VAN KAMPEN MERRITT EQUITY TRUST, 485BPOS, 1995-08-29

VAN KAMPEN MERRITT EQUITY TRUST
485BPOS, 1995-08-29

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1995

REGISTRATION NOS. 33-8122
811-4805
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

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

Post-Effective Amendment No. 24 /X/

and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 25 /X/
</TABLE>

VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST

(Exact Name of Registrant as Specified in the Agreement and Declaration of
Trust)

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

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

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

Copies to:

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

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

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

/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

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

/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)

/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(1)

/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)

/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485

IF APPROPRIATE CHECK THE FOLLOWING:
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.

DECLARATION PURSUANT TO RULE 24F-2

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES AND WILL FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDING JUNE 30, 1995 ON OR ABOUT AUGUST 31, 1995.

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<PAGE> 2

EXPLANATORY NOTE

This Post-Effective Amendment No. 24 to the Registration Statement contains
two Prospectuses and two Statements of Additional Information describing two of
the five series of the Registrant. The Registration Statement is organized as
follows:

Facing Page

Cross Reference Sheet with respect to Van Kampen American Capital Utility
Fund

Cross Reference Sheet with respect to Van Kampen American Capital Balanced
Fund

Prospectus Relating to Van Kampen American Capital Utility Fund

Statement of Additional Information Relating to Van Kampen American Capital
Utility Fund

Prospectus Relating to Van Kampen American Capital Balanced Fund

Statement of Additional Information Relating to Van Kampen American Capital
Balanced Fund

Part C Information

Exhibits

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

Van Kampen American Capital Total Return Fund and Van Kampen American Capital
Growth Fund (collectively, the "Funds") have not commenced investment
operations. The Prospectus and Statement of Additional Information with respect
to each of the Funds accordingly are not being distributed or otherwise used.
The information included in the Prospectus and Statement of Additional
Information of each of the Funds was contained in the Registrant's
Post-Effective Amendment No. 7 filed with the Commission on November 2, 1989
and, to the extent required to be included herein, is hereby incorporated by
reference.

The Prospectus and Statement of Additional Information with respect to Van
Kampen Merritt Growth and Income Fund, one other series of the Registrant,
included in Post-Effective Amendment No. 23 to the Registration Statement of the
Registrant are included herein by reference and no changes thereto are affected
hereby.

<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

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

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
---------------------------- ------------------------------------------------------
<S> <C> <C>
PART A
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............... FINANCIAL HIGHLIGHTS
Item 4. General Description of
Registrant................ PROSPECTUS SUMMARY; THE FUND;
INVESTMENT OBJECTIVE AND POLICIES;
INVESTMENT PRACTICES; DESCRIPTION OF SHARES OF THE
FUND
Item 5. Management of the
Fund...................... ANNUAL FUND OPERATING EXPENSES
AND EXAMPLE; INVESTMENT PRACTICES; INVESTMENT ADVISORY
SERVICES; SHAREHOLDER SERVICES
Item 6. Capital Stock and Other
Securities................ ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
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; SHAREHOLDER SERVICES; FUND PERFORMANCE
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>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
---------------------------- ------------------------------------------------------
<S> <C> <C>
PART B
Item 10. Cover Page.................. Cover Page
Item 11. Table of Contents........... Table of Contents
Item 12. General Information
and History............... The Fund and the Trust
Item 13. Investment Objectives
and Policies.............. Investment Policies and Restrictions;
Additional Investment Considerations
Item 14. Management of the
Fund...................... Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities................ Officers and Trustees
Item 16. Investment Advisory and
Other Services............ Contained in Prospectus under captions: INVESTMENT
ADVISORY SERVICES; THE DISTRIBUTION AND SERVICE PLANS;
ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
Legal Counsel; Investment Advisory and Other Services;
Custodian and Independent Auditors; Officers and
Trustees; The Distributor; Notes to Financial
Statements
Item 17. Brokerage Allocation........ Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities.......... Contained in Prospectus under caption: DESCRIPTION OF
SHARES OF THE FUND
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered................... Contained in Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status.................. Contained in Prospectus under caption: TAX STATUS;
SHAREHOLDER SERVICES; Tax Status of the Fund
Item 21. Underwriters................ The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data.......... Contained in Prospectus under caption: FUND PERFORM-
ANCE; Performance Information
Item 23. Financial Statements........ Contained in the Prospectus under caption: FINANCIAL
HIGHLIGHTS; Independent Auditors' Report; Financial
Statements; Notes to Financial Statements; Officers
and Trustees
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 BALANCED FUND

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

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.......... FINANCIAL HIGHLIGHTS

Item 4. General Description of
Registrant........... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; INVESTMENT PRACTICES; RISKS; DESCRIPTION OF
SHARES OF THE FUND
Item 5. Management of the
Fund................. ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; SHAREHOLDER
SERVICES
Item 6. Capital Stock and Other
Securities........... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS; 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; SHAREHOLDER SERVICES; FUND PERFORMANCE
Item 8. Redemption or
Repurchase........... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>

iii
<PAGE> 6

<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A IN PROSPECTUS
----------------------- ----------------------------------------------------------
<S> <C> <C>
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page............. Cover Page
Item 11. Table of Contents...... Table of Contents
Item 12. General Information
and History.......... The Fund and the Trust
Item 13. Investment Objectives
and Policies......... Investment Policies and Restrictions; Additional
Investment Considerations
Item 14. Management of the
Fund................. Officers and Trustees
Item 15. Control Persons and
Principal Holders of
Securities........... Officers and Trustees
Item 16. Investment Advisory and
Other Services....... Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; INVESTMENT ADVISORY
SERVICES, THE DISTRIBUTION AND SERVICE PLANS; Investment
Advisory and Other Services; Custodian and Independent
Auditors; Legal Counsel; Officers and Trustees; The
Distributor; Notes to Financial Statements
Item 17. Brokerage Allocation... Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities..... Contained in the Prospectus under the caption: DESCRIPTION
OF SHARES OF THE FUND
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered.............. Contained in the Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status............. Contained in Prospectus under captions: TAX STATUS;
SHAREHOLDER SERVICES; Tax Status of the Fund
Item 21. Underwriters........... The Distributor; Notes to Financial Statements
Item 22. Calculation of
Performance Data..... Contained in the Prospectus under the caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements... Contained in the Prospectus under caption: FINANCIAL
HIGHLIGHTS; Independent Auditors' Report; Financial
Statements; Notes to Financial Statements; Officers and
Trustees
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.

iv
<PAGE> 7

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VAN KAMPEN AMERICAN CAPITAL
UTILITY FUND
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Van Kampen American Capital Utility Fund, formerly known as Van Kampen
Merritt Utility Fund (the "Fund"), is a separate diversified series of Van
Kampen American Capital Equity Trust, an open-end management investment company,
commonly known as a mutual fund. The Fund's investment objective is to seek to
provide its shareholders with capital appreciation and current income. The Fund
will seek to achieve its investment objective by investing in a diversified
portfolio of common stocks and income securities (as described in the
Prospectus) issued by companies engaged in the utilities industry ("Utility
Securities"). Companies engaged in the utilities industry include those involved
in the production, transmission, or distribution of electric energy, gas,
telecommunications services or the provision of other utility or utility related
goods or services. Under normal market conditions, at least 80% of the Fund's
assets will be invested in Utility Securities. The Fund may invest up to 35% of
its assets in securities issued by non-U.S. issuers. There can be no assurance
that the Fund will achieve its investment objective.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp (the "Adviser"). This Prospectus sets forth certain information
about the Fund 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.
(Continued on next page.)

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

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

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

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated September 1, 1995, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and 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) 772-8889.

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

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

THIS PROSPECTUS IS DATED SEPTEMBER 1, 1995.

<PAGE> 8

(Continued from previous page.)

The Fund currently offers three classes of its shares (the "Alternative
Sales Arrangements") which may be purchased at a price equal to their net asset
value per share, plus sales charges which, at the election of the investor, may
be imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share accounts over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances.

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

2
<PAGE> 9

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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 4
Shareholder Transaction Expenses................................ 7
Annual Fund Operating Expenses and Example...................... 8
Financial Highlights............................................ 10
The Fund........................................................ 11
Investment Objective and Policies............................... 11
Investment Practices............................................ 18
Investment Advisory Services.................................... 23
Alternative Sales Arrangements.................................. 24
Purchase of Shares.............................................. 26
Shareholder Services............................................ 36
Redemption of Shares............................................ 40
The 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
</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 DISTRIBUTORS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTORS 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> 10

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

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

INVESTMENT OBJECTIVE. The Fund's investment objective is to provide its
shareholders with capital appreciation and current income. There can be no
assurance that the Fund will achieve its investment objective.

INVESTMENT POLICY AND RISKS. The Fund will attempt to achieve its investment
objective by investing primarily in the securities summarized below.

Utility Securities. The Fund will seek to achieve its investment objective by
investing in a diversified portfolio of common stocks and income securities (as
described herein) issued by companies engaged in the utilities industry
("Utility Securities"). Companies engaged in the utilities industry include
those involved in the production, transmission, or distribution of electric
energy, gas, telecommunications services or the provision of other utility or
utility related goods or services. Under normal market conditions, at least 80%
of the Fund's assets will be invested in Utility Securities. Because of the
Fund's policy of concentrating its investments in Utility Securities, the Fund
may be more susceptible than an investment company without such a policy to any
single economic, political or regulatory occurrence affecting the public
utilities industry. Under normal market conditions, the Fund may invest up to
20% of its assets in other than Utility Securities, including common stocks and
income securities of issuers not engaged in the utilities industry, cash and
money market instruments.

Income Securities and Lower Grade Income Securities. The Fund's investments in
income securities will be 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 comparably rated by any other nationally recognized
statistical rating organization; provided, however, the Fund may invest up to
20% of its assets in income securities that are rated BB or B by S&P or Ba or B
by Moody's (or comparably rated by any other nationally recognized statistical
rating service) or in unrated income securities considered by the Fund's
investment adviser to be of comparable or higher quality. Such lower rated or
unrated 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. The
Fund will not invest in securities rated below B by S&P and below B by Moody's.
While offering opportunities for higher yields, lower-grade securities are
considered below "investment grade" and involve a greater degree of credit risk
than investment grade income securities; although the

4
<PAGE> 11

lower-grade income securities of an issuer generally involve a lower degree of
credit risk than its common stock. For a discussion of lower grade securities,
please see the section of the prospectus captioned "Investment Objective and
Policies -- Portfolio Securities -- Income Securities and Risks of Lower Grade
Income Securities."

Foreign Securities. The Fund may invest up to 35% of its assets in securities
issued by non-U.S. issuers. Investments in foreign securities involve certain
risks not ordinarily associated with investments in securities of domestic
issuers, including fluctuations in foreign exchange rates, future political and
economic developments, confiscatory taxation and the possible imposition of
exchange controls or other foreign governmental laws or restrictions.

The Fund's net asset value per share will fluctuate depending on market
conditions and other factors. See "Investment Objective and Policies."

