 10

of the commercial arbitration Rules of the American Arbitration
Association (the "AAA") then in effect (the "Rules"). The
arbitration shall be held in Chicago, Illinois.

(b) There shall be one arbitrator who shall be selected jointly by
the parties. If the parties are unable to agree on an arbitrator
within 15 days after a demand for arbitration is made by a party,
the arbitrator shall be appointed by the AAA in accordance with the
Rules. The hearing shall be held within 90 days of the appointment
of the arbitrator. Notwithstanding the Expedited Procedures
of the Rules, the arbitrator, at his discretion, may schedule
additional days of hearings.

(c) Either party may, without inconsistency with this Agreement,
seek from a court any interim or provisional relief in aid of
arbitration, pending the establishment of the arbitral tribunal.
The parties hereby submit to the exclusive jurisdiction of the
federal and state courts located in the northern district of the
state of Illinois for any such relief in aid of arbitration, or for
any relief relating to arbitration, except for the enforcement of an
arbitral award which may be enforced in any court having
jurisdiction.

(d) Any arbitration proceedings or award rendered hereunder and the
validity, effect and interpretation of Section 8.10 shall be
governed by the Federal Arbitration Act (9 U.S.C. Sections 1 et
--
seq.) The award shall be final and binding upon the parties.
---
Judgment upon any award may be entered in any court having
jurisdiction.

(e) This Agreement and the rights and obligations of the Parties
shall remain in full force and effect pending the award in any
arbitration proceeding hereunder.

Page 10

<PAGE> 11

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.

EACH OF THE VAN KAMPEN AMERICAN CAPITAL
OPEN END FUNDS LISTED ON SCHEDULE
"A" HERETO

BY: /s/ Ronald A. Nyberg
----------------------------------
Vice President

ATTEST:

/s/ Nicholas Dalmaso
- ----------------------------------
Assistant Secretary

ACCESS INVESTOR SERVICES, INC.

BY: /s/ Paul R. Wolkenberg
---------------------------------
President and Chief Executive Officer

ATTEST:
/s/ Huey P. Falgout
- ---------------------------------
Assistant Secretary

Page 11
<PAGE> 12

SCHEDULE "A"
------------
VAN KAMPEN AMERICAN CAPITAL OPEN-END FUNDS

<TABLE>
<CAPTION>
Organization Type
Fund Name State of [Business Trust
(including Portfolios) Organization "T"]
=====================================================================================================
<S> <C> <C>
Van Kampen American Capital Aggressive Growth Fund DE T
Van Kampen American Capital California Insured Tax Free Fund DE T
Van Kampen American Capital Comstock Fund DE T
Van Kampen American Capital Corporate Bond Fund DE T
Van Kampen American Capital Emerging Growth Fund DE T
Van Kampen American Capital Enterprise Fund DE T
Van Kampen American Capital Equity Income Fund DE T
Van Kampen American Capital Florida Insured Tax Free Income Fund DE T
Van Kampen American Capital Foreign Securities Fund DE T
Van Kampen American Capital Global Managed Assets Fund DE T
Van Kampen American Capital Government Securities Fund DE T
Van Kampen American Capital Government Target Fund DE T
Van Kampen American Capital Great American Companies Fund DE T
Van Kampen American Capital Growth Fund DE T
Van Kampen American Capital Growth and Income Fund DE T
Van Kampen American Capital Harbor Fund DE T
Van Kampen American Capital High Income Corporate Bond Fund DE T
Van Kampen American Capital High Yield Fund DE T
Van Kampen American Capital Insured Tax Free Income Fund DE T
Van Kampen American Capital Intermediate Term Municipal Income Fund DE T
</TABLE>

Page 12
<PAGE> 13

Van Kampen American Capital Limited Maturity Government Fund DE T
Van Kampen American Capital Municipal Income Fund DE T
Van Kampen American Capital New Jersey Tax Free Income Fund DE T
Van Kampen American Capital New York Tax Free Income Fund DE T
Van Kampen American Capital Pace Fund DE T
Van Kampen American Capital Pennsylvania Tax Free Income Fund PA T
Van Kampen American Capital Prospector Fund DE T
Van Kampen American Capital Real Estate Securities Fund DE T
Van Kampen American Capital Reserve Fund DE T
Van Kampen American Capital Short-Term Global Income Fund DE T
Van Kampen American Capital Small Capitalization Fund DE T
Van Kampen American Capital Strategic Income Fund DE T
Van Kampen American Capital Tax-Exempt Trust DE T
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Tax Free High Income Fund DE T
Van Kampen American Capital Tax Free Money Fund DE T
Van Kampen American Capital U.S. Government Fund DE T
Van Kampen American Capital U.S. Government Trust for Income DE T
Van Kampen American Capital Utility Fund DE T
Van Kampen American Capital Value Fund DE T
</TABLE>

PAGE 13
<PAGE> 14

PAGE 14

<PAGE> 1

Exhibit (9)(a)

FUND ACCOUNTING AGREEMENT

THIS AGREEMENT, dated May 31, 1997, by and between the parties
set forth in Schedule A hereto (designated collectively hereafter as the
"Funds") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP., a Delaware
corporation ("Advisory Corp.").

W I T N E S S E T H:

WHEREAS, each of the Funds is registered as a management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, Advisory Corp. has the capability of providing certain
accounting services to the Funds; and

WHEREAS, each desires to utilize Advisory Corp. in the
provision of such accounting services; and

WHEREAS, Advisory Corp. intends to maintain its staff in order
to accommodate the provision of all such services.

NOW THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:

1. Appointment of Advisory Corp. As agent, Advisory Corp. shall provide
-----------------------------
each of the Funds the accounting services ("Accounting Services") as set
forth in Paragraph 2 of this Agreement. Advisory Corp. accepts such
appointment and agrees to furnish the Accounting Services in return for the
compensation provided in Paragraph 3 of this Agreement.

2. Accounting Services to be Provided. Advisory Corp. will provide
----------------------------------
to each respective Fund accounting related services in connection with the
maintenance of the financial records of such Fund, including without
limitation: (i) maintenance of the general ledger and other financial books
and records; (ii) processing of portfolio transactions; (iii) coordination
of the valuation of portfolio securities; (iv) calculation of the Fund's
net asset value; (v) coordination of financial and regulatory reporting;
(vi) preparation of financial reports for each Fund's Board of Trustees;
(vii) coordination of tax and financial compliance issues; (viii) the
establishment and maintenance of accounting policies; (ix) recommendations
with respect to dividend policies; (x) preparation of each Fund's financial
reports and other accounting and tax related notice information to
shareholders; and (xi) the assimilation and interpretation of accounting
data for meaningful management review. Advisory Corp. shall provide
accurate maintenance of each Fund's financial books and records as required
by the applicable securities statutes and regulations, and shall hire
persons (collectively the "Accounting Service Group") as needed to provide
such Accounting Services.

<PAGE> 2

3. Expenses and Reimbursements. Advisory Corp. shall be reimbursed by the
Funds for all costs and services incurred in connection with the provision
of the aforementioned Accounting Services ("Accounting Service Expenses"),
including but not limited to all salary and related benefits paid to the
personnel of the Accounting Service Group, overhead and expenses related to
office space and related equipment and out-of-pocket expenses.

The Accounting Services Expenses will be paid by Advisory Corp.
and reimbursed by the Funds. Advisory Corp. will tender to each Fund a monthly
invoice as of the last business day of each month which shall certify the total
support service expenses expended. Except as provided herein, Advisory Corp.
will receive no other compensation in connection with Accounting Services
rendered in accordance with this Agreement.

4. Payment for Accounting Service Expenses Among the Funds. As to one
quarter (25%) of the Accounting Service Expenses incurred under the
Agreement, the expense shall be allocated between all Funds based on the
number of classes of shares of beneficial interest that each respective
Fund has issued. As to the remaining three quarters (75%) of the Accounting
Service Expenses incurred under the Agreement, the expense shall be
allocated between all Funds based on their relative net assets. For
purposes of determining the percentage of expenses to be allocated to any
Fund, the liquidation preference of any preferred shares issued by any such
Fund shall not be considered a liability of such Fund for the purposes of
calculating relative net assets of such Fund.

5. Maintenance of Records. All records maintained by Advisory Corp. in
connection with the performance of its duties under this Agreement will
remain the property of each respective Fund and will be preserved by
Advisory Corp. for the periods prescribed in Section 31 of the 1940 Act and
the rules thereunder or such other applicable rules that may be adopted
from time to time under the act. In the event of termination of the
Agreement, such records will be promptly delivered to the respective Funds.
Such records may be inspected by the respective Funds at reasonable times.

6. Liability of Advisory Corp. Advisory Corp. shall not be liable to any
Fund for any action taken or thing done by it or its agents or contractors
on behalf of the fund in carrying out the terms and provisions of the
Agreement if done in good faith and without gross negligence or misconduct
on the part of Advisory Corp., its agents or contractors.

7. Indemnification By Funds. Each Fund will indemnify and hold Advisory
Corp. harmless from all lost, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Advisory Corp. resulting from: (a) any
claim, demand, action or suit in connection with Advisory Corp.'s acceptance of
this Agreement; (b) any action or omission by Advisory Corp. in the performance
of its duties hereunder; (c) Advisory Corp.'s acting upon instructions believed
by it to have been executed by a duly authorized officer of the Fund; or (d)
Advisory Corp.'s acting upon information provided by the Fund in form and under
policies agreed to by Advisory Corp. and the Fund. Advisory Corp. shall not be
entitled to such indemnification in respect of actions or omissions
constituting gross negligence or willful misconduct of Advisory Corp. or its
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, Advisory Corp. shall give the Fund reasonable
opportunity to defend against said claim in its own name or in the name of
Advisory Corp.

8. Indemnification By Advisory Corp. Advisory Corp. will indemnify and
hold harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Advisory Corp.'s failure to comply
with the terms of this Agreement or which arises out of the gross negligence or
willful misconduct of Advisory Corp. or its agents or contractors; provided
that such negligence or misconduct is not attributable to the Funds, their
agents or contractors. Prior to confessing any claim against it which may be
subject to this indemnification, the Fund shall give Advisory Corp. reasonable
opportunity to defend against said claim in its own name or in the name of such
Fund.

2
<PAGE> 3

9. Further Assurances. Each party agrees to perform such further acts and
-------------------
execute such further documents as are necessary to effectuate the purposes
hereof.

10. Dual Interests. It is understood that some person or persons may be
---------------
directors, trustees, officers or shareholders of both the Funds and Advisory
Corp. (including Advisory Corp.'s affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.

11. Execution, Amendment and Termination. The term of this Agreement shall
-------------------------------------
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May, 1998, and
thereafter from year to year, if such continuation is specifically approved at
least annually by the Board of Trustees of each Fund, including a majority of
the independent Trustees of each Fund. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto and
may be terminated after May, 1998, by at least sixty (60) days' written notice
given by one party to the others. Upon termination hereof, each Fund shall pay
to Advisory Corp. such compensation as may be due as of the date of such
termination and shall likewise reimburse Advisory Corp. for its costs, expenses
and disbursements payable under this Agreement to such date. This Agreement
may be amended in the future to include as additional parties to the Agreement
other investment companies for with Advisory Corp., any subsidiary or affiliate
serves as investment advisor or distributor if such amendment is approved by
the President of each Fund.