INVESTMENT PRACTICES. The Fund also may use various investment techniques
including engaging in Strategic Transactions, as herein defined, entering into
when-issued or delayed delivery transactions, lending portfolio securities,
repurchase agreements and reverse repurchase agreements. Such transactions
entail certain risks. See "Investment Practices."

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

ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and the
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. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.

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

Class A Shares. Class A Shares are subject to an initial sales charge equal to
5.75% of the public offering price (6.10% of the net amount invested), reduced
on investments of $50,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A

5
<PAGE> 12

Shares qualify for reduced or no initial sales charges and may be subject to a
CDSC.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but generally are subject to a sales charge if redeemed within six
years of purchase. Class B Shares are subject to a CDSC equal to 4.00% of the
lesser of the then current net asset value or the original purchase price on
Class B Shares redeemed during the first year after purchase, which charge is
reduced each year thereafter. Class B Shares are subject to ongoing distribution
and service fees at an aggregate annual rate of up to 1.00% of the Fund's
average daily net assets attributable to the Class B Shares. Class B Shares
automatically will convert to Class A Shares seven years after the end of the
calendar month in which the investor's order to purchase was accepted.

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

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

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the investment adviser for the Fund. See "Investment Advisory Services."

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income are
declared and paid quarterly; net realized 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
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."

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

6
<PAGE> 13

- ------------------------------------------------------------------------------
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)........... 5.75%(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 $50,000 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 contingent deferred sales charge of 1.00% may be
imposed on redemptions made within one year of the purchase.

(3) CDSC Shares received as reinvested dividends are subject to a 12b-1
distribution fee, a portion of which may indirectly pay for the initial
sales commission incurred on behalf of the investor. See "The Distribution
and Service Plans."

7
<PAGE> 14

- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- ---------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)............................ 0.65% 0.65% 0.65%

12b-1 Fees(1) (as a percentage of average
daily net assets)............................ 0.25% 1.00% 1.00%

Other Expenses (as a percentage of average
daily net assets)............................ 0.39% 0.40% 0.44%

Total Expenses (as a percentage of average
daily net assets) ........................... 1.29% 2.05% 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. 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. As of
June 30, 1995, the Board of Trustees of the Trust reduced 12b-1 and
service fees for the Fund's Class A Shares to 0.25%. See "The Distribution
and Service Plans".

8
<PAGE> 15

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 1.29% for
Class A Shares, 2.05% for Class B Shares
and 2.09% for Class C Shares, (ii) 5%
annual return and (iii) redemption at the
end of each time period:
Class A Shares.......................... $ 70 $96 $ 124 $ 204
Class B Shares.......................... $ 61 $99 $ 125 $ 209*
Class C Shares.......................... $ 31 $65 $ 112 $ 242
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end of
each period:
Class A Shares.......................... $ 70 $96 $ 124 $ 204
Class B Shares.......................... $ 21 $64 $ 110 $ 209*
Class C Shares.......................... $ 21 $65 $ 112 $ 242
</TABLE>

- ---------------
* Based on conversion to Class A Shares after seven 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. 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. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Investment Advisory Services" and "The Distribution and
Service Plans."

9
<PAGE> 16

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

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

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
----------------------- ----------------------- --------------------------
FROM FROM
JULY 28, 1993 JULY 28, 1993
(COMMENCEMENT (COMMENCEMENT FROM
YEAR OF INVESTMENT YEAR OF INVESTMENT YEAR AUGUST 13, 1993
ENDED OPERATIONS) ENDED OPERATIONS) ENDED (COMMENCEMENT OF
JUNE 30, TO JUNE 30, TO JUNE 30, DISTRIBUTION) TO
1995 JUNE 30, 1994 1995 JUNE 30, 1994 1995 JUNE 30, 1994
-------- ------------- -------- ------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $ 12.906 $14.300 $ 12.880 $14.300 $ 12.868 $ 14.460
-------- ------- -------- ------- -------- --------
Net Investment Income............................. .595 .479 .507 .394 .482 .330
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency................ .485 (1.513) .461 (1.519) .498 (1.627)
-------- ------- -------- ------- -------- --------
Total from Investment Operations.................... 1.080 (1.034) .968 (1.125) .980 (1.297)
-------- ------- -------- ------- -------- --------
Less:
Distributions from Net Investment Income.......... .600 .323 .492 .258 .492 .258
Distributions in Excess of Net Realized Gain on
Investments..................................... --0-- .037 --0-- .037 --0-- .037
-------- ------- -------- ------- -------- --------
Total Distributions................................. .600 .360 .492 .295 .492 .295
-------- ------- -------- ------- -------- --------
Net Asset Value, End of Period...................... $ 13.386 $12.906 $ 13.356 $12.880 $ 13.356 $ 12.868
======== ======= ======== ======= ======== ========
Total Return (Non-annualized)....................... 8.70% (7.38%) 7.80% (8.02%) 7.88% (9.11%)
Net Assets at End of Period (in millions)........... $50.4 $51.5 $81.0 $83.7 $1.3 $1.1
Ratio of Expenses to Average Net Assets
(annualized)...................................... 1.34% 1.34% 2.05% 2.06% 2.09% 2.05%
Ratio of Net Investment Income to Average Net Assets
(annualized)...................................... 4.55% 4.10% 3.84% 3.36% 3.80% 3.38%
Portfolio Turnover.................................. 109.10% 101.54% 109.10% 101.54% 109.10% 101.54%
</TABLE>

See Financial Statements and Notes Thereto.

10
<PAGE> 17

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

Van Kampen American Capital Utility Fund (the "Fund") is a mutual fund which
pools shareholders' money to seek to achieve a specified investment objective.
The Fund is a separate diversified series of Van Kampen American Capital Equity
Trust (the "Trust"), which is an open-end management investment company,
organized as a Delaware business trust. Mutual funds sell their shares to
investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

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

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The Fund's investment objective is to provide its shareholders with capital
appreciation and current income. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of common stock and income
securities issued by companies engaged in the utilities industry ("Utility
Securities"). Companies engaged in the utilities industry include those engaged
in the production, transmission, or distribution of electric energy, gas,
telecommunications services or the provision of other utility or utility related
goods or services. Under normal market conditions, at least 80% of the Fund's
assets will be invested in Utility Securities. Under normal market conditions,
the Fund may invest up to 20% of its assets in other than Utility Securities,
including common stock and income securities of issuers not engaged in the
utilities industry, cash and money market instruments. Income securities include
preferred stock and debt securities of various maturities. The Fund's
investments in income securities will be 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 comparably rated by any other nationally
recognized statistical rating organization ("NRSRO"); provided, however, the
Fund may invest up to 20% of its assets in income securities that are rated BB
or B by S&P or Ba or B by Moody's (or comparably rated by any other NRSRO) or
unrated income securities determined by the Fund's investment adviser to be of
comparable or higher quality. Such lower rated or unrated 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

11
<PAGE> 18

and/or repay principal in accordance with their terms. While offering
opportunities for higher yields, lower-grade securities are considered below
"investment grade" and involve a greater degree of credit risk that investment
grade income securities; although the lower-grade income securities of an issuer
generally involve a lower degree of credit risk than its common stock. Such
securities are regarded by the rating agencies, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation; assurance of interest and principal
payments or maintenance of other terms of the securities over any long period of
time may be small. The Fund may invest up to 35% of its assets in securities
issued by non-U.S. issuers. The foregoing policies are fundamental and cannot be
changed without approval of the Shareholders. 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 Adviser believes that the historical performance of Utility Securities,
together with ongoing developments in the utilities industry, indicate the
potential for achieving both capital appreciation and current income from
investment in a diversified portfolio of Utility Securities. The Adviser
believes that the historical characteristics of Utility Securities which are
common stocks indicate potential for capital appreciation. The Adviser also
believes that many companies engaged in the utilities industry have established
a reputation for paying regular quarterly dividends and for increasing their
common stock dividends over time, despite fluctuations in interest rates over
time. The annual dividends per share of the Utility Securities comprising the
S&P Utilities Index, for the 10 year period 1982 through 1992, have increased
while interest rates during such period, as measured by the six month U.S.
Treasury rate, have fluctuated widely. The Adviser believes that the historical
characteristics of Utility Securities which are income securities indicate the
potential for current income.

In evaluating particular issuers of Utility Securities, the Adviser will
consider a number of factors, including historical growth rates, rates of return
on capital, financial condition and resources, geographic location and service
area, management skills and such utilities industry factors as regulatory
environment, energy sources, the costs of alternative fuels and, in the case of
electric energy utilities, the extent and nature of their involvement with
nuclear powers. The Adviser will place special emphasis on the potential for
capital appreciation, current and projected yields, prospective growth in
earnings and dividends in relation to price/earnings ratios and risk. The
Adviser believes that Utility Securities provide above-average dividend returns
and below-average price/earnings ratios which in the view of the Adviser are
factors that not only provide current income but also generally tend to moderate
risk. The Adviser will buy and sell securities for the Fund's portfolio with a
view toward seeking capital appreciation together with current income and will

12
<PAGE> 19

select securities which the Adviser believes entail reasonable credit risk
considered in relation to the investment policies of the Fund. As a result, the
Fund will not necessarily invest in the highest yielding Utility Securities
permitted by the investment policies if the Adviser determines that market risks
or credit risks associated with such investments would subject the Fund's
portfolio to excessive risk. 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. 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. See "Investment Policies and Restrictions" in the Statement of
Additional Information.

PORTFOLIO SECURITIES

UTILITY SECURITIES. Utility Securities are common stocks and income securities
of companies engaged in the utilities industry. Companies engaged in the
utilities industry include a variety of entities involved in (i) production,
transmission or distribution of electric energy, (ii) the provision of natural
gas, (iii) the provision of telephone, mobile communication and other
telecommunications services or (iv) the provision of other utility or utility
related goods or services, including entities engaged in cogeneration, waste
disposal system provision, solid waste electric generation, independent power
producers and non-utility generators.

The public utilities industry has experienced significant changes in recent
years. Many issuers of Utility Securities have been favorably effected by lower
fuel and financing costs, deregulation, the full or near completion of major
construction programs and an increasing customer base. In addition, many utility
companies have generated cash flows in excess of current operating expenses and
construction expenditures, permitting some degree of diversification into
unregulated businesses. Some electric utilities have also taken advantage of the
right to sell power outside of their historical territories.

The rate of return of issuers of Utility Securities generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes generally lag changes in
financing costs, and thus can favorably or unfavorably affect the earnings or
dividend payments on Utility Securities depending upon whether such rates and
costs are declining or rising.

Companies engaged in the public utilities industry historically have been
subject to a variety of risks depending, in part, on such factors as the type of
utility company involved and its geographic location. Such risks include
increases in fuel and other operating costs, high interest expenses for capital
construction programs, costs associated with compliance with environmental and
nuclear safety regulations, service interruption due to environmental,
operational or other mishaps, the effects of economic slowdowns, surplus
capacity, competition and changes in the overall regulatory climate. In
particular, regulatory changes with respect to nuclear and

13
<PAGE> 20

conventionally fueled generating facilities could increase costs or impair the
ability of utility companies to operate such facilities, thus reducing utility
companies' earnings or resulting in losses. There can be no assurance that
regulatory policies or accounting standard changes will not negatively affect
utility companies' earnings or dividends. Companies engaged in the public
utilities industry are subject to regulation by various authorities and may be
affected by the imposition of special tariffs and changes in tax laws. To the
extent that rates are established or reviewed by governmental authorities,
companies engaged in the public utilities industry are subject to the risk that
such authority will not authorize increased rates. In addition, because of the
Fund's policy of concentrating its investments in Utility Securities, the Fund
may be more susceptible than an investment company without such a policy to any
single economic, political or regulatory occurrence affecting the public
utilities industry. Under market conditions that are unfavorable to the
utilities industry, the Adviser may significantly reduce the Fund's investment
in that industry.

Gas and Telecommunications Utilities. Gas transmission companies, gas
distribution companies and telecommunications companies are undergoing
significant changes. Gas utilities have been adversely affected by declines in
the prices of alternative fuels, oversupply conditions and competition.
Telephone utilities are still experiencing the effects of the break-up of
American Telephone & Telegraph Company, including increased competition and
rapidly developing technologies with which traditional telephone companies now
compete. Potential sources of competition and new products are cable television
systems, shared tenant services and other noncarrier systems which are capable
of by-passing traditional telephone services providers' local plant, either
completely or partially, through substitutions of special access for switched
access or through concentration of telecommunications traffic on fewer of the
traditional telephone services providers' lines. Although there can be no
assurance that increased competition and other structural changes will not
adversely affect the profitability of such utilities, or that other negative
factors will not develop in the future, in the Adviser's opinion, competition
and technological advances may over time result in provide better-positioned
utility companies with opportunities for enhanced profitability.

Electric Utilities. Electric utility companies in general have been favorably
affected by lower fuel costs, the full or near completion of major construction
programs and lower financing costs. Some electric utilities have also taken
advantage of the right to sell power outside of their historical territories.
Certain electric utilities with uncompleted nuclear power facilities may have
problems completing and licensing such facilities, and there is increasing
public, regulatory and governmental concern with the cost and safety of nuclear
power facilities in general. At this time, there are certain institutional
impediments to the wide-scale deregulation of electric utilities including among
other things, limitations on the redistribution of power.

14
<PAGE> 21

Other Utilities. Other issuers of Utility Securities are emerging as new
technologies develop and as old technologies are refined. Such issuers include
entities engaged in cogeneration, waste disposal system provision, solid waste
electric generation, independent power producers and non-utility generators.

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 potential for
appreciation and on its dividend paying capacity.

The average dividend yield of Utility Securities which are common stocks
historically has exceeded the average dividend yield of common stocks of
industrial issuers by a significant amount. For example, the common stocks
comprising the S&P Utilities Index for calendar 1992 had an average dividend
yield of 5.72%, or more than twice the 2.63% average dividend yield for the
common stocks comprising the S&P 400 Industrials Index. However, the Fund's
portfolio will not necessarily reflect the securities which comprise the S&P
Utilities Index and there can be no assurance that the historical investment
performance for any industry (including the public utilities industry) is
indicative of future performance.

INCOME SECURITIES AND RISKS OF LOWER GRADE INCOME SECURITIES. The Fund may
invest its assets in income securities, which include preferred stocks, debt
securities of various maturities and securities convertible into, or ultimately
exchangeable for, Utility Securities. The Fund's investments in income
securities will be rated, at the time of investment, at least BBB by S&P, or at
least Baa by Moody's or comparably rated by any other NRSRO; provided, however,
the Fund may invest up to 20% of its assets in income securities that are rated
BB or B by S&P or Ba or B by Moody's (or comparably rated by any other NRSRO) or
unrated income securities determined by the Fund's investment adviser to be of
comparable or higher quality. In normal circumstances, the Fund may invest up to
20% of its assets in lower grade income securities (including downgraded
securities) or in unrated income securities considered by the Adviser to be of
comparable or higher quality to such lower grade securities or of comparable
quality to investment grade securities. Lower grade income securities in which
the Fund may invest are rated between BB and B by S&P or between Ba and B by
Moody's. Income securities with such ratings from S&P and Moody's 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 and/or repay principal
in accordance with their terms. Investment in lower grade securities involves
special risks as compared with investment in higher grade securities. The market
for lower grade securities is considered to be less liquid than the market for
investment grade securities which may adversely affect the ability of the Fund
to dispose of such securities in a timely manner at a price which reflects

15
<PAGE> 22

the value of such security in the Adviser's judgment. Because issuers of lower
grade securities frequently choose not to seek a rating of their securities, the
Fund will rely more heavily on the Adviser's ability to determine the relative
investment quality of such securities than if the Fund invested exclusively in
higher grade securities. For a description of the ratings assigned to income
securities, including lower grade income securities, please see "Description of
Securities Ratings" in the Statement of Additional Information.

The net asset value of the Fund will change with changes in the value of its
portfolio securities. The values of income securities may change as interest
rate levels fluctuate. To the extent that the Fund invests in income securities,
the net asset value of the Fund can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio invested in income securities
generally can be expected to decline. Volatility may be greater during periods
of general economic uncertainty.

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) 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, in addition to the factors
described above, 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 nationally recognized statistical rating organizations.

FOREIGN SECURITIES. The Fund may invest up to 35% of its assets in securities
issued by non-U.S. issuers of similar quality as the securities described above
as determined by the Adviser. 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. 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 security than about a United
States security, and foreign entities may not be subject to

16
<PAGE> 23

accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. 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 Adviser believes that many foreign issuers of Utility Securities have yet
to experience the growth that certain issuers of Utility Securities located in
the United States have experienced and that as such foreign issuers develop
their domestic markets, they may become attractive investments. In addition, the
Adviser believes that certain foreign governments may engage in programs of
privatization of issuers of Utility Securities and that the Utility Securities
issued by privatized companies may offer attractive investment opportunities
with the potential for long-term growth. However it is not possible to predict
the terms of offerings by privatized companies or the effect of privatizations
in the domestic securities market of such privatized companies. There can be no
assurance that securities of privatized companies will be offered to the public
or to foreign companies such as the Fund.

DEFENSIVE STRATEGIES. At times conditions in the markets for Utility
Securities 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. Such taxable 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 NRSRO);

17
<PAGE> 24

commercial paper rated in the highest grade by either rating service (or
comparably rated by any other NRSRO); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy.

- ------------------------------------------------------------------------------
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 enter into
repurchase and reverse repurchase agreements and lend its portfolio securities
in each case, subject to the limitations set forth below. These investments
entail risks.

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 and
purchase and sell financial futures contracts 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
of 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, 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 interest rate exposure of the Fund's portfolio, to protect against
changes in currency exchange rates, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Any or all of these investment techniques may be used at
any time and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.

18
<PAGE> 25

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.

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."

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 restriction that limits the Fund's investments in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.

19
<PAGE> 26

"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 high-grade portfolio securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. The Fund will make commitments to purchase securities on such basis
only with the intention of actually acquiring these securities, but the Fund may
sell such securities prior to the settlement date if such sale is considered to
be advisable. 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.

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 on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933 that are determined to be liquid by the Adviser
under guidelines adopted by the Board of Trustees of the Trust (under which
guidelines the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.

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
value of the securities loaned,

20
<PAGE> 27

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.

REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. 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 create leverage and will be treated as borrowings for the
purposes of the Fund's investment restriction on borrowings.

The Fund is authorized to borrow money from banks or enter into reverse
repurchase agreements with banks in an amount up to 33 1/3% of the Fund's total
assets (after giving effect to any such borrowing) which amount includes no more
than 5% in borrowings and reverse repurchase agreements from any entity for
temporary purposes, such as clearances of portfolio transactions, share
repurchases and payment of dividends and distributions. The Fund has no current
intention to borrow money other than for such temporary purposes. Accordingly,
the Fund will not acquire additional Utility Securities during any period in
which its borrowings exceed 5% of the Fund's total assets. The Fund will borrow
only when the Adviser believes that such borrowings will benefit the Fund.

21
<PAGE> 28

the Fund will have to pay, the Fund's net income will be greater than if
borrowing were not used. Conversely, if the income from the assets retained with
borrowed funds is not sufficient to cover the cost of borrowing, the net income
of the Fund will be less than if borrowing were not used, and therefore the
amount available for distribution to stockholders as dividends will be reduced.

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940
(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 fixed-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 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 and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser,
the Distributor or dealers participating in the offering of the Fund's shares.
In addition, in selecting among firms to handle a particular transaction, the
Adviser and the Fund may take into account whether the firm has sold or is
selling shares of the Fund. See

22
<PAGE> 29

"Portfolio Transactions and Brokerage Allocation" in the Statement of Additional
Information for more information.

- ------------------------------------------------------------------------------
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 over $50 billion under management or supervision.
Van Kampen American Capital's more than 40 open-end and 38 closed-end funds and
more than 2,700 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

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

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for overall management of the Fund's business
affairs. The Fund will

23
<PAGE> 30

pay the Adviser a fee equal to a percentage of the average daily net assets of
the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
-------------
<S> <C>
First $500 million...................................... 0.65 of 1.00%
Over $500 million but less than $1 billion.............. 0.60 of 1.00%
Over $1 billion......................................... 0.55 of 1.00%
</TABLE>

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

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
procedures designed to prevent conflicts of interest including, in some
instances, preclearance of trades.

PORTFOLIO MANAGEMENT. Mary Jayne Maly is primarily responsible for the day-
to-day management of the Fund's investment portfolio. Ms. Maly has been
primarily responsible for managing the Fund's investment portfolio since May,
1995. Ms. Maly has been a portfolio manager with Van Kampen American Capital
Asset Management, Inc. since 1994. Ms. Maly was an associate portfolio manager
with Van Kampen American Capital Asset Management, Inc. from 1992 to 1994. Prior
to that time, Ms. Maly was a senior equity analyst at Texas Commerce Investment
Management Company.

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

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the

24
<PAGE> 31

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.

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

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

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

25
<PAGE> 32

the fact that a CDSC would eventually not apply to a redemption of such Class C
Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. Only the Class B Shares are subject to
a conversion feature (discussed below). Generally, a class of shares subject to
a higher ongoing distribution fee, services fee or, where applicable, the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee or 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 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 and Exchange Commission (the "SEC") registration fees incurred
by a class of shares; (iv) the expense of administrative personnel and services
as required to support the shareholders of a specific class; (v) Trustees' fees
or expense incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; and (vii) any other
incremental expenses subsequently identified that should be properly allocated
to one or more classes of shares that shall be approved by the SEC pursuant to
an amended exemptive order. All such expenses incurred by a class will be borne
on a pro rata basis by the outstanding shares of such class. All allocations of
administrative expenses to a particular class of shares will be limited to the
extent necessary to preserve the Fund's qualification as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").

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

The Fund offers shares for sale to the public on a continuous basis through
Van Kampen American Capital Distributors, Inc. (the "Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares are also offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible

26
<PAGE> 33

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

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

27
<PAGE> 34

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. See "Alternative Sales Arrangements" above. 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.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000....................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.......... 4.75 4.99 4.00
$100,000 but less than $250,000......... 3.75 3.90 3.00
$250,000 but less than $500,000......... 2.75 2.83 2.25
$500,000 but less than $1,000,000....... 2.00 2.04 1.75
$1,000,000 or more...................... * * *
</TABLE>

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

QUANTITY DISCOUNTS

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

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

28
<PAGE> 35

discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.