12. Assignment. Any interest of Advisory Corp. under this Agreement shall
-----------
not be assigned or transferred, either voluntarily or involuntarily, by
operation of law or otherwise, without the prior written consent of the Funds.
This Agreement shall automatically and immediately terminate in the event of
its assignment without the prior written consent of the Funds.

13. Notice. Any notice under this Agreement shall be in writing, addressed
-------
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until further notice to the other parties, it is agreed that
for this purpose the address of each Fund is One Parkview Plaza, Oakbrook
Terrace, Illinois 60181, Attention: President and that of Advisory Corp. for
this purpose is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President.

14. Personal Liability. As provided for in the Agreement and Declaration of
------------------
Trust of the various Funds, under which the Funds are organized as
unincorporated trusts, the shareholders, trustees, officers, employees and
other agents of the Fund shall not personally be found by or liable for the
matters set forth hereto, nor shall resort be had to their private property for
the satisfaction of any obligation or claim hereunder.

15. Interpretative Provisions. In connection with the operation of this
--------------------------
Agreement, Advisory Corp. and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor of this
Agreement.

16. State Law. This Agreement shall be construed and enforced in accordance
----------
with and governed by the laws of the State of Illinois.

17. Captions. The captions in this Agreement are included for convenience
---------
of reference only and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.

3
<PAGE> 4

IN WITNESS WHEREOF, the parties have caused this amended and
restated Agreement to be executed as of the day and year first above written.

ALL OF THE PARTIES SET FORTH IN SCHEDULE A

By: /s/ Ronald A. Nyberg
---------------------------------------
Ronald A. Nyberg, Vice President

VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.

By: /s/ Dennis J. McDonnell
---------------------------------------
Dennis J. McDonnell, President

4
<PAGE> 5
SCHEDULE A

I. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):

CLOSED END FUNDS
- ----------------

Van Kampen American Capital Municipal Income Trust
Van Kampen American Capital California Municipal Trust
Van Kampen American Capital High Income Trust
Van Kampen American Capital High Income Trust II
Van Kampen American Capital Investment Grade Municipal Trust
Van Kampen American Capital Municipal Trust
Van Kampen American Capital California Quality Municipal Trust
Van Kampen American Capital Florida Quality Municipal Trust
Van Kampen American Capital New York Quality Municipal Trust
Van Kampen American Capital Ohio Quality Municipal Trust
Van Kampen American Capital Pennsylvania Quality Municipal Trust
Van Kampen American Capital Trust For Insured Municipals
Van Kampen American Capital Trust For Investment Grade Municipals
Van Kampen American Capital Trust For Investment Grade California Municipals
Van Kampen American Capital Trust For Investment Grade Florida Municipals
Van Kampen American Capital Trust For Investment Grade New Jersey Municipals
Van Kampen American Capital Trust For Investment Grade New York Municipals
Van Kampen American Capital Trust For Investment Grade Pennsylvania Municipals
Van Kampen American Capital Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust
Van Kampen American Capital Strategic Sector Municipal Trust
Van Kampen American Capital Value Municipal Income Trust
Van Kampen American Capital California Value Municipal Income Trust
Van Kampen American Capital Massachusetts Value Municipal Income Trust
Van Kampen American Capital New Jersey Value Municipal Income Trust
Van Kampen American Capital New York Value Municipal Income Trust
Van Kampen American Capital Ohio Value Municipal Income Trust
Van Kampen American Capital Pennsylvania Value Municipal Income Trust
Van Kampen American Capital Municipal Opportunity Trust II
Van Kampen American Capital Florida Municipal Opportunity Trust
Van Kampen American Capital Advantage Municipal Income Trust II
Van Kampen American Capital Select Sector Municipal Trust

INSTITUTIONAL FUNDS
- -------------------

II. Funds Advised by Van Kampen American Capital Management, Inc.
("Management, Inc.") (Collectively, the "Former Van Kampen Funds"):

The Explorer Institutional Trust
on behalf of its series
Explorer Institutional Active Core Fund
Explorer Institutional Limited Duration Fund

5
<PAGE> 6

OPEN END FUNDS
- --------------

III. Funds Advised by Van Kampen American Capital Asset Management, Inc.
("Asset Management, Inc.") (Collectively, the "Former American Capital Funds"):

Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Funds")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")

Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Real Estate Securities Portfolio ("LIT Real Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")

Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")

Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust") on behalf of
its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")

Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")

6
<PAGE> 7

IV. Funds advised by Van Kampen American Capital Investment
Advisory Corp. ("Investment Advisory Corp.") (Collectively, the "Former
Van Kampen Funds"):

Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")

Van Kampen American Capital Tax Free Trust ("Tax Free Trust") on behalf of its
series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
(Intermediate Term Municipal Income Fund")
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey
Tax Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York
Tax Free Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax
Free Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax
Free Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free
Income Fund")

Van Kampen American Capital Trust ("VKAC Trust")
Van Kampen American Capital High Yield Fund ("High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term
Global Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")

Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Aggressive Growth Fund ("Aggressive Growth Fund")

Van Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund")

Van Kampen American Capital Pennsylvania Tax Free Income Fund ("Pennsylvania
Tax Free Income Fund")

Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")

<PAGE> 1
EXHIBIT (9)(b)

AMENDED AND RESTATED
LEGAL SERVICES AGREEMENT

THIS AGREEMENT, dated as of May 31, 1997, by and between the parties
as set forth in Schedule 1, attached hereto and incorporated by reference
(designated collectively hereafter as the "Funds"), and VAN KAMPEN AMERICAN
CAPITAL, INC., a Delaware corporation ("Van Kampen").

W I T N E S S E T H:

WHEREAS, each of the Funds is registered as a management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

WHEREAS, Van Kampen has the capability of providing certain legal
services to the Funds; and

WHEREAS, each Fund desires to utilize Van Kampen in the provision of
such legal services; and

WHEREAS, Van Kampen intends to increase its staff in order to
accommodate the provision of all such services.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants spelled out herein, it is agreed between the parties hereto as
follows:

1. Appointment of Van Kampen. As agent, Van Kampen shall provide each of
the Funds the legal services (the "Legal Services") as set forth in Paragraph 2
of this Agreement. Van Kampen accepts such appointments and agrees to furnish
the Legal Services in return for the compensation provided in Paragraph 3 of
this Agreement.

2. Legal Services to be Provided. Van Kampen will provide to the Funds
the following legal services, including without limitation: accurate
maintenance of the Funds' Corporate Minute books and records, preparation and
oversight of each Fund's regulatory reports and other information provided to
shareholders as well as responding to day-to-day legal issues on behalf of the
Funds. Van Kampen shall hire persons (collectively the "Legal Services Group")
as needed to provide such Legal Services and in such numbers as may be agreed
from time to time.

3. Expenses and Reimbursement. The Legal Services expenses (the "Legal
Services Expenses") for which Van Kampen may be reimbursed are salary and
salary related benefits, including but not limited to bonuses, group insurance
and other regular

<PAGE> 2

wages paid to the personnel of the Legal Services Group, as well as overhead
and expenses related to office space and necessary equipment. The Legal
Services Expenses will be paid by Van Kampen and reimbursed by the Funds. Van
Kampen will tender to each Fund a monthly invoice as of the last business day
of each month which shall certify the total Legal Service Expenses expended.
Except as provided herein, Van Kampen will receive no other compensation in
connection with Legal Services rendered in accordance with this Agreement, and
Van Kampen will be responsible for all other expenses relating to the providing
of Legal Services.

4. Payment for Legal Services Expense Among the Funds. One half (50%) of
the Legal Services Expenses incurred under the Agreement shall be attributable
equally to each respective Fund and all other funds to whom Van Kampen provides
Legal Services, including all other Funds for which Van Kampen serves as
investment adviser and distributor and the Govett Funds (the Non-Participating
Funds"). Van Kampen shall assume the costs of Legal Services for the
Non-Participating Funds for which reimbursement is not received. The remaining
one half (50%) of the Legal Services Expenses shall be in allocated (a) in the
event services are attributable to specific funds (including the
Non-Participating Funds) based on such specific time allocations; and (b) in
the event services are attributable only to types of funds (i.e. closed-end and
open-end funds), the relative amount of time spent on each type of fund and
then further allocated between funds of that type on the basis of relative net
assets at the end of the period.

5. Maintenance of Records. All records maintained by Van Kampen in
connection with the performance of its duties under this Agreement will remain
the property of each respective Fund and will be preserved by Van Kampen for
the periods prescribed in Section 31 of the 1940 Act and the rules thereunder
or such other applicable rules that may be adopted from time to time under the
Act. In the event of termination of the Agreement, such records will be
promptly delivered to the respective Funds. Such records may be inspected by
the respective Funds at reasonable times.

6. Liability of Van Kampen. Van Kampen shall not be liable to any Fund
for any action taken or thing done by it or its agents or contractors on behalf
of the Fund in carrying out the terms and provisions of the Agreement if done
in good faith and without negligence or misconduct on the part of Van Kampen,
its agents or contractors.

7. Indemnification By Funds. Each Fund will indemnify and hold Van Kampen
harmless from all loss, cost, damage and expense, including reasonable expenses
for legal counsel, incurred by Van Kampen resulting from (a) any claim, demand,
action or suit in connection with Van Kampen's acceptance of this Agreement;
(b) an action or omission by Van Kampen in the performance of its duties
hereunder; (c) Van Kampen's acting upon instructions believed by it to have
been executed by a duly authorized officer of the Fund; or (d) Van Kampen's
acting upon information provided by the Fund in form and under policies agreed
to by Van Kampen and the Fund. Van Kampen shall not be entitled to such
indemnification in respect of action or

<PAGE> 3

omissions constituting negligence or willful misconduct of Van Kampen or its
agents or contractors. Prior to admitting any claim against it which may be
subject to this indemnification, Van Kampen shall give the Fund reasonable
opportunity to defend against said claim on its own name or in the name of Van
Kampen.

8. Indemnification By Van Kampen. Van Kampen will indemnify and hold
harmless each Fund from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by the Fund resulting from any
claim, demand, action or suit arising out of Van Kampen's failure to comply
with the terms of this Agreement or which arises out of the negligence or
willful misconduct of Van Kampen or its agents or contractors; provided, that
such negligence or misconduct is not attributable to the Funds, their agents or
contractors. Prior to admitting any claim against it which may be subject to
this indemnification, the Fund shall give Van Kampen reasonable opportunity to
defend against said claim in its own name or in the name of such Fund.

9. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as necessary to effectuate the purposes hereof.

10. Dual Interests. It is understood that some person or persons may be
directors, trustees, officers, or shareholders of both the Funds and Van Kampen
(including Van Kampen's affiliates), and that the existence of any such dual
interest shall not affect the validity hereof or of any transactions hereunder
except as otherwise provided by a specific provision of applicable law.

11. Execution, Amendment and Termination. The term of this Agreement shall
begin as of the date first above written, and unless sooner terminated as
herein provided, this Agreement shall remain in effect through May 31, 1997,
and thereafter from year to year if such continuation is specifically approved
at least annually by the Board of Trustees of each Fund, including a majority
of the independent Trustees of each Fund. The Agreement may be modified or
amended from time to time by mutual agreement between the and shall likewise
reimburse Van Kampen for its costs, expenses and disbursements payable under
this Agreement to such date. This Agreement may be amended in the future to
include as additional parties to the Agreement other investment companies for
which Van Kampen, any subsidiary or affiliate serves as investment advisor or
distributor.