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

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

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

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

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

29
<PAGE> 36

satisfied by the investor and any additional sales charges are not paid,
sufficient restricted shares will be redeemed by the Fund to pay such charges.
Additional information is contained in the application accompanying this
Prospectus.

OTHER PURCHASE PROGRAMS

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

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

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

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

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment

30
<PAGE> 37

purposes and that the shares will not be resold except through redemption by the
Fund, by:

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

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

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

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

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

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

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

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<PAGE> 38

purchase other than redemptions required to make payments to participants
under the terms of the plan. The contingent deferred sales charge incurred
upon certain redemptions is paid to the Distributor in reimbursement for
distribution-related expenses. A commission will be paid to dealers who
initiate and are responsible for such purchases as follows: 1.00% on sales
to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess
over $10 million.

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

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with the Fund's transfer agent, the investment adviser, trust company
or bank trust department, provided that the Fund's transfer agent receives
federal funds for the 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. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Fund, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate will be equal to (i) with respect to Class A Shares, 1.00%
on sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next
$2 million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares; and (iii) 1.00% with respect to Class C Shares. Such
compensation will not change the price an investor will pay for CDSC Shares or
the amount that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a contingent deferred sales charge at the rates set forth below. The
amount of the contingent deferred sales charge will vary depending on (i) the
class of CDSC Shares to which such shares belong and (ii) the number of years
from the time of payment for the purchase of the CDSC Shares until the time of
their redemption. The charge will be assessed on an amount equal to the lesser
of the then current market value or the original purchase price of the CDSC
Shares being

32
<PAGE> 39

redeemed. Accordingly, no sales charge will be imposed on increases in net asset
value above the initial purchase price. In addition, no contingent deferred
sales charge will be assessed on CDSC Shares derived from reinvestment of
dividends or capital gains distributions. Solely for purposes of determining the
number of years from the time of any payment for the purchase of CDSC Shares,
all payments during a month will be aggregated and deemed to have been made on
the last day of the month.

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

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

To provide an example, assume an investor purchased 100 Class B Shares (as set
forth below) at $10 per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional Class B Shares upon dividend reinvestment.
If at such time the investor makes his first redemption of 50 shares (proceeds
of $600), 10 shares will not be subject to 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).

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 contingent deferred sales charge of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next million, plus
0.20% on the next $2 million and 0.08% on the excess over $5 million.

33
<PAGE> 40

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE 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 contingent deferred sales charge generally is waived on redemptions of
Class B Shares made pursuant to the Systematic Withdrawal Plan. See "Shareholder
Services -- Systematic Withdrawal Plan."

Conversion Feature. Seven years after the end of the month in which a
shareholder's order to purchase a Class B Share of the Fund was accepted, such
Class B Share automatically will convert to a Class A Share and will no longer
be subject to the higher distribution fee applicable to Class B Shares. The
purpose of the conversion feature is to relieve the holders of Class B Shares
for such seven year period from the higher aggregate distribution and service
fees applicable to Class B Shares. Proceeds received by the Distributor from the
distribution fee and the contingent deferred sales charge, if any, with respect
to a particular Class B Share may be more or less than the Distributor actual
distribution related expense with respect to such Class B Share.

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

34
<PAGE> 41

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

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

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

35
<PAGE> 42

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 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.

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

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

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

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

36
<PAGE> 43

64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to ACCESS. On the date the letter is received ACCESS will
calculate a fee for replacing the lost certificate equal to no more than 2.00%
of the net asset value of the issued shares and bill the party to whom the
replacement certificate was mailed.

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

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

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

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

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

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Money Market Fund, the Tax Free Money Fund or

37
<PAGE> 44

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

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

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

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

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

38
<PAGE> 45

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

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

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

39
<PAGE> 46

purchases of additional shares ordinarily will be disadvantageous to the
shareholder because of the duplication of sales charges. The Fund reserves the
right to amend or terminate the systematic withdrawal program on thirty days'
notice to its shareholders.

SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY

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 contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

40
<PAGE> 47

authorized signer and certified within the prior 60 days must accompany the
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.

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.

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<PAGE> 48

the Fund's other redemption procedures previously described. Requests received
by ACCESS prior to 4:00 p.m., New York time, on a regular business day will be
processed at the net asset value per share determined that day. These privileges
are available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.

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

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

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

GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the

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<PAGE> 49

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

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

- ------------------------------------------------------------------------------
THE 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.

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<PAGE> 50

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.

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 any given year may exceed the fees payable to the Distributor
with respect to such shares under the Distribution Plan, the Service Plan and
payments received pursuant to the contingent deferred sales charge. In such
event, with respect to any such class of CDSC Shares, any unreimbursed
distribution 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

44
<PAGE> 51

shareholders of such class. As of June 30, 1995, there were $3,078,655 and $795
of unreimbursed distribution expenses with respect to Class B Shares and Class C
Shares respectively, representing 2.32% and less than 0.01%, respectively of the
Fund's total net assets. If the Distribution Plan were terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare and pay quarterly to holders of each class of shares
distributions of all or substantially all net investment income of the Fund
attributable to the respective class. 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
quarterly distribution may vary.

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

45
<PAGE> 52

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 will automatically
credit dividend 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 the Shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 772-8889 for the hearing impaired) or
in writing to ACCESS.

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

The following discussion reflects applicable federal income tax laws, as of
the date of this Prospectus.

FEDERAL INCOME TAXATION. The Fund intends to qualify each year and to elect to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated
investment company, the Fund must comply with certain requirements of the Code
relating to, among other things, the source of its income and diversification of
its assets.

If the Fund so qualifies and distributes each year to its Shareholders at
least 90% of its net investment income (including tax-exempt interest and
taxable income including 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.

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

46
<PAGE> 53

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. 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 are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to mark-to-market some of the positions in its portfolio (i.e.,
treat them as if they were closed out), which may cause the Fund to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 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 the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and 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.

47
<PAGE> 54

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). The Fund will inform
Shareholders of the source and tax status of all distributions promptly after
the close of each calendar year. Some 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. Shareholders receiving distributions
in the form of additional Shares purchased by the Plan Agent under the Fund's
Dividend Reinvestment Plan will be treated for federal income tax purposes as
receiving the amount of cash received by the Plan Agent on their behalf. In
general, the basis of such Shares will equal the price paid by the Plan Agent
for such Shares.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to Shareholders of
record on a specified date in such 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.

Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
Shareholders.

The Fund is required, in 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.

48
<PAGE> 55

more than one year. Any loss realized upon a taxable disposition of Shares held
for six months or less will be treated as a long-term capital loss to the extent
of any capital gains dividends received with respect to such Shares. 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.

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

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. In lieu of or in addition to total return and
yield calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., Business Week, Forbes or other industry publications. From time
to time, the Fund may compare its performance to certain securities and
unmanaged indices which may have different risk/reward characteristics than the
Fund. Such characteristics may include, but are not limited to, tax features,
guarantees, insurance and the fluctuation of principal and/or return. In
addition, from time to time, the Fund may utilize sales literature that includes
hypotheticals.

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, 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

49
<PAGE> 56

premiums from futures transactions engaged in by the Fund. Distribution rates
will be computed separately for each class of the Fund's shares.

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

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

The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1993 as a sub-trust of Van Kampen Merritt Equity Trust,
a Massachusetts business trust. The Fund was reorganized as a series of the
Trust as of July 31, 1995. Shares of the Trust entitle their holders to one vote
per share; however, separate votes are taken by each series on matters affecting
an individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represent 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. See "The Distribution and Service Plans."

Pursuant to an order of the SEC, the Fund is permitted to issue an unlimited
number of classes of shares. Each class of shares is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. There are no conversion,
preemptive or other subscription rights, except with respect to the conversion
of Class B Shares into Class A Shares as described above. In the event of
liquidation, each 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 other shareholders.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of a majority of the shares present and voting 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.

50
<PAGE> 57

- ------------------------------------------------------------------------------
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 Fund's fiscal year ends on June 30. The Fund sends to its shareholders at
least semi-annually reports showing the Fund's portfolio and other information.
An annual report, containing financial statements audited by the Fund's
independent auditors, 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.

Shareholder inquiries should be directed to the Van Kampen American Capital
Utility Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181, Attn:
Correspondence.

For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 421-5666. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
772-8889.

51
<PAGE> 58

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE
CALL THE FUND'S TOLL-FREE
NUMBER (800) 421-5666.

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

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

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

DIAL (800) 772-8889.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 421-5666.

VAN KAMPEN AMERICAN CAPITAL
UTILITY FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

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

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

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

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital Funds

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital Funds

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

Independent Auditors
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 59

UTILITY FUND

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

P R O S P E C T U S

SEPTEMBER 1, 1995

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 60

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

Van Kampen American Capital Utility Fund, formerly known as Van Kampen Merritt
Utility Fund (the "Fund"), seeks to provide its shareholders with capital
appreciation and current income. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of common stocks and income
securities issued by companies engaged in the utilities industry ("Utility
Securities"). Companies engaged in the utilities industry include those involved
in the production, transmission, or distribution of electric energy, gas,
telecommunications services or the provision of other utility or utility related
goods and services. Under normal market conditions, at least 80% of the Fund's
total assets will be invested in Utility Securities. In addition, the Fund may
invest up to 20% of its assets in income securities rated BB or B by Standard &
Poor's Ratings Group ("S&P") or Ba or B by Moody's Investors Service, Inc.
("Moody's") (or comparably rated by any other nationally recognized statistical
rating service ("NRSRO")) or in unrated income securities considered by the
Fund's investment adviser to be of comparable or higher quality. The Fund may
invest up to 35% of its assets in foreign currency denominated securities issued
by non-U.S. issuers. There can be no assurance that the Fund will achieve its
investment objective. The Fund is a separate series of Van Kampen American
Capital Equity Trust, a Delaware business trust (the "Trust").

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated September 1, 1995
(the "Prospectus"). This Statement of Additional Information does not include
all information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge, by
calling (800) 421-5666. 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-2
Additional Investment Considerations.................................................... B-4
Description of Securities Ratings....................................................... B-13
Officers and Trustees................................................................... B-19
Investment Advisory and Other Services.................................................. B-25
Custodian and Independent Auditors...................................................... B-26
Portfolio Transactions and Brokerage Allocation......................................... B-27
Tax Status of the Fund.................................................................. B-27
The Distributor......................................................................... B-28
Legal Counsel........................................................................... B-29
Performance Information................................................................. B-29
Independent Auditors' Report............................................................ B-31
Financial Statements.................................................................... B-32
Notes to Financial Statements........................................................... B-38
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER 1, 1995.

B-1
<PAGE> 61

THE FUND AND THE TRUST

The Fund is a separate series of the Trust, an open-end diversified management
investment company. At present, the Fund, Van Kampen Merritt Growth and Income
Fund, Van Kampen American Capital Balanced Fund, Van Kampen American Capital
Total Return Fund (which has not commenced investment operations) and Van Kampen
American Capital Growth Fund (which has not commenced investment operations) are
the only series of the Trust, although other series may be organized and offered
in the future.

The Trust is a Delaware business trust established under the laws of the State
of Delaware by a 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 Trustee can further sub-divide each series of shares into one or more
classes of shares for each portfolio. The Trust can issue an unlimited number of
shares with $0.01 par value (prior to July 31, 1995, the shares had no par
value. Each share represents an equal proportionate interest in the assets of
the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability. The Fund was originally
organized in 1993 as a sub-trust of Van Kampen Merritt Equity Trust, a
Massachusetts business trust by a Declaration of Trust dated March 26, 1987,
under the name of Van Kampen Merritt Utility Fund. The Fund was reorganized as a
series of the Trust as of July 31, 1995.

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

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

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

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objective 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. With respect to 75% of its total assets, purchase any securities (other
than obligations 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 (determined at the time of investment) 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.

2. Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such

B-2
<PAGE> 62

borrowing); which amount includes no more than 5% in borrowings and
reverse repurchase agreements with any entity for temporary purposes. The
Fund will not mortgage, pledge or hypothecate any assets other than in
connection with issuances, borrowings, hedging transactions and risk
management techniques.

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, 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 any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with Strategic Transactions nor short
term credits as may be necessary for the clearance of transactions is
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 interest rate or other financial
futures or index contracts or related options, except in connection with
Strategic 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 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.

8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition and except as permitted under
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 except pursuant to
the exercise by the Fund of its rights under agreements relating to
portfolio securities.

10. 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 without the approval of the lesser of (i) more than 50% of the Fund's
outstanding shares or (ii) 67% of the Fund's outstanding Shares present at a
meeting at which the holders of more than 50% of the outstanding shares are
present in person or by proxy. As long as the percentage restrictions described
above are satisfied at the time of the investment or borrowing, the Fund will be
considered to have abided by those restrictions even if, at a later time, a
change in values or net assets causes an increase or decrease in percentage
beyond that allowed.

The Fund 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. Frequency
of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. 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.

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ADDITIONAL INVESTMENT CONSIDERATIONS

UTILITY SECURITIES

Entities that issue Utility Securities may be subject to a variety of risks
depending, in part, on such factors as the type of utility involved and its
geographic location. Such risks may include potential increases in operating
costs, increases in interest expenses for capital construction programs,
government regulation of rates charged to customers, costs associated with
compliance with environmental and other regulations, service interruption due to
environmental, operational or other mishaps, the effects of economic slowdowns,
surplus capacity and increased competition from other providers of utility
services. Issuers of Utility Securities generally have their rates determined by
state utility commissions or other governmental authorities or, depending on the
jurisdiction and the nature of the issuer, such issuers may set their own rates.
Changes in service rates generally lag changes in financing costs, and thus can
favorably or unfavorably affect the ability of issuers of Utility Securities to
maintain or increase dividend rates on such securities, depending upon whether
such rates and costs are declining or rising. To the extent that rates are
established or reviewed by governmental authorities, the utility is subject to
the risk that such authority will not authorize increased rates. Issuers of
Utility Securities are subject to regulation by various authorities and may be
affected by the imposition of special tariffs and charges. There can be no
assurance that regulatory policies or accounting standard changes will not
negatively affect the ability of issuers of Utility Securities to service
principal, interest and dividend payments. Because of the Trust's policy of
investing at least 80% of its total assets in Utility Securities, the Trust is
more susceptible than an investment company without such a policy to economic,
political, environmental or regulatory occurrences affecting issuers of Utility
Securities. See "Investment Objective and Policies" in the Prospectus.

Electric Utilities. Certain electric utilities ("Electric Utilities") with
uncompleted nuclear power facilities may have problems completing and licensing
such facilities, and there is public, regulatory and governmental concern with
the cost and safety of nuclear power facilities in general. Regulatory changes
with respect to nuclear and conventionally fueled generating facilities could
increase costs or impair the ability of such Electric Utilities to operate such
facilities, thus reducing their ability to service dividend payments with
respect to Utility Securities. Electric Utilities that utilize nuclear power
facilities must apply for recommissioning from the Nuclear Regulatory Commission
after 40 years. Failure to obtain recommissioning could result in an
interruption of service or the need to purchase more expensive power from other
entities and could subject the utility to significant capital construction costs
in connection with building new nuclear or alternative-fuel power facilities,
upgrading existing facilities or converting such facilities to alternative
fuels. Electric Utilities that utilize coal in connection with the production of
electric power are particularly susceptible to environmental regulation,
including the requirements of the federal Clean Air Act and of similar state
laws. Such regulation may necessitate large capital expenditures in order for
the utility to achieve compliance.

Gas Utilities. Many gas utilities ("Gas Utilities") generally have been
adversely affected by oversupply conditions, and by increased competition from
other providers of utility services. In addition, some Gas Utilities entered
into long-term contracts with respect to the purchase or sale of gas at fixed
prices, which prices have since changed significantly in the open market. In
many cases, such price changes have been to the disadvantage of the Gas Utility.
Gas Utilities are particularly susceptible to supply and demand imbalances due
to unpredictable climate conditions and other factors and are subject to
regulatory risks as well.

Telecommunications Utilities. Telecommunications regulation typically limits
rates charged, returns earned, providers of services, types of services,
ownership, areas served and terms for dealing with competitors and customers.
Telecommunications regulation generally has tended to be less stringent for
newer services, such as mobile services, than for traditional telephone service,
although there can be no assurances that such newer services will not be heavily
regulated in the future. Regulation may limit rates based on an authorized level
of earnings, a price index, or another formula. Telephone rate regulation may
include government-mandated cross-subsidies that limit the flexibility of
existing service providers to respond to competition. Regulation may also limit
the use of new technologies and hamper efficient depreciation of existing
assets. If regulation limits the use of new technologies by established carriers
or forces cross-subsidies, large private networks may emerge.

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<PAGE> 64

LOWER GRADE SECURITIES

The Fund may invest up to 20% of its assets in lower-grade income securities,
including lower-grade fixed-income Utility Securities. Such lower grade
securities are rated BB or B by S&P or Ba or B by Moody's. Investment in such
securities involves special risks, as described herein. Liquidity relates to the
ability of a Fund to sell a security in a timely manner at a price which
reflects the value of that security. As discussed below, the market for lower
grade securities is considered generally to be less liquid than the market for
investment grade securities. The relative illiquidity of some of the Fund's
portfolio securities may adversely affect the ability of the Fund to dispose of
such securities in a timely manner and at a price which reflects the value of
such security in the Adviser's judgment. The market for less liquid securities
tends to be more volatile than the market for more liquid securities and market
values of relatively illiquid securities may be more susceptible to change as a
result of adverse publicity and investor perceptions than are the market values
of higher grade, more liquid securities.

The Fund's net asset value will change with changes in the value of its
portfolio securities. Because the Fund will invest in fixed income securities,
the Fund's net asset value can be expected to change as general levels of
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested in fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed income
securities can be expected to decline. Net asset value and market value may be
volatile due to the Fund's investment in lower grade and less liquid securities.
Volatility may be greater during periods of general economic uncertainty.

The Adviser values the Fund's investments pursuant to guidelines adopted and
periodically reviewed by the Board of Trustees. To the extent that there is no
established retail market for some of the securities in which the Fund may
invest, there may be relatively inactive trading in such securities and the
ability of the Adviser to accurately value such securities may be adversely
affected. During periods of reduced market liquidity and in the absence of
readily available market quotations for securities held in the Fund's portfolio,
the responsibility of the Adviser to value the Fund's securities becomes more
difficult and the Adviser's judgment may play a greater role in the valuation of
the Fund's securities due to the reduced availability of reliable objective
data. To the extent that the Fund invests in illiquid securities and securities
which are restricted as to resale, the Fund may incur additional risks and
costs. Illiquid and restricted securities are particularly difficult to dispose
of.

Lower grade securities generally involve greater credit risk than higher grade
securities. A general economic downturn or a significant increase in interest
rates could severely disrupt the market for lower grade securities and adversely
affect the market value of such securities. In addition, in such circumstances,
the ability of issuers of lower grade securities to repay principal and to pay
interest, to meet projected financial goals and to obtain additional financing
may be adversely affected. Such consequences could lead to an increased
incidence of default for such securities and adversely affect the value of the
lower grade securities in the Fund's portfolio and thus the Fund's net asset
value. The secondary market prices of lower grade securities are less sensitive
to changes in interest rates than are those for higher rated securities, but are
more sensitive to adverse economic changes or individual issuer developments.
Adverse publicity and investor perceptions, whether or not based on rational
analysis, may also affect the value and liquidity of lower grade securities.

Yields on the Fund's portfolio securities can be expected to fluctuate over
time. In addition, periods of economic uncertainty and changes in interest rates
can be expected to result in increased volatility of the market prices of the
lower grade securities in the Fund's portfolio and thus in the net asset value
of the Fund. Net asset value and market value may be volatile due to the Fund's
investment in lower grade and less liquid securities. Volatility may be greater
during periods of general economic uncertainty. The Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of interest or a repayment of principal on its portfolio holdings, and
the Fund may be unable to obtain full recovery thereof. 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 capital with respect to such issuer or the project or projects
to which the Fund's portfolio securities relate.

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<PAGE> 65

The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. In this evaluation, 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 also may consider, although it does not rely primarily on, the credit
ratings of S&P and Moody's in evaluating fixed-income securities. 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 such securities held in the Fund's
portfolio. The Fund may, if deemed appropriate by the Adviser, retain a security
whose rating has been downgraded below B by S&P or below B by Moody's, or whose
rating has been withdrawn.

Because the Fund may invest up to 20% of its assets in these unrated income
securities, achievement by the Fund of its investment objective may be more
dependent upon the Adviser's investment analysis than would be the case if the
Fund were investing exclusively in rated securities.

MONEY MARKET INSTRUMENTS

Money market instruments include (a) obligations of or guaranteed by the U.S.
government, its agencies or instrumentalities ("Government Money Market
Securities"), (b) obligations of banks subject to U.S. government regulation as
well as such other bank obligations as are insured by a U.S. government agency
("Bank Obligations"), (c) commercial paper (including variable amount master
demand notes) rated at least A-3 by S&P or Prime-3 by Moody's or, if not so
rated, issued by a corporation which has outstanding debt obligations rated at
least AA by S&P or Aa by Moody's and (d) debt obligations (other than commercial
paper) of corporate issuers which obligations are rated at least AA by S&P or Aa
by Moody's. Money market securities are subject, however, to the limitation that
they mature within one year of the date of their purchase or are subject to
repurchase agreements maturing within one year. Government Money Market
Securities include treasury bills, notes and bonds issued by the U.S. government
and backed by the full faith and credit of the United States, as well as
securities issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government. Bank Obligations include certificates
of deposit and banker's acceptances of domestic banks (or Euro-dollar
obligations of foreign branches of such domestic banks) subject to U.S.
government regulation and time deposits of federal and state banks whose
accounts are insured by a government agency as well as such accounts themselves.