12. Assignment. Any interest of Van Kampen under this Agreement shall not
be assigned or transferred, either voluntarily or involuntarily, by operation
of law or otherwise, without the prior written consent of the Fund. This
Agreement shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Fund.

13. Notice. Any notice under this agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage prepaid, to the
other party at such address as such other party may designate for the receipt
of such notices. Until

<PAGE> 4

further notice to the other parties, it is agreed that for this purpose the
address of each Fund is One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attention: President and the address of Van Kampen. for this purpose is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attention: General Counsel.

14. Personal Liability. As provided for in the Declaration of Trust of the
various Funds, under which the Funds are organized as unincorporated trusts
under the laws of the State of Delaware or Pennsylvania, as the case may be,
the shareholders, trustees, officers, employees and other agents of the Fund
shall not personally be bound by or liable for the matters set forth hereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim hereunder.

15. Interpretative Provisions. In connection with the operation of this
agreement, Van Kampen and the Funds may agree from time to time on such
provisions interpretative of or in addition to the provisions of this Agreement
as may in their opinion be consistent with the general tenor of this Agreement.

16. State Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Illinois.

17. Captions. The captions in the Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction effect.

<PAGE> 5

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.

ALL OF THE PARTIES SET FORTH IN SCHEDULE 1
ATTACHED HERETO

By: /s/ Ronald A. Nyberg
-----------------------------------
Ronald A. Nyberg
Vice President & Secretary

VAN KAMPEN AMERICAN CAPITAL, INC.

By: /s/ Dennis J. McDonnell
-----------------------------------
Dennis J. McDonnell
Executive Vice President

<PAGE> 6

SCHEDULE 1

1. VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT TRUST, on behalf of its
series, Van Kampen American Capital U.S. Government Fund

2. VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, on behalf of its series,
Van Kampen American Capital Insured Tax Free Income Fund, Van Kampen
American Capital Tax Free High Income Fund, Van Kampen American
Capital California Insured Tax Free Fund, Van Kampen American Capital
Municipal Income Fund, Van Kampen American Capital Intermediate Term
Municipal Income Fund, Van Kampen American Capital New York Tax Free
Income Fund, Van Kampen American Capital New Jersey Tax Free Income
Fund, Van Kampen American Capital Florida Insured Tax Free Income
Fund, Van Kampen American Capital California Tax Free Income Fund, Van
Kampen American Capital Michigan Tax Free Income Fund, Van Kampen
American Capital Missouri Tax Free Income Fund and Van Kampen American
Capital Ohio Tax Free Income Fund

3. VAN KAMPEN AMERICAN CAPITAL TRUST, on behalf of its series, Van Kampen
American Capital High Yield Fund, Van Kampen American Capital
Short-Term Global Income Fund and Van Kampen American Capital
Strategic Income Fund

4. VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST, on behalf of its series, Van
Kampen American Capital Utility Fund, Van Kampen American Capital
Value Fund, Van Kampen American Capital Growth Fund, Van Kampen
American Capital Great American Companies Fund, Van Kampen American
Capital Prospector Fund and Van Kampen American Capital Aggressive
Growth Fund

5. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND

6. VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND

7. VAN KAMPEN AMERICAN CAPITAL FOREIGN SECURITIES FUND

8. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST

9. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST

10. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST

11. VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST II

12. VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST

13. VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST

14. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST

15. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST

16. VAN KAMPEN AMERICAN CAPITAL FLORIDA QUALITY MUNICIPAL TRUST

17. VAN KAMPEN AMERICAN CAPITAL NEW YORK QUALITY MUNICIPAL TRUST

18. VAN KAMPEN AMERICAN CAPITAL OHIO QUALITY MUNICIPAL TRUST

19. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST

<PAGE> 7

20. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INSURED MUNICIPALS

21. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS

22. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA
MUNICIPALS

23. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE FLORIDA
MUNICIPALS

24. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW JERSEY
MUNICIPALS

25. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE NEW YORK
MUNICIPALS

26. VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA
MUNICIPALS

27. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST

28. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST

29. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME
TRUST

30. VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST

31. VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST

32. VAN KAMPEN AMERICAN CAPITAL CALIFORNIA VALUE MUNICIPAL INCOME TRUST

33. VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST

34. VAN KAMPEN AMERICAN CAPITAL NEW JERSEY VALUE MUNICIPAL INCOME TRUST

35. VAN KAMPEN AMERICAN CAPITAL NEW YORK VALUE MUNICIPAL INCOME TRUST

36. VAN KAMPEN AMERICAN CAPITAL OHIO VALUE MUNICIPAL INCOME TRUST

37. VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST

38. VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST II

39. VAN KAMPEN AMERICAN CAPITAL FLORIDA MUNICIPAL OPPORTUNITY TRUST

40. VAN KAMPEN AMERICAN CAPITAL ADVANTAGE MUNICIPAL INCOME TRUST II

41. VAN KAMPEN AMERICAN CAPITAL SELECT SECTOR MUNICIPAL TRUST

42. THE EXPLORER INSTITUTIONAL TRUST, on behalf of its sub-trusts,
Explorer Institutional Active Core Fund and Explorer Institutional
Limited Duration Fund

<PAGE> 1
EXHIBIT 11(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
Van Kampen American Capital High Yield 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 Accountants" in the Statement of
Additional Information.

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
October 20, 1997

<PAGE> 1
EXHIBIT 11(b)

CONSENT OF INDEPENDENT ACCOUNTANTS

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

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
October 20, 1997

<PAGE> 1
EXHIBIT 11(c)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Trustees and Shareholders
Van Kampen American Capital Strategic Income Fund:

/s/ KPMG Peat Marwick LLP

Chicago, Illinois
October 20, 1997

<PAGE> 1
EXHIBIT (16)(a)(i)

HIGH YIELD FUND
CALCULATION OF YIELD

The Fund calculates its yield quotations based on a 30-day period ended
on the date of the most recent balance sheet included in the registration
statement, by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:

a-b 6
YIELD (y) = 2[(___ + 1) -1]
cd

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period

Class A
-------
a = 2,093,931
b = 270,046
c = 29,177,745
d = 10.34
y = 7.365

Class B Shares

Formula

Class A Share Yield + Sales Charge Effect - Expense Differential
<S> <C>
Class A Share Yield 7.37%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 7.37% .35%
- Expense Differential between Class A Shares and Class B Shares .76%
----
Class B Share SEC Yield 6.96%
====

- Waived Expense Adjustment .10%
----
Class B Share SEC Yield (Without Expense Waiver) 6.86%
====
<CAPTION>

Class C Shares

Formula

Class A Share Yield + Sales Charge Effect - Expense Differential

Class A Share Yield 7.37%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 7.37% .35%
- Expense Differential between Class A Shares and Class C Shares .76%
----
Class C Share SEC Yield 6.96%
====

- Waived Expense Adjustment .10%
----
Class C Share SEC Yield (Without Expense Waiver) 6.86%
====
</TABLE>

<PAGE> 2

HIGH YIELD FUND
CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,082.39 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 8.24% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,135.98 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 13.60% = T

TOTAL RETURN CALCULATION FIVE YEARS ENDED JUNE 30, 1997

n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,588.12 = ERV
Five years ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 9.69% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,666.67 = ERV
Five years ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 10.76% = T
</TABLE>

<PAGE> 3

HIGH YIELD FUND
CLASS A SHARES
TOTAL RETURN CALCULATION TEN YEARS ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,157.49 = ERV
Ten years ended 06/30/97 10 = n

TOTAL RETURN FOR THE PERIOD 7.99% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,265.57 = ERV
Ten years ended 06/30/97 10 = n

TOTAL RETURN FOR THE PERIOD 8.52% = T

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997

n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,447.22 = ERV
Inception through 06/30/97 11.01 = n

TOTAL RETURN FOR THE PERIOD 8.47% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,568.84 = ERV
Inception through 06/30/97 11.01 = n

TOTAL RETURN FOR THE PERIOD 8.95% = T
</TABLE>

<PAGE> 4

HIGH YIELD FUND
CLASS A SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
Formula ERV - P
-------
P = T

Including Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,447.22 = ERV

TOTAL RETURN FOR THE PERIOD 144.72% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,568.84 = ERV

TOTAL RETURN FOR THE PERIOD 156.88% = T
</TABLE>

<PAGE> 5

HIGH YIELD FUND
CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,086.45 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 8.64% = T

Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,126.45 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 12.64% = T

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997

n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,398.56 = ERV
Inception through 06/30/97 4.12 = n

TOTAL RETURN FOR THE PERIOD 8.48% = T

Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,413.06 = ERV
Inception through 06/30/97 4.12 = n

TOTAL RETURN FOR THE PERIOD 8.75% = T

</TABLE>

<PAGE> 6

HIGH YIELD FUND
CLASS B SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
-------
P = T

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,398.56 = ERV

TOTAL RETURN FOR THE PERIOD 39.86% = T

Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,413.06 = ERV

TOTAL RETURN FOR THE PERIOD 41.31% = T
</TABLE>

<PAGE> 7

HIGH YIELD FUND
CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,116.46 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 11.65% = T

Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,126.46 = ERV
One year period ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 12.65% = T

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,358.41 = ERV
Inception through 06/30/97 3.88 = n

TOTAL RETURN FOR THE PERIOD 8.21% = T
Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,358.41 = ERV
Inception through 06/30/97 3.88 = n

TOTAL RETURN FOR THE PERIOD 8.21% = T

</TABLE>
<PAGE> 8

HIGH YIELD FUND
CLASS C SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
-------
P = T

Including Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,358.41 = ERV

TOTAL RETURN FOR THE PERIOD 35.84% = T

Excluding Payment of the CDSC
Net Asset Value $ 9.85
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,358.41 = ERV

TOTAL RETURN FOR THE PERIOD 35.84% = T
</TABLE>

<PAGE> 1
EXHIBIT(16)(a)(ii)

SHORT-TERM GLOBAL INCOME FUND
CALCULATION OF YIELD

a-b 6
YIELD (y) = 2[------+1) - 1]
cd

CLASS A
-------
a = 203,117.32
b = 45,831.66
c = 5,249,847.76
d = 7.80
y = 4.65%

Class B Shares

Formula

<TABLE>
<S> <C>
Class A Share Yield + Sales Charge Effect - Expense Differential
Class A Share Yield 4.65%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
3.25% x 4.65% .15%
- Expense Differential between Class A and Class B Shares .75%
Class B Share SEC Yield (Without Expense Waiver) -----
4.05%
- Waived Expense Adjustment =====
Class B Shares SEC Yield (Without Expense Wavier) .01%
-----
4.04%
=====

Class C Shares

Formula

Class A Share Yield + Sales Charge Effect - Expense Differential

Class A Share Yield 4.65%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
3.25% x 4.65% .15%
- Expense Differential between Class A Shares and Class C Shares .75%
Class C Share SEC Yield -----
4.05%
- Waived Expense Adjustment =====
Class C Share SEC Yield (Without Expense Waiver) .01%
-----
4.04%
=====
</TABLE>
<PAGE> 2

SHORT-TERM GLOBAL INCOME FUND
CALCULATION OF DISTRIBUTION RATE
PERIOD ENDED JUNE 30, 1997

Current Annual Income Per Share
------------------------------------
Current Offering Price

Class A Shares

$.492
-----
$7.80 = 6.31%

Class B Shares

$.434
-----
$7.55 = 5.75%

Class C Shares

$.434
-----
$7.55 = 5.75%

<PAGE> 3

SHORT-TERM GLOBAL INCOME FUND
CLASS A SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,025.89 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 2.59% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,060.91 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 6.09% = T

TOTAL RETURN CALCULATION FIVE YEAR PERIOD ENDED JUNE 30, 1997
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,115.32 = ERV
Five Year Period Ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 2.21% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,152.27 = ERV
Five Year Period Ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 2.88% = T
</TABLE>

<PAGE> 4

SHORT-TERM GLOBAL INCOME FUND
CLASS A SHARES

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T)n = ERV

Including Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,302.56 = ERV
Inception through 06/30/97 6.76 = n

TOTAL RETURN FOR THE PERIOD 3.99% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,346.92 = ERV
Inception through 06/30/97 6.76 = n

TOTAL RETURN FOR THE PERIOD 4.50% = T

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

Formula ERV - P
----------
P = T

Including Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,302.56 = ERV

TOTAL RETURN FOR THE PERIOD 30.26% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,346.92 = ERV

TOTAL RETURN FOR THE PERIOD 34.69% = T
</TABLE>

<PAGE> 5

SHORT-TERM GLOBAL INCOME FUND
CLASS B SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,023.14 = ERV
One Year Period Ended 06/30/9 1 = n

TOTAL RETURN FOR THE PERIOD 2.31% = T

Excluding Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,052.86 = ERV
One Year Period Ended 06/30/9 1 = n

TOTAL RETURN FOR THE PERIOD 5.29% = T

TOTAL RETURN CALCULATION FIVE YEAR PERIOD ENDED JUNE 30, 1997
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,109.75 = ERV
Five Year Period Ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 2.10% = T

Excluding Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,109.75 = ERV
Five Year Period Ended 06/30/97 5 = n

TOTAL RETURN FOR THE PERIOD 2.10% = T

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997

n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,225.98 = ERV
Inception through 06/30/97 5.94 = n

TOTAL RETURN FOR THE PERIOD 3.49% = T

Excluding Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,225.98 = ERV
Inception through 06/30/97 5.94 = n

TOTAL RETURN FOR THE PERIOD 3.49% = T
</TABLE>

<PAGE> 6

SHORT-TERM GLOBAL INCOME FUND
CLASS B SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
Formula ERV - P
----------
P = T

Including Payment of CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,225.98 = ERV

TOTAL RETURN FOR THE PERIOD 22.60% = T

Excluding Payment of CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,225.98 = ERV

TOTAL RETURN FOR THE PERIOD 22.60% = T
</TABLE>

<PAGE> 7

SHORT-TERM GLOBAL INCOME FUND
CLASS C SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,042.95 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 4.30% = T

Excluding Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,052.86 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 5.29% = T

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1997
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,062.50 = ERV
Inception through 06/30/97 3.88 = n

TOTAL RETURN FOR THE PERIOD 1.57% = T

Excluding Payment of the CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,062.50 = ERV
Inception through 06/30/97 3.88 = n

TOTAL RETURN FOR THE PERIOD 1.57% = T
</TABLE>

<PAGE> 8

SHORT-TERM GLOBAL INCOME FUND
CLASS C SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1997

<TABLE>
<S> <C> <C> <C>
Formula ERV - P
----------
P = T

Including Payment of CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,062.50 = ERV

TOTAL RETURN FOR THE PERIOD 6.25% = T

Excluding Payment of CDSC
Net Asset Value $ 7.55
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,062.50 = ERV

TOTAL RETURN FOR THE PERIOD 6.25% = T
</TABLE>

<PAGE> 1
EXHIBIT(16)(a)(iii)

STRATEGIC INCOME FUND

CALCULATION OF YIELD

a-b 6
YIELD (y) = 2[------+1) - 1]
cd

CLASS A
-------
a = $407,273.02
b = $150,573.05
c = 3,419,470.510
d = $13.42
y = 6.81%

Class B Shares

<TABLE>
<S><C>
Formula

Class A Share Yield + Sales Charge Effect - Expense Differential

Class A Share Yield 6.81%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 6.81% .32%
- Expense Differential between Class A and Class B Shares .75%
Class B Share SEC Yield -----
6.38%
- Waived Expense Adjustment =====
Class B Shares SEC Yield (Without Expense Wavier) .03%
-----
6.35%
=====
Class C Shares

Formula

Class A Share Yield + Sales Charge Effect - Expense Differential

Class A Share Yield 6.81%
+ Sales Charge Effect (Maximum Sales Charge x Class A Share SEC Yield)
4.75% x 6.81% .32%
- Expense Differential between Class A Shares and Class C Shares .75%
Class C Share SEC Yield -----
6.38%
- Waived Expense Adjustment =====
Class C Share SEC Yield (Without Expense Waiver) .03%
-----
6.35%
=====
</TABLE>

<PAGE> 2

STRATEGIC INCOME FUND

Calculation of Distribution Rate

Period Ended June 30, 1997

Current Annual Income Per Share
-----------------------------------
Current Offering Price

Class A Shares

$ 0.990
--------
$13.42 = 7.38%

Class B Shares

$ 0.894
--------
$12.78 = 7.00%

Class C Shares

$ 0.894
--------
$12.77 = 7.00%

<PAGE> 3
STRATEGIC INCOME FUND

CLASS A SHARES

Total Return Calculation One Year Period Ended June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,094.72 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 9.47% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,149.20 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 14.92% = T

Total Return Calculation Inception Through June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,168.87 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 4.56% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,226.85 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 6.02% = T

<PAGE> 4
STRATEGIC INCOME FUND
CLASS A SHARES

Non-Standardized Cumulative Total Return Calculation
Inception Through June 30, 1997

Formula ERV - P
-------
P = T

Including Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,168.87 = ERV

TOTAL RETURN FOR THE PERIOD 16.89% = T

Excluding Payment of the Sales Charge
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,226.85 = ERV

TOTAL RETURN FOR THE PERIOD 22.69% = T

Total Return Calculation One Year Period Ended June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,099.81 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 9.98% = T

Excluding Payment of the CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,139.81 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 13.98% = T

<PAGE> 5
STRATEGIC INCOME FUND
CLASS B SHARES

Total Return Calculation Inception Through June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,170.65 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 4.60% = T

Excluding Payment of the CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.99 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 5.17% = T

Non-Standardized Cumulative Total Return Calculation
Inception Through June 30, 1997

Formula ERV - P
-------
P = T

Including Payment of CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,170.65 = ERV

TOTAL RETURN FOR THE PERIOD 17.07% = T

Excluding Payment of CDSC
Net Asset Value $ 12.78
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.99 = ERV

TOTAL RETURN FOR THE PERIOD 19.30% = T
<PAGE> 6

STRATEGIC INCOME FUND

CLASS C SHARES

Total Return Calculation One Year Period Ended June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,129.94 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 12.99% = T

Excluding Payment of the CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,139.94 = ERV
One Year Period Ended 06/30/97 1 = n

TOTAL RETURN FOR THE PERIOD 13.99% = T

Total Return Calculation Inception Through June 30, 1997

Formula P(1+T)n = ERV

Including Payment of the CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.23 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 5.15% = T

Excluding Payment of the CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.23 = ERV
Inception through 06/30/97 3.50 = n

TOTAL RETURN FOR THE PERIOD 5.15% = T

<PAGE> 7

STRATEGIC INCOME FUND

CLASS C SHARES

Non-Standardized Cumulative Total Return Calculation
Inception Through June 30, 1997

Formula ERV - P
-------
P = T

Including Payment of CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.23 = ERV

TOTAL RETURN FOR THE PERIOD 19.22% = T

Excluding Payment of CDSC
Net Asset Value $ 12.77
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,192.23 = ERV

TOTAL RETURN FOR THE PERIOD 19.22% = T

<PAGE> 1
EXHIBIT (17)(a)

INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
SEPTEMBER 15, 1997

Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Intermediate Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Value Fund
Van Kampen American Capital Great American Companies Fund
Van Kampen American Capital Growth Fund
Van Kampen American Capital Prospector Fund
Van Kampen American Capital Aggressive Growth Fund
Van Kampen American Capital Foreign Securities Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Asset Allocation Portfolio
Van Kampen American Capital Domestic Income Portfolio
Van Kampen American Capital Emerging Growth Portfolio
Van Kampen American Capital Enterprise Portfolio
Van Kampen American Capital Global Equity Portfolio
Van Kampen American Capital Government Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Strategic Stock Portfolio
Morgan Stanley Real Estate Securities Portfolio

<PAGE> 2

Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax -Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Government Obligations Money Market Fund
Morgan Stanley High Yield Fund
Morgan Stanley International Magnum Fund
Morgan Stanley Latin American Fund
Morgan Stanley Money Market Fund
Morgan Stanley Stable Value Fund (SVFRX)
Morgan Stanley Stable Value Fund II (SVFIX)
Morgan Stanley U.S. Real Estate Fund
Morgan Stanley Value Fund
Morgan Stanley Worldwide High Income Fund

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
Emerging Markets Municipal Income Trust................................................................. Series 1
Insured Municipals Income Trust......................................................................... Series 1 through 378
Insured Municipals Income Trust (Discount).............................................................. Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term)............................................... Series 1 through 104
Insured Municipals Income Trust (Intermediate Term)..................................................... Series 5 through 88
Insured Municipals Income Trust (Limited Term).......................................................... Series 9 through 85
Insured Municipals Income Trust (Premium Bond Series)................................................... Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity)........................................ Series 1 and 2
Insured Tax Free Bond Trust............................................................................. Series 1 through 6
Insured Tax Free Bond Trust (Limited Term).............................................................. Series 1
Investors' Quality Tax-Exempt Trust..................................................................... Series 1 through 93
Investors' Quality Tax-Exempt Trust-Intermediate........................................................ Series 1
Investors' Corporate Income Trust....................................................................... Series 1 through 12
Investors' Governmental Securities Income Trust......................................................... Series 1 through 7
Van Kampen Merritt International Bond Income Trust...................................................... Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust............................................................. Series 1
Alabama Insured Municipals Income Trust................................................................. Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust............................................................. Series 1 through 16
Arizona Insured Municipals Income Trust................................................................. Series 1 through 17
Arkansas Insured Municipals Income Trust................................................................ Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust............................................................ Series 1
California Insured Municipals Income Trust.............................................................. Series 1 through 158
California Insured Municipals Income Trust (Premium Bond Series)........................................ Series 1
California Insured Municipals Income Trust (1st Intermediate Series).................................... Series 1 through 3
California Investors' Quality Tax-Exempt Trust.......................................................... Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered)...................................... Series 1 through 22
Colorado Insured Municipals Income Trust................................................................ Series 1 through 81
Colorado Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 18
Connecticut Insured Municipals Income Trust ............................................................ Series 1 through 31
Connecticut Investors' Quality Tax-Exempt Trust......................................................... Series 1
Delaware Investor's Quality Tax-Exempt Trust............................................................ Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate................................................... Series 1 and 2
Florida Insured Municipals Income Trust................................................................. Series 1 through 107
Florida Investors' Quality Tax-Exempt Trust............................................................. Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered)......................................... Series 1 through 13
Georgia Insured Municipals Income Trust................................................................. Series 1 through 80
Georgia Investors' Quality Tax-Exempt Trust............................................................. Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust.............................................................. Series 1
Indiana Insured Municipals Income Trust................................................................. Series 1
Investors' Quality Municipals Trust (AMT)............................................................... Series 1 through 9
Kansas Investors'Quality Tax-Exempt Trust .............................................................. Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 58
Louisiana Insured Municipals Income Trust............................................................... Series 1 through 17
Maine Investor's Quality Tax-Exempt Trust............................................................... Series 1
Maryland Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 79
Massachusetts Insured Municipals Income Trust........................................................... Series 1 through 34
Massachusetts Insured Municipals Income Trust (Premium Bond Series)..................................... Series 1
Michigan Financial Institutions Trust................................................................... Series 1
Michigan Insured Municipals Income Trust................................................................ Series 1 through 140
Michigan Insured Municipals Income Trust (Premium Bond Series).......................................... Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series)...................................... Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 30
Michigan Select Trust................................................................................... Series 1
Minnesota Insured Municipals Income Trust............................................................... Series 1 through 59
Minnesota Investors' Quality Tax-Exempt Trust........................................................... Series 1 through 21
Mississippi Insured Municipals Income Trust............................................................. Series 1
Missouri Insured Municipals Income Trust................................................................ Series 1 through 98
Missouri Insured Municipals Income Trust (Premium Bond Series).......................................... Series 1
Missouri Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 15
Missouri Insured Municipals Income Trust
</TABLE>