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
NRSRO) 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, in addition to the factors
described in the Prospectus under the heading "Investment Objective and
Policies," 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 any
other NRSRO.

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. 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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<PAGE> 66

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.

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 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.

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

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<PAGE> 67

options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.

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

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

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

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (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 NRSRO. The staff of
the SEC currently takes the position that, in general, OTC options on securities
other than U.S. Government securities purchased by the Fund, and portfolio
securities "covering" the amount of the Fund's obligation pursuant to an OTC
option sold by it (the cost of the sell-back plus the in-the-money amount, if
any) are illiquid, and are subject to the Fund's limitation on investing no more
than 15% of its assets in illiquid securities.

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<PAGE> 68

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

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets and or 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 no assurance that the position can be
offset prior to settlement at an advantageous price nor that delivery will
occur.

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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.

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 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.

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<PAGE> 70

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 cashflows 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. 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.

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

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

B-12
<PAGE> 72

amounts will equal 100% of the exercise price in the case of a non cash-settled
put, the same as an OCC guaranteed listed option sold by the Fund, or the
in-the-money amount plus any sell-back formula amount in the case of a
cash-settled put or call. In addition, when the Fund sells a call option on an
index at a time when the in-the-money amount exceeds the exercise price, the
Fund will segregate, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess. OCC issued and exchange listed
options sold by the Fund other than those above generally settle with physical
delivery 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.

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

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

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

The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code 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 Standard & Poor's Ratings Group) follows:

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

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

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

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

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

2. Nature of and provisions of the obligation:

B-13
<PAGE> 73

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 Standard & Poor's.
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.

LONG-TERM DEBT--SPECULATIVE GRADE

BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as
having predominantly 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.

BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B: Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.

CC: The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

C: The rating 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI: The rating CI is reserved for income bonds on which no interest is being
paid.

D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

B-14
<PAGE> 74

C: The letter 'c' indicates that the holder's option to tender this security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.

L: The letter 'L' indicates that the rating pertains to the principal amount
of these bonds in the extent that the undersigning deposit collateral is
federally insured and interest is adequately collateralized. In the cast of
certificates of deposit, the letter 'L' indicates that the deposit, combined
with other deposits being held in the same right and capacity, will be honored
for principal and accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured institution or, in the event
that the deposit is assumed by a successor insured institution, upon maturity.

P: The letter 'p' indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.

NR: Not rated.

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.

COMMERCIAL PAPER

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

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

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
overwhelming as for issues designated "A-1".

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.

B Issues rated "B" are regarded as having only speculative capacity
for timely payment.

C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period.

B-15
<PAGE> 75

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.

VARIABLE RATE DEMAND BONDS

Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option 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+'). Or if the nominal maturity is short, a rating of
'SP-1+/AAA' is assigned. 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+').

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. 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.

PREFERRED STOCK

An S&P's 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 debt 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 Standard & Poor's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
</TABLE>

B-16
<PAGE> 76

<TABLE>
<S> <C>
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.
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 balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. 'BB' indicates the lowest degree of speculation and 'CCC' the
highest degree of speculation. 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 non-paying issue.
D A preferred stock rated 'D' is a non-paying 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, the rating 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.
</TABLE>

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 rating symbols and their meanings (as published by Moody's
Investor Service) follows:

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.

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 by lacking or may be characteristically unreliable over any great
length of

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<PAGE> 77

time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

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

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

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

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

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

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

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

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

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

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

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

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

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.

SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.

Among the obligations covered are commercial paper, Eurocommercial paper, bank
deposits, banker's acceptances and obligations to deliver foreign exchange.
Obligations relying upon support mechanisms such as letters-of-credit and bonds
of indemnity are excluded unless explicitly rated.

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<PAGE> 78

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.

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 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 protection 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
payments.

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 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.

OFFICERS AND TRUSTEES

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

B-19
<PAGE> 79

of the open-end investment companies advised by the VK Adviser (excluding the
Van Kampen Merritt Series Trust) and each of the open-end investment companies
advised by the AC Adviser.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Randor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing.
Trustee of each of the Van Kampen American Capital Funds.
Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75
R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
</TABLE>

B-20
<PAGE> 80

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Age: 59 Services Inc., a member of the National Association of
Securities Dealers, Inc. (NASD) and Securities Investors
Protection Corp. (SIPC). Trustee of each of the Van
Kampen American Capital Funds.
Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.
David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
</TABLE>

B-21
<PAGE> 81

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

OFFICERS

<TABLE>
<CAPTION>
POSITIONS AND OTHER PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND IN PAST 5 YEARS
- --------------------- -------------------------- ---------------------------------------------
<S> <C> <C>
Peter W. Hegel....... Vice President Executive Vice President and Portfolio
Age: 39 Manager of the Adviser. Executive Vice
President of the AC Adviser. Vice President
of each of the Van Kampen American Capital
Funds and closed-end funds advised by the VK
Adviser.

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

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

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

B-22
<PAGE> 82

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

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

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

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

B-23
<PAGE> 83

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM REGISTRANT
COMPENSATION FROM AS PART OF FUND BENEFITS UPON AND FUND COMPLEX
NAME REGISTRANT(2) EXPENSES(3) RETIREMENT(4) PAID TO TRUSTEE(5)
- ------------------------------- ------------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............... $4,581 $ 100 $2,500 $ 62,362
Philip G. Gaughan.............. 6,262 1,259 2,500 63,250
Donald C. Miller............... 4,414 0 2,500 62,178
Jack A. Nelson................. 4,581 834 2,500 62,362
Jerome L. Robinson............. 4,456 0 2,500 58,475
Wayne W. Whalen................ 6,143 518 2,500 49,875
</TABLE>

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

(1) Messrs. Powell and McDonnell, Trustees of the Registrant (as defined below),
were affiliated persons of the Adviser and were not eligible for
compensation or retirement benefits from the Registrant. Messrs. Branagan,
Caruso, Hilsman, Rees, Sheehan, Sisto and Woodside were elected as trustees
of the Trust at a shareholders meeting held July 21, 1995 and thus received
no compensation or retirement benefits from the Registrant during its fiscal
year ended June 30, 1995.

(2) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently is comprised of 3 operating series, including the Fund. The
amounts shown in this column are accumulated from the Aggregate Compensation
of each of these 3 series during such series' 1995 fiscal year. Beginning in
October 1994, each Trustee, except Messrs. Gaughan and Whalen, began
deferring his entire aggregate compensation paid by the Fund. The total
combined amount of deferred compensation (including interest) accrued with
respect to each Trustee from the Fund Complex (as defined herein) as of
December 31, 1994 is as follows: Mr. Kennedy $14,737; Mr. Miller $14,553;
Mr. Nelson $14,737 and Mr. Robinson $13,725.

(3) The Retirement Plan commenced as of August 1, 1994 for the Registrant. The
amounts in this column are the retirement benefits accrued during the Fund's
fiscal year ended June 30, 1995.

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

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

As of August 18, 1995, the trustees and officers as a group own less than 1%
of the shares of the Fund.

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

To the knowledge of the Fund, as of August 18, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class A Shares or Class B Shares.

As of August 18, 1995, the following persons owned of record or beneficially
5% or more of the Fund's Class C Shares: Interstate/Johnson Lane, FBO
224-81081-16, Interstate Tower, P.O. Box 1220, Charlotte, NC 28201-1220, 7%;
PaineWebber for the Benefit of San Jose State University FNDN, Attn: John
Troyan, P.O. Box 720130, San Jose, CA 95172-0130, 6%; Donaldson, Lufkin,
Jenrette Securities Corporation, Inc., P.O. Box 2052, Jersey City, NJ
07303-2052, 5%; and LP & Teresa Anderson Foundation, P.O. Box 190, Miles City,
MT 59301-0190, 6%.

B-24
<PAGE> 84

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

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

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

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

The Adviser's activities are subject to the review and supervision of the
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 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.
Currently, the most stringent limit in any state would require such
reimbursement to the extent that aggregate operating expenses of the Fund
(excluding interest, taxes and other expenses which may be excludable under
applicable state law) exceed in any fiscal year 2 1/2% of the average annual net
assets of the Fund up to $30 million, 2% of the average annual net assets of the
Fund of the next $70 million, and 1 1/2% of the remaining average annual net
assets of the Fund. In addition to making any required reimbursements, the

B-25
<PAGE> 85

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 period ended June 30, 1994 and for the year ended June 30, 1995, the
Fund recognized advisory expenses of $749,584 and $874,190, respectively.

OTHER AGREEMENTS

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

For the period ended June 30, 1994 and for the year ended June 30, 1995, the
Fund recognized expenses of approximately $2,000 and $79,200, respectively,
representing the Distributor's cost of providing certain support services.

FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares equally, together with the other Van Kampen American Capital
mutual funds advised by the VK Adviser 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 Van Kampen American Capital funds based
proportionally on their respective net assets.

For the period ended June 30, 1994 and for the year ended June 30, 1995, the
Fund recognized expenses of approximately $5,300 and $8,800, respectively,
representing the VK Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreement pursuant to which Van Kampen American
Capital provides legal services, including without limitation: 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 fund's. 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.

For the period ended June 30, 1994 and for the year ended June 30, 1995, the
Fund recognized expenses of approximately $9,200 and $9,200, respectively,
representing Van Kampen American Capital, Inc.'s cost of providing legal
services.

CUSTODIAN AND INDEPENDENT AUDITORS

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

B-26
<PAGE> 86

The independent auditors for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent auditors will be subject to ratification
by the shareholders of the Fund at any annual meeting of shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

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

If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security), than would be the case if no
weight were given to the broker's furnishing of those research services. This
will be done, however, only if, in the opinion of the 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.

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

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

State securities laws may differ from the interpretations of federal law
expressed herein, and banks and financial institutions may be required to
register as dealers pursuant to state law.

TAX STATUS OF THE FUND

The Trust and each of its series, including the Fund, will be treated as
separate corporations for 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-27
<PAGE> 87

THE DISTRIBUTOR

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

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

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

B-28
<PAGE> 88

For the year ended June 30, 1994, the Fund recognized expenses under the Plans
of $129,926, $713,771 and $6,339 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $107,353 and $176,184 represent payments
to financial intermediaries under the Selling Agreements for Class A Shares and
Class B Shares, respectively. For the year ended June 30, 1994, the Fund has
reimbursed the Distributor $5,109 and $8,437 for advertising expenses, and
$14,651 and $24,485 for compensation of the Distributor's sales personnel for
the Class A and Class B Shares, respectively.

For the year ended June 30, 1995, the Fund recognized expenses under the Plans
of $150,498, $821,749 and $12,075 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $125,426, $202,654 and $3,773 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 $21,667, $34,789 and $0 for
advertising expenses, and $6,229, $9,082 and $0 for compensation of the
Distributor's sales personnel for the Class A Shares, Class B Shares and Class C
Shares, respectively.