<PAGE> 4

<TABLE>
<CAPTION>
<S> <C>
(Intermediate Laddered Maturity)....................................................................... Series 1
Nebraska Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 9
New Mexico Insured Municipals Income Trust.............................................................. Series 1 through 18
New Jersey Insured Municipals Income Trust.............................................................. Series 1 through 114
New Jersey Investors' Quality Tax-Exempt Trust.......................................................... Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity)....................................................................... Series 1 and 4
New York Insured Municipals Income Trust-Intermediate................................................... Series 1 through 6
New York Insured Municipals Income Trust (Limited Term)................................................. Series 1
New York Insured Municipals Income Trust................................................................ Series 1 through 136
New York Insured Tax-Free Bond Trust.................................................................... Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity)....................................................................... Series 1 through 17
New York Investors' Quality Tax-Exempt Trust............................................................ Series 1
North Carolina Investors' Quality Tax-Exempt Trust...................................................... Series 1 through 88
Ohio Insured Municipals Income Trust.................................................................... Series 1 through 104
Ohio Insured Municipals Income Trust (Premium Bond Series).............................................. Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term)................................................ Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity)....................................................................... Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust................................................................ Series 1 through 16
Oklahoma Insured Municipal Income Trust................................................................. Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust.............................................................. Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate............................................. Series 1 through 6
Pennsylvania Insured Municipals Income Trust............................................................ Series 1 through 223
Pennsylvania Insured Municipals Income Trust (Premium Bond Series)...................................... Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust........................................................ Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust...................................................... Series 1 through 84
Stepstone Growth Equity and Treasury Securities Trust................................................... Series 1
Tennessee Insured Municipals Income Trust............................................................... Series 1-3 and 5-37
Texas Insured Municipals Income Trust................................................................... Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder).............................................. Series 1
Virginia Investors' Quality Tax-Exempt Trust............................................................ Series 1 through 73
Van Kampen American Capital Equity Opportunity Trust.................................................... Series 1 through 41
Van Kampen American Capital Utility Income Trust........................................................ Series 1 through 8
Van Kampen American Capital Insured Income Trust........................................................ Series 1 through 61
Van Kampen American Capital Insured Income Trust (Intermediate Term).................................... Series 1 through 60
Van Kampen Merritt Select Equity Trust.................................................................. Series 1
Van Kampen Merritt Select Equity and Treasury Trust..................................................... Series 1
Washington Insured Municipals Income Trust.............................................................. Series 1
West Virginia Insured Municipals Income Trust........................................................... Series 1 through 7
Principal Financial Institutions Trust.................................................................. Series 1
Internet Trust.......................................................................................... Series 1 through 3
Michigan Real Estate Income and Growth Trust............................................................ Series 1
Strategic Ten Trust, United States...................................................................... Series 1 through 10
Strategic Ten Trust, United Kingdom..................................................................... Series 1 through 10
Strategic Ten Trust, Hong Kong ......................................................................... Series 1 through 10
Strategic Five Trust, United States..................................................................... Series 1 through 4
Global Fifteen Trust.................................................................................... Series 1 through 2
Global Thirty Trust..................................................................................... Series 1 through 3
Great International Firms Trust......................................................................... Series 1
Undervalued Growth Opportunities Trust.................................................................. Series 1
Emerging Growth and Treasury............................................................................ Series 1
Global Blue Chip Trust.................................................................................. Series 1
Renaissance Trust....................................................................................... Series 1
Blue Chip Opportunity and Treasury Trust................................................................ Series 1 through 4
Wheat First Strategic Opportunity Unit Trust............................................................ Series 1
Baby Boomer Opportunity Trust........................................................................... Series 1

</TABLE>

<PAGE> 1
EXHIBIT (17)(b)
Officers
Van Kampen American Capital Distributors, Inc.

NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman Houston, TX

Philip N. Duff Chief Executive Officer Oakbrook Terrace, IL

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

Ronald A. Nyberg Executive Vice President, General Oakbrook Terrace, IL
Counsel & Assistant Secretary

William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX

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

Dominic C. Martellaro 1st Vice President Danville, CA
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
George J. Vogel 1st Vice President Oakbrook Terrace, IL
Patrick J. Woelfel 1st Vice President Oakbrook Terrace, IL

Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Brian P. Arcara Vice President Buffalo, NY
Sheldon Barker Vice President Moon, PA
Patricia A. Bettlach Vice President Chesterfield, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Christopher M. Bisaillon Vice President Oakbrook Terrace, IL
James J. Boyne Vice President, Associate General Oakbrook Terrace, IL
Counsel & Assistant Secretary
Michael P. Boos Vice President Oakbrook Terrace, IL
Robert C. Brooks Vice President Oakbrook Terrace, IL
Brooksley Burke Vice President Marina Del Ray, CA
William F Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Christine Cleary Byrum Vice President Tampa, FL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
</TABLE>
<PAGE> 2

<TABLE>
<S> <C> <C>
Daniel R. Chambers Vice President Austin, TX
Richard J. Charlino Vice President Houston, TX
Deanna Margaret Chiaro Vice President Oakbrook Terrace, IL
Scott A. Chriske Vice President Plano, TX
German Clavijo Vice President Atlanta, GA
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Vice President & Asst. Secretary Oakbrook Terrace, IL
Ken DiFrancesca Vice President Oakbrook Terrace, IL
Daniel R. DeJong Vice President Oakbrook Terrace, IL
Tracey M. DeLusant Vice President New York, NY
Mark B. Doremus Vice President Houston, TX
Michael E. Eccleston Vice President Oakbrook Terrace, IL
Jonathan Eckard Vice President Tampa, FL
Charles Edward Fisher Vice President Naperville, IL
William J. Fow Vice President Redding, CT
Nicholas J. Foxhoven Vice President Englewood, CO
Charles Friday Vice President Gibsonia, PA
Erich P. Gerth Vice President Piedmont, CA
Richard G. Golod Vice President Annapolis, MD
Timothy D. Griffith Vice President Kirkland, WA
Kyle D. Haas Vice President Oakbrook Terrace, IL
Daniel Hamilton Vice President Austin, TX
John A. Hanhauser Vice President Philadelphia, PA
John G. Hansen Vice President Oakbrook Terrace, IL
Eric J. Hargens Vice President Orlando, FL
Calvin B. Hays Vice President Richmond, VA
Joseph Hays Vice President Cherry Hill, NJ
Gregory Heffington Vice President Ft. Collins, CO
Susan J. Hill Vice President Oakbrook Terrace, IL
Thomas R. Hindelang Vice President Gilbert, AZ
David S. Hogaboom Vice President Oakbrook Terrace, IL
Bryn M. Hoggard Vice President Houston, TX
Robert S. Hunt Vice President Phoenix, MD
Lowell Jackson Vice President Norcross, GA
Kevin G. Jajuga Vice President Baltimore, MD
Jeffrey S. Kinney Vice President Overland Park, KS
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
Richard D. Kozlowski Vice President Atlanta, GA
Patricia D. Lathrop Vice President Tampa, FL
Brian Laux Vice President Staten Island, NY
S. William Lehew III Vice President Charlotte, NC
Tony E. Leal Vice President Daphne, AL
Eric Levinson Vice President San Francisco, CA
Jonathan Linstra Vice President Oakbrook Terrace, IL
Walter Lynn Vice President Flower Mound, TX
Richard M. Lundgren Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Brooks D. McCartney Vice President Puyallup, WA
Anne Therese McGrath Vice President Los Gatos, CA
John Mills Vice President Kenner, LA
</TABLE>
<PAGE> 3

<TABLE>
<S> <C> <C>
Ted Morrow Vice President Dallas, TX
Robert Muller, Jr. Vice President Cypress, TX
Peter Nicholas Vice President Beverly, MA
Michael D. Ossmen Vice President Oakbrook Terrace, IL
Todd W. Page Vice President Oakbrook Terrace, IL
Christopher Petrungaro Vice President Oakbrook Terrace, IL
Anthony Piazza Vice President Old Bridge, NJ
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Fairlawn, OH
Daniel D. Reams Vice President Royal Oak, MI
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
Suzette N. Rothberg Vice President Plymouth, MN
Jeffrey Rourke Vice President Oakbrook Terrace, IL
Thomas Rowley Vice President St. Louis, MO
Heather R. Sabo Vice President Richmond, VA
Stephanie Scarlata Vice President Bedford Corners, NY
Andrew J. Scherer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Jeffrey C. Shirk Vice President Swampscott, MA
Traci T. Sorensen Vice President Oakbrook Terrace, IL
Kimberly M. Spangler Vice President Fairfax, VA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
Gary R. Steele Vice President Philadelphia, PA
Richard Stefanec Vice President Los Angeles, CA
James D. Stevens Vice President North Andover, MA
James M. Stilwell Vice President San Diego, CA
William C. Strafford Vice President Granger, IN
David A. Tabone Vice President Scottsdale, AZ
James C. Taylor Vice President Naperville, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Todd Volkman Vice President Austin, TX
Daniel B. Waldron Vice President Oakbrook Terrace, IL
Christopher Walsh Vice President Oakbrook Terrace, IL
Jeff Warland Vice President Oakbrook Terrace, IL
Robert A. Watson Vice President Oakbrook Terrace, IL
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Harold Whitworth, III Vice President Oakbrook Terrace, IL
Kirk Wiggins Vice President Arlington, TX
David M. Wynn Vice President Phoenix, AZ
James R. Yount Vice President Mercer Island, WA
Patrick M. Zacchea Vice President Oakbrook Terrace, IL
Billie J. Bronaugh Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Walter C. Gray Asst. Vice President Houston, TX
Laurie L. Jones Asst. Vice President Houston, TX
Michael B. Kollins Asst. Vice President Oakbrook Terrace, IL
Ivan R. Lowe Asst. Vice President Houston, TX
Linda S. MacAyaal Asst. Vice President Oakbrook Terrace, IL
Stuart R. Moehlman Asst. Vice President Houston, TX
Steven R. Norvid Asst. Vice President Oakbrook Terrace, IL
Gregory S. Parker Asst. Vice President Houston, TX
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
</TABLE>

<PAGE> 4

<TABLE>
<S> <C> <C>
Thomas J. Sauerborn Asst. Vice President New York, NY
Bruce Saxon Asst. Vice President Oakbrook Terrace, IL
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Natalie Wilson Asst. Vice President New York, NY
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL

Gina M. Costello Asst. Secretary Oakbrook Terrace, IL
Cathy Napoli Asst. Secretary Oakbrook Terrace, IL

Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace. IL
Leticia George Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 5

DIRECTORS

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

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

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

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

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

<PAGE> 1

EXHIBIT (18)

AMENDED

MULTI-CLASS PLAN

FOR

VAN KAMPEN AMERICAN CAPITAL FAMILY OF FUNDS

This Plan is adopted pursuant to Rule 18f-3 under the Act to provide
for the issuance and distribution of multiple classes of shares by each of the
Funds in accordance with the terms, procedures and conditions set forth below.
A majority of the Trustees of the Funds, including a majority of the Trustees
who are not interested persons of the Funds within the meaning of the Act,
found this Multi-Class Plan, including the expense allocations, to be in the
best interest of each Fund and each Class of Shares of each Fund. The Fund
adopted this Plan on January 26, 1996 and amended the Plan as of January 1,
1997.