LEGAL COUNSEL

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

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a 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
six years after their issuance and Class C Shares, redeemed during the first
year after their issuance may be subject to a contingent deferred sales charge
in a maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the
then current net asset value of the shares redeemed or their initial purchase
price from the Fund. Yield quotations do not reflect the imposition of a
contingent deferred sales charge, and if any such contingent deferred sales
charge imposed at the time of redemption were reflected, it would reduce the
performance quoted.

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

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

B-29
<PAGE> 89

Non-standardized total return calculations do not reflect the imposition of a
contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the CDSC Shares imposed at the time of redemption were
reflected, it would reduce the performance quoted.

CLASS A SHARES

The average total return with respect to the Class A Shares for (i) the one
year period ended June 30, 1995 was 2.45% and (ii) the approximately one year,
11 month period from July 28, 1993 (the commencement of investment operations of
the Fund) through June 30, 1995 was (2.69%).

The Fund's cumulative non-standardized total return with respect to the Class
A Shares from their inception through June 30, 1995 (as calculated in the
Prospectus under the heading "Fund Performance") was 0.67%.

CLASS B SHARES

The average total return with respect to the Class B Shares for (i) the one
year period ended June 30, 1995 was 3.80% and (ii) the approximately one year,
11 month period from July 28, 1993 (the commencement of investment operations of
the Fund) through June 30, 1994 was (2.30%).

The Fund's cumulative non-standardized total return with respect to the Class
B Shares from their inception through June 30, 1995 (as calculated in the
Prospectus under the heading "Fund Performance") was (0.85%).

CLASS C SHARES

The average total return with respect to the Class C Shares for (i) the one
year period ended June 30, 1995 was 6.88% and (ii) the approximately one year,
11 month period from August 13, 1993 (the commencement of operations of the
Class C Shares) through June 30, 1994 was (1.02%).

The Fund's cumulative non-standardized total return with respect to the Class
C Shares from their inception through June 30, 1995 (as calculated in the
Prospectus under the heading "Fund Performance") was (1.94%).

B-30
<PAGE> 90
Independent Auditors' Report

The Board of Trustees and Shareholders of Van Kampen Merritt Utility Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Utility Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for the period then
ended and for the period from July 28, 1993 (commencement of investment
operations) through June 30, 1994, 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, 1995, 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Merritt Utility Fund as of June 30, 1995, the results of its operations
for the year then ended, the changes in its net assets for the period then
ended and for the period from July 28, 1993 (commencement of investment
operations) through June 30, 1994, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP
Chicago, Illinois
July 24, 1995

B-31

<PAGE> 91

Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Common Stock 92.2%
Buildings & Real Estate 3.6%
Bay Apartment Community Inc. ........................ 65,000 $ 1,267,500
Cali Realty Corp. .................................... 50,000 968,750
Debartolo Realty Corp. ............................... 50,000 731,250
Healthcare Realty Trust Inc. ........................ 90,000 1,822,500
---------
4,790,000
---------
Electric Utilities 36.7%
Boston Edison Co. .................................... 56,054 1,464,411
Central & South West Corp. ........................... 82,250 2,159,063
CMS Energy Corp. .................................... 80,000 1,970,000
DPL Inc. ............................................ 103,700 2,294,362
DQE Inc. ............................................ 97,891 2,300,438
Duke Power Co. ...................................... 40,740 1,690,710
Entergy Corp. ....................................... 40,000 965,000
FPL Group Inc. ...................................... 44,000 1,699,500
General Public Utilities Corp. ....................... 69,175 2,057,956
Houston Industries Inc. ............................. 37,000 1,558,625
New England Electric Systems ......................... 52,000 1,794,000
Nipsco Inc. ......................................... 63,800 2,169,200
Northeast Utilities ................................. 69,700 1,568,250
Nynex Corp. ......................................... 80,000 3,220,000
Ohio Edison Co. ..................................... 75,000 1,696,875
Oklahoma Gas & Electric Co. .......................... 54,806 1,925,061
Pacific Gas & Electric Co. .......................... 45,000 1,305,000
Pacificorp .......................................... 88,000 1,650,000
Peco Energy Co. ..................................... 77,923 2,152,623
Pinnacle West Capital Corp. ......................... 56,400 1,381,800
Public Service Enterprise Group ...................... 70,800 1,964,700
Southern Co. ......................................... 78,000 1,745,250
Teco Energy Inc. .................................... 95,300 2,084,688
Texas Utilities Co. ................................. 40,000 1,375,000
Unicom Corp. ........................................ 40,000 1,065,000
Washington Water Power Co. ........................... 91,475 1,463,600
Wisconsin Energy Corp. .............................. 68,478 1,917,384
---------
48,638,496
---------
Natural Gas Pipeline and Distribution 17.6%
Coastal Corp. ....................................... 30,000 911,250
El Paso Natural Gas Co. ............................. 73,182 2,085,687
Enron Corp. ......................................... 65,300 2,293,662
Equitable Resources Inc. ............................ 56,350 1,627,106
</TABLE>
See Notes to Financial Statements

B-32

<PAGE> 92

Portfolio of Investments (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Security Description Shares Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Pipeline and Distribution (Continued)
KN Energy Inc. ....................................................... 77,313 $ 1,961,817
MCN Corp. ............................................................ 124,000 2,449,000
National Fuel Gas Co. NJ ............................................. 66,300 1,897,838
Nicor Inc. .......................................................... 79,211 2,128,796
Northwest Natural Gas Co. ............................................ 30,300 946,875
Panhandle Eastern Corp. ............................................. 80,000 1,950,000
Questar Corp. ....................................................... 54,200 1,558,250
Sonat Inc. .......................................................... 73,000 2,226,500
Western Gas Resources Inc. ........................................... 75,300 1,298,925
-----------
23,335,706
-----------
Telecommunications 19.5%
Airtouch Communications Inc. .......................................... 61,700 1,758,450
Alltel Corp. ........................................................ 81,150 2,059,181
Ameritech Corp. ..................................................... 63,670 2,801,480
AT & T Corp. ......................................................... 51,600 2,741,250
BCE Inc. ............................................................ 30,850 991,056
Bellsouth Corp. ...................................................... 50,000 3,175,000
Century Telephone Enterprises Inc. .................................. 77,150 2,189,131
Frontier Corp. ...................................................... 58,250 1,398,000
GTE Corp. ............................................................ 88,400 3,016,650
MCI Communications Corp. ............................................ 90,000 1,980,000
SBC Communications Inc. .............................................. 69,770 3,322,797
Viatel Inc. ........................................................... 117,325 483,966
----------
25,916,961
----------
Water & Sewer Utilities 2.2%
American Water Works Inc. ........................................... 61,083 1,939,385
United Water Resources Inc. ......................................... 74,800 991,100
----------
2,930,485
----------
Foreign 12.6%
China Light & Power Ltd ADR (Hong Kong) .............................. 164,879 848,088
Elf Aquitaine ADR (France) ........................................... 45,150 1,681,838
Empresa Nacional de Electricidad ADR (Spain) ......................... 40,000 1,970,000
Midlands Electricity PLC (UK) ....................................... 100,000 1,000,477
National Power PLC ADR (UK) .......................................... 31,500 389,813
Norweb PLC (UK) ..................................................... 70,000 756,004
Portugal Telecom SA ADR (Portugal) .................................... 3,200 60,800
Powergen PLC - ADR (UK) ............................................... 49,000 600,250
Repsol SA ADR (Spain) ................................................ 60,300 1,906,987
Royal PTT (Netherlands) ............................................. 30,000 1,078,412
South Wales Electric (UK) ........................................... 86,000 953,428
</TABLE>
See Notes to Financial Statements

B-33

<PAGE> 93

Portfolio of Investments (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign (Continued)
Southern Electric PLC (UK)(2)........................... 67,000 $ 683,108
Tele Danmark A/S ADR (Denmark) ........................ 60,000 1,680,000
TransCanada Pipelines Ltd (Canada) .................... 125,000 1,671,875
Westcoast Energy Inc. (Canada) ........................ 100,000 1,475,000
-----------
Total Common Stock ............................................... 122,367,728
-----------
Fixed Income Securities 4.1%
Electric Utilities 1.2%
Midland Funding Corp. II ($1,500,000 par, 11.750% coupon,
07/23/05 maturity, S&P rating B- ) ................................ 1,567,500
-----------
Telecommunications 2.9%
Time Warner Inc. ($2,112,000 par, 8.750% coupon, 01/10/15 maturity,
S&P rating BB+ ) .................................................. 2,201,760
Viatel Inc. ($3,250,000 par, 0/15.000% coupon, 01/15/05 maturity,
S&P rating NR)(3) .................................................. 1,641,250
-----------
3,843,010
-----------
Total Fixed Income Securities ..................................... 5,410,510
-----------
Total Long-Term Investments 96.3%
(Cost $127,459,332)(1) ............................................. 127,778,238
Repurchase Agreement 1.5%
UBS Securities, U.S. T-Note, $1,970,000 par, 5.625% coupon,
due 01/31/98, dated 06/30/95, to be sold on 07/03/95 at $1,958,995.. 1,958,000
Other Assets in Excess of Liabilities 2.2% ........................ 2,925,835
-----------
Net Assets 100% ...................................................$132,662,073
-----------
</TABLE>

(1) At June 30, 1995, cost for federal income tax purposes is $127,459,332; the
aggregate gross unrealized appreciation is $5,280,933 and the aggregate
gross unrealized depreciation is $4,961,766, resulting in net unrealized
appreciation including foreign currency translation of $319,167.
(2) Non-income producing security as this stock currently does not declare
dividends.
(3) Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.