A. Definitions. As used herein, the terms set forth below shall have the
meanings ascribed to them below.

1. The Act - Investment Company Act of 1940, as amended.

2. CDSC - contingent deferred sales charge.

3. CDSC Period - the period of years following acquisition during
which Shares are assessed a CDSC upon redemption.

4. Class - a class of Shares of a Fund.

5. Class A Shares - shall have the meaning ascribed in Section B. 1.

6. Class B Shares - shall have the meaning ascribed in Section B. 1.

7. Class C Shares - shall have the meaning ascribed in Section B. 1.

8. Distribution Expenses - expenses incurred in activities which are
primarily intended to result in the distribution and sale of
Shares as defined in a Plan of Distribution and/or board
resolutions.

9. Distribution Fee - a fee paid by a Fund to the Distributor in
reimbursement of Distribution Expenses.

10. Distributor - Van Kampen American Capital Distributors, Inc.

11. Fund - an investment company listed on Exhibit A hereto and each
series thereof.

12. Money Market Fund - Van Kampen American Capital Reserve Fund or
Van Kampen American Capital Tax Free Money Fund.
<PAGE> 2

13. Plan of Distribution - Any plan adopted under Rule 12b-1 under the
Act with respect to payment of a Distribution Fee.

14. Service Fee - a fee paid to financial intermediaries for the
ongoing provision of personal services to Fund shareholders and/or
the maintenance of shareholder accounts.

15. Share - a share of beneficial interest in a Fund.

16. Trustees - the trustees of a Fund.

B. Classes. Each Fund may offer three Classes as follows:

1. Class A Shares. Class A Shares shall be offered at net asset
value plus a front-end sales charge as approved from time to
time by the Trustees and set forth in the Funds' prospectus,
which may be reduced or eliminated for Money Market Funds,
larger purchases, under a combined purchase privilege, under a
right of accumulation, under a letter of intent or for certain
categories of purchasers as permitted by Rule 22(d) of the Act
and as set forth in the Fund's prospectus. Class A Shares that
are not subject to a front-end sales charge as a result of the
foregoing, may be subject to a CDSC for the CDSC Period set forth
in Section D.1. The offering price of Shares subject to a
front-end sales charge shall be computed in accordance with Rule
22c-1 and Section 22(d) of the Act and the rules and regulations
thereunder. Class A Shares shall be subject to ongoing Service
Fees approved from time to time by the Trustees and set forth in
the Funds' prospectus. Although shares of Van Kampen American
Capital Tax Free Money Market Fund are not designated as "Class A"
they are substantially similar to Class A Shares as defined herein
and shall be treated as Class A shares for the purposes of this
Plan.

2. Class B Shares. Class B Shares shall be (1) offered at net asset
value, (2) subject to a CDSC for the CDSC Period set forth in
Section D. 1, (3) subject to ongoing Service Fees and
Distribution Fees approved from time to time by the Trustees and
set forth in the Funds' prospectus and (4) converted to Class A
Shares three to ten years after the calendar month in which the
shareholder's order to purchase was accepted, which number of
years shall be as approved from time to time by the Trustees and
set forth in the respective Fund's prospectus.

3. Class C Shares. Class C Shares shall be (1) offered at net
asset value, (2) subject to a CDSC for the CDSC Period set forth
in Section D. 1. , (3) subject to ongoing Service Fees and
Distribution Fees approved from time to time by the Trustees and
set forth in the Funds' prospectus and (4) prior to January 1,
1997, converted to Class A Shares eight to fifteen years after
the calendar month in which the shareholder's order to purchase
was accepted, which number of years shall be as approved from
time to time by the Trustees and set forth in the respective
Fund's prospectus.

<PAGE> 3

C. Rights and Privileges of Classes. Each Class of each Fund will
represent an interest in the same portfolio of investments of that
Fund and will have identical voting, dividend, liquidation and other
rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions except as
described otherwise herein.

D. CDSC. A CDSC may be imposed upon redemption of Class A Shares, Class
B Shares and Class C Shares that do not incur a front end sales charge
subject to the following conditions:

1. CDSC Period. The CDSC Period for Class A Shares and Class C Shares
shall be one year. The CDSC Period for Class B Shares shall be at
least three but not more than ten years as recommended by the
Distributor and approved by the Trustees.

2. CDSC Rate. The CDSC rate shall be recommended by the Distributor
and approved by the Trustees. If a CDSC is imposed for a period
greater than one year the CDSC rate must decline during the CDSC
Period such that (a) the CDSC rate is less in the last year of the
CDSC Period than in the first and (b) in each succeeding year the
CDSC rate shall be less than or equal to the CDSC rate in the
preceding year.

3. Disclosure and Changes. The CDSC rates and CDSC Period shall be
disclosed in a Fund's prospectus and may be decreased at the
discretion of the Distributor but may not be increased unless
approved as set forth in Section L.

4. Method of Calculation. The CDSC shall be assessed on an amount
equal to the lesser of the then current market value or the cost of
the Shares being redeemed. No sales charge shall be imposed on
increases in the net asset value of the Shares being redeemed above
the initial purchase price. No CDSC shall be assessed on Shares
derived from reinvestment of dividends or capital gains
distributions. The order in which Class B Shares and Class C
Shares are to be redeemed when not all of such Shares would be
subject to a CDSC shall be as determined by the Distributor in
accordance with the provisions of Rule 6c-10 under the Act.

5. Waiver. The Distributor may in its discretion waive a CDSC
otherwise due upon the redemption of Shares under circumstances
previously approved by the Trustees and disclosed in the Fund's
prospectus or statement of additional information and as allowed
under Rule 6c-10 under the Act.

6. Calculation of offering price. The offering price of Shares subject
to a CDSC shall be computed in accordance with Rule 22c-1 and
Section 22(d) of the Act and the rules and regulations thereunder.

7. Retention by Distributor. The CDSC paid with respect to Shares of
a Fund may be retained by the Distributor to reimburse the
Distributor for commissions paid by it in

<PAGE> 4

connection with the sale of Shares subject to a CDSC and
Distribution Expenses to the extent of such commissions and
Distribution Expenses eligible for reimbursement and approved by
the Trustees.

E. Service and Distribution Fees. Class A Shares shall be subject to a
Service Fee and Class B and Class C Shares shall be subject to a
Service Fee and a Distribution Fee. The Service Fee applicable to any
class shall not exceed 0.25% per annum of the average daily net assets
of the Class and the Distribution Fee shall not exceed 0.75% per annum
of the average daily net assets of the Class. All other terms and
conditions with respect to Service Fees and Distribution Fees shall be
governed by the plans adopted by the Fund with respect to such fees
and Rule 12b-1 of the Act.

F. Conversion. Shares purchased through the reinvestment of dividends
and distributions paid on Shares subject to conversion shall be
treated as if held in a separate sub-account. Each time any Shares
in a Shareholder's account (other than Shares held in the sub-
account) convert to Class A Shares, a proportionate number of Shares
held in the sub-account shall also convert to Class A Shares. All
conversions shall be effected on the basis of the relative net asset
values of the two Classes without the imposition of any sales load or
other charge. So long as any Class of Shares converts into Class A
Shares, the Distributor shall waive or reimburse each Fund, or take
such other actions with the approval of the Trustees as may be
reasonably necessary, to ensure the expenses, including payments
authorized under a Plan of Distribution, applicable to the Class A
Shares are not higher than the expenses, including payments authorized
under the Plan of Distribution, applicable to the class of shares
converting into Class A Shares.

G. Allocation of Expenses, Income and Gains Among Classes.

1. Expenses applicable to a particular class. Each Class of each
Fund shall pay any Service Fee, Distribution Fee and CDSC
applicable to that Class. Other expenses applicable to a
particular Class such as incremental transfer agency fees, but not
including advisory or custodial fees or other expenses related to
the management of the Fund's assets, shall be allocated between
Classes in different amounts if they are actually incurred in
different amounts by the Classes or the Classes receive services
of a different kind or to a different degree than other Classes.

2. Distribution Expenses. Distribution Expenses actually
attributable to the sale of all Classes shall be allocated to each
Class based upon the ratio which sales of each Class bears to the
sales of all Shares of the Fund. For this purpose, Shares issued
upon reinvestment of dividends or distributions, upon conversion
from Class B Shares or Class C Shares to Class A Shares or upon
stock splits will not be considered sales.

3. Income, capital gains and losses, and other expenses applicable to
all Classes. Income, realized and unrealized capital gains and
losses, and expenses such as advisory fees applicable to all
Classes shall be allocated to each Class on the basis of the net
asset value of that Class in relation to the net asset value of
the Fund.

<PAGE> 5

4. Determination of nature of expenses. The Trustees shall determine
in their sole discretion whether any expense other than those
listed herein is properly treated as attributed to a particular
Class or all Classes.

H. Exchange Privilege. Exchanges of Shares shall be permitted between
Funds as follows.

1. General. Shares of one Fund may be exchanged for Shares of the
same Class of another Fund at net asset value and without sales
charge, provided that

a. The Distributor may specify that certain Funds may not be
exchanged within a designated period, which shall not exceed
90 days, after acquisition without prior Distributor approval.

b. Class A Shares of a Money Market Fund that were not acquired
in exchange for Class B or Class C Shares of a Fund may be
exchanged for Class A Shares of another Fund only upon payment
of the excess, if any, of the sales charge rate applicable to
the Shares being acquired over the sales charge rate
previously paid.

c. Shares of a Money Market Fund acquired through an exchange of
Class B Shares or Class C Shares may be exchanged only for the
same Class of another Fund as the Class they were acquired in
exchange for or any Class into which those shares were
converted.

2. Target Fund. Shares of Van Kampen American Capital Government
Target Fund may be exchanged for Class A Shares of a Fund.

3. CDSC Computation. The acquired Shares will remain subject to the
CDSC rate schedule and CDSC Period for the original Fund upon the
redemption of the Shares from the Van Kampen American Capital
complex of funds. For purposes of computing the CDSC payable on a
disposition of the new Shares, the holding period for the
original Shares shall be added to the holding period of the new
Shares.

I. Voting Rights of Classes.

1. Shareholders of each Class shall have exclusive voting rights on
any matter submitted to them that relates solely to the Plan of
Distribution related to that Class, provided that

d. If any amendment is proposed to the plan under which Service
Fees are paid with respect to Class A Shares of a Fund that
would increase materially the amount to be borne by Class A
Shares under that plan, then no Class B Shares or Class C
Shares shall convert into Class A Shares of that Fund until
the holders of Class B Shares and Class C Shares of that Fund
have also approved the proposed amendment.

<PAGE> 6

e. If the holders of either the Class B Shares and/or Class C
Shares referred to in subparagraph a. do not approve the
proposed amendment, the Trustees of the Fund and the
Distributor shall take such action as is necessary to ensure
that the Class voting against the amendment shall convert into
another Class identical in all material respects to Class A
Shares of the Fund as constituted prior to the amendment.

2. Shareholders shall have separate voting rights on any matter
submitted to shareholders in which the interest of one Class
differs from the interests of any other Class.

J. Dividends. Dividends paid by a Fund with respect to each Class, to
the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in substantially
the same amount, except any Distribution Fees,Service Fees or
incremental expenses relating to a particular Class will be borne
exclusively by that Class.

K. Reports to Trustees. The Distributor shall provide to the Trustees of
each Fund quarterly and annual statements concerning distribution and
Shareholder servicing expenditures complying with paragraph (b)(3)(ii)
of Rule 12b-1 of the Act, as it may be amended from time to time. The
Distributors also shall provide the Trustees such information as the
Trustees may from time to time deem to be reasonably necessary to
evaluate this Plan.

L. Amendment. Any material amendment to this Plan shall be approved by
the affirmative vote of a majority of the Trustees of a Fund,
including the affirmative vote of the trustees of the Fund
who are not interested persons of the Fund, except that any amendment
that increases the CDSC rate schedule or CDSC Period must also be
approved by the affirmative vote of a majority of the Shares of the
affected Class. The Distributor shall provide the Trustees such
information as may be reasonably necessary to evaluate any amendment
to this Plan.

<PAGE> 7

EXHIBIT A

<PAGE> 1

EXHIBIT (24)

POWER OF ATTORNEY

The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (with the exception of Don G. Powell), as
indicated on Schedule 1 attached hereto and incorporated by reference, each a
Delaware business trust, except for the Van Kampen American Capital
Pennsylvania Tax Free Income Fund, being a Pennsylvania business trust
(individually, a "Trust"), do hereby, in the capacities shown below,
individually appoint Dennis J. McDonnell and Ronald A. Nyberg, each of
Oakbrook Terrace, Illinois, and each of them, as the agents and
attorneys-in-fact with full power of substitution and resubstitution, for each
of the undersigned, to execute and deliver, for and on behalf of the
undersigned, any and all amendments to the Registration Statement filed by
each Trust with the Securities and Exchange Commission pursuant to the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940.

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

Dated: July 24, 1997

Signature Title
--------- -----

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

/s/ Richard M. DeMartini Trustee
- ---------------------------
Richard M. DeMartini

/s/ Linda Hutton Heagy Trustee
- ---------------------------
Linda Hutton Heagy

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

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

/s/ Don G. Powell Trustee (For Former Van
- --------------------------- Kampen Funds only)
Don G. Powell

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

/s/ Phillip B. Rooney Trustee
- ---------------------------
Phillip B. Rooney

/s/ Fernando Sisto, Sc.D. Trustee
- ---------------------------
Fernando Sisto, Sc.D.

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

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

/s/ Dennis J. McDonnell President
- ---------------------------
Dennis J. McDonnell
<PAGE> 2

SCHEDULE 1

I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):

Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")

Van Kampen American Capital Tax Free Trust ("Tax Free Trust")
on behalf of its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
("Intermediate Term Municipal Income Fund") (f/k/a Limited Term Municipal
Income Fund)
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey Tax
Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax Free
Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax Free
Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax Free
Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free Income
Fund")

Van Kampen American Capital Trust ("VKAC Trust")
on behalf of its series
Van Kampen American Capital High Yield Fund ("VKAC High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term Global
Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")

Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")

Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")

Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")

<PAGE> 3

II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):

Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Fund")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")

Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley Real
Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")

Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")

Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")

Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")

Van Kampen American Capital World Portfolio Series Trust ("World Portfolio
Series Trust") on behalf of its Series
Van Kampen American Capital Global Equity Fund ("Global Equity Fund")
Van Kampen American Capital Global Government Securities Fund ("Global
Government Securities Fund")

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> VKAC HIGH YIELD FUND CLASS A
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 405587367<F1>
<INVESTMENTS-AT-VALUE> 417386507<F1>
<RECEIVABLES> 12059907<F1>
<ASSETS-OTHER> 27619<F1>
<OTHER-ITEMS-ASSETS> 1963<F1>
<TOTAL-ASSETS> 429475996<F1>
<PAYABLE-FOR-SECURITIES> 1877489<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2846874<F1>
<TOTAL-LIABILITIES> 4724363<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 378296283
<SHARES-COMMON-STOCK> 29228811
<SHARES-COMMON-PRIOR> 28557300
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (1905853)<F1>
<ACCUMULATED-NET-GAINS> (96270175)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 11798356<F1>
<NET-ASSETS> 288018283
<DIVIDEND-INCOME> 732637<F1>
<INTEREST-INCOME> 38980796<F1>
<OTHER-INCOME> 458206<F1>
<EXPENSES-NET> (5642622)<F1>
<NET-INVESTMENT-INCOME> 34529017<F1>
<REALIZED-GAINS-CURRENT> 9725173<F1>
<APPREC-INCREASE-CURRENT> 6256307<F1>
<NET-CHANGE-FROM-OPS> 50510497<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (24888535)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (430710)
<NUMBER-OF-SHARES-SOLD> 9665241
<NUMBER-OF-SHARES-REDEEMED> (10008711)
<SHARES-REINVESTED> 1014981
<NET-CHANGE-IN-ASSETS> 16912870
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> (105683980)<F1>
<OVERDISTRIB-NII-PRIOR> (1835750)<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3011682<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6018147<F1>
<AVERAGE-NET-ASSETS> 279044157
<PER-SHARE-NAV-BEGIN> 9.493
<PER-SHARE-NII> 0.857
<PER-SHARE-GAIN-APPREC> 0.384
<PER-SHARE-DIVIDEND> (0.865)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.015)
<PER-SHARE-NAV-END> 9.854
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> VKAC HIGH YIELD FUND CLASS B
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 405587367<F1>
<INVESTMENTS-AT-VALUE> 417386507<F1>
<RECEIVABLES> 12059907<F1>
<ASSETS-OTHER> 27619<F1>
<OTHER-ITEMS-ASSETS> 1963<F1>
<TOTAL-ASSETS> 429475996<F1>
<PAYABLE-FOR-SECURITIES> 1877489<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2846874<F1>
<TOTAL-LIABILITIES> 4724363<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 124965107
<SHARES-COMMON-STOCK> 13054923
<SHARES-COMMON-PRIOR> 10224423
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (1905853)<F1>
<ACCUMULATED-NET-GAINS> (96270175)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 11798356<F1>
<NET-ASSETS> 128655113
<DIVIDEND-INCOME> 732637<F1>
<INTEREST-INCOME> 38980796<F1>
<OTHER-INCOME> 458206<F1>
<EXPENSES-NET> (5642622)<F1>
<NET-INVESTMENT-INCOME> 34529017<F1>
<REALIZED-GAINS-CURRENT> 9725173<F1>
<APPREC-INCREASE-CURRENT> 6256307<F1>
<NET-CHANGE-FROM-OPS> 50510497<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (9438468)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (170818)
<NUMBER-OF-SHARES-SOLD> 5509891
<NUMBER-OF-SHARES-REDEEMED> (3049089)
<SHARES-REINVESTED> 369698
<NET-CHANGE-IN-ASSETS> 31556298
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> (105683980)<F1>
<OVERDISTRIB-NII-PRIOR> (1835750)<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3011682<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6018147<F1>
<AVERAGE-NET-ASSETS> 115733058
<PER-SHARE-NAV-BEGIN> 9.497
<PER-SHARE-NII> 0.777
<PER-SHARE-GAIN-APPREC> 0.389
<PER-SHARE-DIVIDEND> (0.794)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.014)
<PER-SHARE-NAV-END> 9.855
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> VKAC HIGH YIELD FUND CLASS C
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 405587367<F1>
<INVESTMENTS-AT-VALUE> 417386507<F1>
<RECEIVABLES> 12059907<F1>
<ASSETS-OTHER> 27619<F1>
<OTHER-ITEMS-ASSETS> 1963<F1>
<TOTAL-ASSETS> 429475996<F1>
<PAYABLE-FOR-SECURITIES> 1877489<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2846874<F1>
<TOTAL-LIABILITIES> 4724363<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 7867915
<SHARES-COMMON-STOCK> 820064
<SHARES-COMMON-PRIOR> 734629
<ACCUMULATED-NII-CURRENT> 0<F1>
<OVERDISTRIBUTION-NII> (1905853)<F1>
<ACCUMULATED-NET-GAINS> (96270175)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 11798356<F1>
<NET-ASSETS> 8078237
<DIVIDEND-INCOME> 732637<F1>
<INTEREST-INCOME> 38980796<F1>
<OTHER-INCOME> 458206<F1>
<EXPENSES-NET> (5642622)<F1>
<NET-INVESTMENT-INCOME> 34529017<F1>
<REALIZED-GAINS-CURRENT> 9725173<F1>
<APPREC-INCREASE-CURRENT> 6256307<F1>
<NET-CHANGE-FROM-OPS> 50510497<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (614302)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (10715)
<NUMBER-OF-SHARES-SOLD> 406766
<NUMBER-OF-SHARES-REDEEMED> (353416)
<SHARES-REINVESTED> 32085
<NET-CHANGE-IN-ASSETS> 1102570
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> (105683980)<F1>
<OVERDISTRIB-NII-PRIOR> (1835750)<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3011682<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6018147<F1>
<AVERAGE-NET-ASSETS> 7470987
<PER-SHARE-NAV-BEGIN> 9.495
<PER-SHARE-NII> 0.780
<PER-SHARE-GAIN-APPREC> 0.384
<PER-SHARE-DIVIDEND> (0.794)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.014)
<PER-SHARE-NAV-END> 9.851
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> SHORT TERM GLOBAL INCOME FUND CLASS A
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 91162423<F1>
<INVESTMENTS-AT-VALUE> 89588203<F1>
<RECEIVABLES> 1833047<F1>
<ASSETS-OTHER> 2116<F1>
<OTHER-ITEMS-ASSETS> 1201953<F1>
<TOTAL-ASSETS> 92625319<F1>
<PAYABLE-FOR-SECURITIES> 27698<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 865430<F1>
<TOTAL-LIABILITIES> 893128<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 61586362
<SHARES-COMMON-STOCK> 5226968
<SHARES-COMMON-PRIOR> 6575159
<ACCUMULATED-NII-CURRENT> (455277)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64274870)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1420976)<F1>
<NET-ASSETS> 39459886
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7357023<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1936799)<F1>
<NET-INVESTMENT-INCOME> 5420224<F1>
<REALIZED-GAINS-CURRENT> 1725990<F1>
<APPREC-INCREASE-CURRENT> (1136411)<F1>
<NET-CHANGE-FROM-OPS> 6009803<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3003963)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (40726)
<NUMBER-OF-SHARES-SOLD> 258752
<NUMBER-OF-SHARES-REDEEMED> (1868594)
<SHARES-REINVESTED> 261651
<NET-CHANGE-IN-ASSETS> (10658871)
<ACCUMULATED-NII-PRIOR> (358000)<F1>
<ACCUMULATED-GAINS-PRIOR> (64524990)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 605689<F1>
<INTEREST-EXPENSE> 16565<F1>
<GROSS-EXPENSE> 1999746<F1>
<AVERAGE-NET-ASSETS> 44322612
<PER-SHARE-NAV-BEGIN> 7.620
<PER-SHARE-NII> 0.420
<PER-SHARE-GAIN-APPREC> 0.030
<PER-SHARE-DIVIDEND> (0.510)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.010)
<PER-SHARE-NAV-END> 7.550
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 343700<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> SHORT TERM GLOBAL INCOME FUND CLASS B
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 91162423<F1>
<INVESTMENTS-AT-VALUE> 89588203<F1>
<RECEIVABLES> 1833047<F1>
<ASSETS-OTHER> 2116<F1>
<OTHER-ITEMS-ASSETS> 1201953<F1>
<TOTAL-ASSETS> 92625319<F1>
<PAYABLE-FOR-SECURITIES> 27698<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 865430<F1>
<TOTAL-LIABILITIES> 893128<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 96115314
<SHARES-COMMON-STOCK> 6903293
<SHARES-COMMON-PRIOR> 10639329
<ACCUMULATED-NII-CURRENT> (455277)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64274870)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1420976)<F1>
<NET-ASSETS> 52093077
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7357023
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1936799)<F1>
<NET-INVESTMENT-INCOME> 5420224<F1>
<REALIZED-GAINS-CURRENT> 1725990<F1>
<APPREC-INCREASE-CURRENT> (1136411)<F1>
<NET-CHANGE-FROM-OPS> 6009803<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3977304)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (50795)
<NUMBER-OF-SHARES-SOLD> 212311
<NUMBER-OF-SHARES-REDEEMED> (4219580)
<SHARES-REINVESTED> 271233
<NET-CHANGE-IN-ASSETS> (28964285)
<ACCUMULATED-NII-PRIOR> (358000)<F1>
<ACCUMULATED-GAINS-PRIOR> (64524990)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 605689<F1>
<INTEREST-EXPENSE> 16565<F1>
<GROSS-EXPENSE> 1999746<F1>
<AVERAGE-NET-ASSETS> 65691164
<PER-SHARE-NAV-BEGIN> 7.620
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> 0.040
<PER-SHARE-DIVIDEND> (0.450)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.010)
<PER-SHARE-NAV-END> 7.550
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 343700<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> SHORT TERM GLOBAL INCOME FUND CLASS C
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 91162423<F1>
<INVESTMENTS-AT-VALUE> 89588203<F1>
<RECEIVABLES> 1833047<F1>
<ASSETS-OTHER> 2116<F1>
<OTHER-ITEMS-ASSETS> 1201953<F1>
<TOTAL-ASSETS> 92625319<F1>
<PAYABLE-FOR-SECURITIES> 27698<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 865430<F1>
<TOTAL-LIABILITIES> 893128<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 181638
<SHARES-COMMON-STOCK> 23754
<SHARES-COMMON-PRIOR> 21536
<ACCUMULATED-NII-CURRENT> (455277)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64274870)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1420976)<F1>
<NET-ASSETS> 179228
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7357023<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1936799)<F1>
<NET-INVESTMENT-INCOME> 5420224<F1>
<REALIZED-GAINS-CURRENT> 1725990<F1>
<APPREC-INCREASE-CURRENT> (1136411)<F1>
<NET-CHANGE-FROM-OPS> 6009803<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12104)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (159)
<NUMBER-OF-SHARES-SOLD> 19713
<NUMBER-OF-SHARES-REDEEMED> (19067)
<SHARES-REINVESTED> 1572
<NET-CHANGE-IN-ASSETS> 15140
<ACCUMULATED-NII-PRIOR> (358000)<F1>
<ACCUMULATED-GAINS-PRIOR> (64524990)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 605689<F1>
<INTEREST-EXPENSE> 16565<F1>
<GROSS-EXPENSE> 1999746<F1>
<AVERAGE-NET-ASSETS> 201674
<PER-SHARE-NAV-BEGIN> 7.620
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> 0.040
<PER-SHARE-DIVIDEND> (0.450)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.010)
<PER-SHARE-NAV-END> 7.550
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 343700<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>
This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> STRATEGIC INCOME FUND CLASS A
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 169602085<F1>
<INVESTMENTS-AT-VALUE> 172489551<F1>
<RECEIVABLES> 3940195<F1>
<ASSETS-OTHER> 52086<F1>
<OTHER-ITEMS-ASSETS> 253950<F1>
<TOTAL-ASSETS> 176735782<F1>
<PAYABLE-FOR-SECURITIES> 371264<F1>
<SENIOR-LONG-TERM-DEBT> 50983397<F1>
<OTHER-ITEMS-LIABILITIES> 1514249<F1>
<TOTAL-LIABILITIES> 52868910<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 44483168
<SHARES-COMMON-STOCK> 3428615
<SHARES-COMMON-PRIOR> 2803579
<ACCUMULATED-NII-CURRENT> 150395<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (5066351)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2587120<F1>
<NET-ASSETS> 43810221
<DIVIDEND-INCOME> 560482<F1>
<INTEREST-INCOME> 12861325<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4840450)<F1>
<NET-INVESTMENT-INCOME> 8581357<F1>
<REALIZED-GAINS-CURRENT> 2999390<F1>
<APPREC-INCREASE-CURRENT> 3381566<F1>
<NET-CHANGE-FROM-OPS> 14962313<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3189748)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1136784
<NUMBER-OF-SHARES-REDEEMED> (614505)
<SHARES-REINVESTED> 102757
<NET-CHANGE-IN-ASSETS> 9983785
<ACCUMULATED-NII-PRIOR> 22912<F1>
<ACCUMULATED-GAINS-PRIOR> (7887999)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1132304<F1>
<INTEREST-EXPENSE> 2239645<F1>
<GROSS-EXPENSE> 4890074<F1>
<AVERAGE-NET-ASSETS> 39267248
<PER-SHARE-NAV-BEGIN> 12.065
<PER-SHARE-NII> 1.019
<PER-SHARE-GAIN-APPREC> 0.714
<PER-SHARE-DIVIDEND> (1.020)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.778
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 38213200<F1>
<AVG-DEBT-PER-SHARE> 4<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> STRATEGIC INCOME FUND CLASS B
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 169602085<F1>
<INVESTMENTS-AT-VALUE> 172489551<F1>
<RECEIVABLES> 3940195<F1>
<ASSETS-OTHER> 52086<F1>
<OTHER-ITEMS-ASSETS> 253950<F1>
<TOTAL-ASSETS> 176735782<F1>
<PAYABLE-FOR-SECURITIES> 371264<F1>
<SENIOR-LONG-TERM-DEBT> 50983397<F1>
<OTHER-ITEMS-LIABILITIES> 1514249<F1>
<TOTAL-LIABILITIES> 52868910<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 77747304
<SHARES-COMMON-STOCK> 5964656
<SHARES-COMMON-PRIOR> 5132287
<ACCUMULATED-NII-CURRENT> 150395<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (5066351)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2587120<F1>
<NET-ASSETS> 76222552
<DIVIDEND-INCOME> 560482<F1>
<INTEREST-INCOME> 12861325<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4840450)<F1>
<NET-INVESTMENT-INCOME> 8581357<F1>
<REALIZED-GAINS-CURRENT> 2999390<F1>
<APPREC-INCREASE-CURRENT> 3381566<F1>
<NET-CHANGE-FROM-OPS> 14962313<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5177891)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1951416
<NUMBER-OF-SHARES-REDEEMED> (1282624)
<SHARES-REINVESTED> 163577
<NET-CHANGE-IN-ASSETS> 14281249
<ACCUMULATED-NII-PRIOR> 22912<F1>
<ACCUMULATED-GAINS-PRIOR> (7887999)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1132304<F1>
<INTEREST-EXPENSE> 2239645<F1>
<GROSS-EXPENSE> 4890074<F1>
<AVERAGE-NET-ASSETS> 70049411
<PER-SHARE-NAV-BEGIN> 12.069
<PER-SHARE-NII> 0.920
<PER-SHARE-GAIN-APPREC> 0.717
<PER-SHARE-DIVIDEND> (0.927)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.779
<EXPENSE-RATIO> 2.57
<AVG-DEBT-OUTSTANDING> 38213200<F1>
<AVG-DEBT-PER-SHARE> 4<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> STRATEGIC INCOME FUND CLASS C
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 169602085<F1>
<INVESTMENTS-AT-VALUE> 172489551<F1>
<RECEIVABLES> 3940195<F1>
<ASSETS-OTHER> 52086<F1>
<OTHER-ITEMS-ASSETS> 253950<F1>
<TOTAL-ASSETS> 176735782<F1>
<PAYABLE-FOR-SECURITIES> 371264<F1>
<SENIOR-LONG-TERM-DEBT> 50983397<F1>
<OTHER-ITEMS-LIABILITIES> 1514249<F1>
<TOTAL-LIABILITIES> 52868910<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 3965236
<SHARES-COMMON-STOCK> 300301
<SHARES-COMMON-PRIOR> 257163
<ACCUMULATED-NII-CURRENT> 150395<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (5066351)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2587120<F1>
<NET-ASSETS> 3834099
<DIVIDEND-INCOME> 560482<F1>
<INTEREST-INCOME> 12861325<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4840450)<F1>
<NET-INVESTMENT-INCOME> 8581357<F1>
<REALIZED-GAINS-CURRENT> 2999390<F1>
<APPREC-INCREASE-CURRENT> 3381566<F1>
<NET-CHANGE-FROM-OPS> 14962313<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (263977)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156283
<NUMBER-OF-SHARES-REDEEMED> (125528)
<SHARES-REINVESTED> 12383
<NET-CHANGE-IN-ASSETS> 733070
<ACCUMULATED-NII-PRIOR> 22912<F1>
<ACCUMULATED-GAINS-PRIOR> (7887999)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1132304<F1>
<INTEREST-EXPENSE> 2239645<F1>
<GROSS-EXPENSE> 4890074<F1>
<AVERAGE-NET-ASSETS> 3567861
<PER-SHARE-NAV-BEGIN> 12.059
<PER-SHARE-NII> 0.913
<PER-SHARE-GAIN-APPREC> 0.723
<PER-SHARE-DIVIDEND> (0.927)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.768
<EXPENSE-RATIO> 2.56
<AVG-DEBT-OUTSTANDING> 38213200<F1>
<AVG-DEBT-PER-SHARE> 4<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>

</TABLE>