See Notes to Financial Statements

B-34

<PAGE> 94

Statement of Assets and Liabilities
June 30, 1995
<TABLE>
<S> <C>
Assets:
Investments, at Market Value (Cost $127,459,332) (Note 1) ............................ $ 127,778,238
Short-Term Investments (Note 1) ...................................................... 1,958,000
Cash ................................................................................ 489,190
Receivables:
Investments Sold .................................................................. 2,279,502
Dividends ......................................................................... 729,130
Fund Shares Sold ................................................................... 170,510
Interest ........................................................................... 122,983
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ......... 70,711
-----------
Total Assets ......................................................................... 133,598,264
-----------
Liabilities:
Payables:
Fund Shares Repurchased ........................................................... 351,573
Investment Advisory Fee (Note 2) .................................................. 254,843
Accrued Expenses ..................................................................... 329,775
-----------
Total Liabilities .................................................................... 936,191
-----------
Net Assets ........................................................................... $ 132,662,073
-----------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 144,462,705
Accumulated Undistributed Net Investment Income ..................................... 1,563,610
Net Unrealized Appreciation on Investments .......................................... 319,167
Accumulated Net Realized Loss on Investments ......................................... (13,683,409)
-----------
Net Assets ........................................................................... $ 132,662,073
-----------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $50,394,201 and
3,764,785 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 13.39
Maximum sales charge (5.75%* of offering price) ...................................... .82
-----------
Maximum offering price to public ..................................................... $ 14.21
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $80,994,205 and
6,064,329 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 13.36
-----------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,273,667 and
95,362 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 13.36
-----------
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

B-35

<PAGE> 95

Statement of Operations
For the Year Ended June 30, 1995
<TABLE>
<S> <C>
Investment Income:
Dividends (Net of foreign withholding taxes of $128,049) ............................... $ 6,281,372
Interest ............................................................................... 1,659,396
------------
Total Income ............................................................................ 7,940,768
------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $150,498,
$821,749, $12,075 and $4, respectively) (Note 6) ..................................... 984,326
Investment Advisory Fee (Note 2) ...................................................... 874,190
Shareholder Services .................................................................. 266,727
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ....... 22,995
Trustees Fees and Expenses (Note 2) .................................................... 22,354
Legal (Note 2) ........................................................................ 12,173
Other ................................................................................. 215,191
------------
Total Expenses ........................................................................... 2,397,956
------------
Net Investment Income .................................................................... $ 5,542,812
------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments (Including realized gain on foreign currency
translation of $74,813 and realized loss on closed option transactions of $246,329) .... $ (11,154,213)
------------
Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period ............................................................... (15,612,166)
End of the Period (Including unrealized appreciation on foreign
currency translation of $261) ......................................................... 319,167
------------
Net Unrealized Appreciation on Investments and Foreign Currency During the Period ........ 15,931,333
------------
Net Realized and Unrealized Gain on Investments and Foreign Currency .................... $ 4,777,120
------------
Net Increase in Net Assets from Operations .............................................. $ 10,319,932
------------
</TABLE>

See Notes to Financial Statements

B-36

<PAGE> 96

Statement of Changes in Net Assets

For the Year Ended June 30, 1995 and the Period July 28, 1993 (Commencement of
Investment Operations) to June 30, 1994
<TABLE>
<CAPTION>
Year Ended Period Ended
June 30, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................ $ 5,542,812 $ 4,154,946
Net Realized Loss on Investments and Foreign Currency ............ (11,154,213) (2,099,212)
Net Unrealized Appreciation/Depreciation on Investments
and Foreign Currency During the Period ........................... 15,931,333 (15,612,166)
----------- ------------
Change in Net Assets from Operations ............................ 10,319,932 (13,556,432)
----------- ------------
Distributions from Net Investment Income:
Class A Shares .................................................. (2,381,991) (1,135,794)
Class B Shares .................................................. (3,137,968) (1,491,532)
Class C Shares .................................................. (46,441) (15,164)
Class D Shares .................................................. (68) (3)
----------- ------------
(5,566,468) (2,642,493)
----------- ------------
Distributions in Excess of Net Realized Gain on Investments:
Class A Shares .................................................. -0- (131,867)
Class B Shares .................................................. -0- (222,070)
Class C Shares .................................................. -0- (1,234)
----------- ------------
-0- (355,171)
----------- ------------
Total Distributions .............................................. (5,566,468) (2,997,664)
----------- ------------
Net Change in Net Assets from Investment Activities ............. 4,753,464 (16,554,096)
----------- ------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 19,193,852 164,220,373
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 4,462,088 2,433,525
Cost of Shares Repurchased ....................................... (32,083,914) (13,766,079)
----------- ------------
Net Change in Net Assets from Capital Transactions .............. (8,427,974) 152,887,819
----------- ------------
Total Increase/Decrease in Net Assets ............................ (3,674,510) 136,333,723
Net Assets:
Beginning of the Period ......................................... 136,336,583 2,860
----------- ------------
End of the Period (Including undistributed net investment
income of $1,563,610 and $1,512,453, respectively) ............. $ 132,662,073 $ 136,336,583
----------- ------------
</TABLE>

See Notes to Financial Statements

B-37

<PAGE> 97
Notes to Financial Statements
June 30, 1995

1. Significant Accounting Policies

Van Kampen Merritt Utility Fund (the "Fund") was organized as a subtrust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust on March 10,
1993, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund commenced
investment operations on July 28, 1993, with two classes of common shares,
Class A and Class B shares. The distribution of the Fund's Class C shares
commenced on August 13, 1993. On May 2, 1995, all Class D shareholders redeemed
their shares and the class was eliminated. The Fund will no longer offer Class
D shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments in securities listed on a securities exchange
shall be valued at their sale price as of the close of such securities
exchange. Investments in securities not listed on a securities exchange shall
be valued based on their last quoted bid price or, if not available, their fair
value as determined by the Board of Trustees or its delegate. Fixed income
investments are stated at value using market quotations or, if such
valuations are not available, estimates obtained from yield data relating to
instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may purchase and sell securities on a "when issued" 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. At June 30, 1995, there
were no when issued or delayed delivery purchase commitments.

C. Investment Income-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Bond discount is amortized
over the expected life of each applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund has reim-
bursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for

B-38

<PAGE> 98
Notes to Financial Statements (Continued)
June 30, 1995

costs incurred in connection with the Fund's organization and initial
registration in the amount of $115,000. These costs are being amortized on a
straight line basis over the 60 month period ending July 28, 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 by the Fund during the amortization period, the Fund will be reimbursed
for any unamortized organizational expenses and initial registration costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.

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, 1995, the Fund had an accumulated capital loss carryforward
for tax purposes of $5,186,334, which will expire on June 30, 2003.
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.

F. Distribution of Income and Gains-The Fund declares and pays dividends
quarterly from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. 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 these items totaling $74,813 were reclassified from
accumulated net realized gain/loss on investments to accumulated undistributed
net investment income.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains and gains
on option and futures transactions. All short-term capital gains and a portion
of option and futures gains are included as ordinary income for tax purposes.
The Board of Trustees of the Fund declared a dividend of $.150 per share for
Class A shares, $.123 per share for Class B shares and $.123 per share for
Class C shares, aggregating approximately $1,320,500 from net investment income,
payable July 11, 1995, to shareholders of record on July 11, 1995.

B-39

<PAGE> 99

Notes to Financial Statements (Continued)
June 30, 1995

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 Net Assets % Per Annum
- ------------------------------------
<S> <C>
First $500 million ... .65 of 1%
Next $500 million .... .60 of 1%
Over $1 billion ...... .55 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended June 30, 1995, the Fund recognized expenses of
approximately $97,200 representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$17,800.
At June 30, 1995, VKAC owned 104, 103 and 100 shares of Classes A, B and C,
respectively.

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.

B-40
<PAGE> 100

Notes to Financial Statements (Continued)
June 30, 1995

At June 30, 1995, paid in surplus aggregated $54,774,866, $88,342,760 and
$1,345,079 for Classes A, B and C, respectively. For the year ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 542,836 $ 7,012,472
Class B ...................... 907,385 11,745,156
Class C ....................... 34,020 436,224
Class D ....................... -0- -0-
--------- --------------
Total Sales ................... 1,484,241 $ 19,193,852
--------- --------------
Dividend Reinvestment:
Class A ...................... 150,900 $ 1,918,578
Class B ...................... 196,967 2,507,508
Class C ....................... 2,830 35,996
Class D ....................... 1 6
--------- --------------
Total Dividend Reinvestment ... 350,698 $ 4,462,088
--------- --------------
Repurchases:
Class A ...................... (918,564) $ (11,858,442)
Class B ...................... (1,539,119) (19,841,320)
Class C ....................... (30,118) (382,553)
Class D ....................... (115) (1,599)
--------- --------------
Total Repurchases ............ (2,487,916) $ (32,083,914)
--------- --------------
</TABLE>

B-41

<PAGE> 101

Notes to Financial Statements (Continued)
June 30, 1995

At June 30, 1994, paid in surplus aggregated $57,702,258, $93,931,416,
$1,255,412 and $1,593 for Classes A, B, C and D, respectively. For the period
ended June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 4,376,491 $ 63,097,058
Class B ...................... 6,920,468 99,775,499
Class C ....................... 94,980 1,346,223
Class D ....................... 114 1,593
---------- --------------
Total Sales ................... 11,392,053 $ 164,220,373
---------- --------------
Dividend Reinvestment:
Class A ...................... 74,103 $ 1,036,464
Class B ...................... 98,967 1,383,421
Class C ....................... 981 13,640
Class D ....................... -0- -0-
---------- --------------
Total Dividend Reinvestment ... 174,051 $ 2,433,525
---------- --------------
Repurchases:
Class A ...................... (461,081) $ (6,432,694)
Class B ...................... (520,439) (7,228,934)
Class C ....................... (7,331) (104,451)
Class D ....................... -0- -0-
---------- --------------
Total Repurchases ............ (988,851) $ (13,766,079)
---------- --------------
</TABLE>

B-42

<PAGE> 102

Notes to Financial Statements (Continued)
June 30, 1995

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>

For the year ended June 30, 1995, VKAC, as Distributor for the Fund, received
net commissions on sales of the Fund's Class A shares of approximately $35,000
and CDSC on the redeemed shares of Classes B and C of approximately $483,100.
Sales charges do not represent expenses of the Fund.

The Board of Trustees has approved the acquisition of the assets and
liabilities of the American Capital Utilities Income Fund (the "AC Fund"),
which currently has net assets of approximately $27.7 million. This transaction,
subject to approval by shareholders of the AC Fund, is expected to be completed
in September 1995. As a result of this transaction, the Fund will issue fund
shares equal in value to the net assets of the AC Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1995, were $142,714,031 and
$162,105,948, 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.

B-43

<PAGE> 103

Notes to Financial Statements (Continued)
June 30, 1995

All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
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 provide the
return of an index without purchasing all of the securities underlying the
index.
Transactions in options for the year ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994 ......... 112 $ (245,896)
Options Written and Purchased (Net) ... 2,400 (269,543)
Options Terminated in Closing
Transactions (Net) .................... (2,512) 515,439
-------- -----------
Outstanding at June 30, 1995 ......... -0- $ -0-
-------- -----------
</TABLE>

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .30% for Class A shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for
the year ended June 30, 1995, are payments to VKAC of approximately $655,200.

B-44

<PAGE> 104

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
BALANCED FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Balanced Fund, formerly known as Van Kampen
Merritt Balanced Fund (the "Fund"), is a separate diversified series of Van
Kampen American Capital Equity Trust, an open-end management investment company,
commonly known as a mutual fund. The Fund's investment objective is to seek to
provide its shareholders with current income, while also seeking to provide
shareholders with capital growth. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of common stocks, fixed income
securities (including preferred stock, government securities, corporate debt
securities and convertible securities) and cash and cash equivalents. There can
be no assurance that the Fund will achieve its investment objective.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. (the "Adviser"). This Prospectus sets forth certain information
about the Fund 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.

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

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

A Statement of Additional Information, dated September 1, 1995, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and 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) 772-8889.

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

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

THIS PROSPECTUS IS DATED SEPTEMBER 1, 1995.

<PAGE> 105

(Continued from previous page.)

The Fund currently offers three classes of shares (the "Alternative Sales
Arrangements") which may be purchased at a price equal to their net asset value
per share, plus sales charges which, at the election of the investor, may be
imposed (i) at the time of purchase (the "Class A Shares") or (ii) on a
contingent deferred basis (Class A Share accounts over $1 million, "Class B
Shares" and "Class C Shares"). The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. See
"Alternative Sales Arrangements" and "Purchase of Shares."

2
<PAGE> 106

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

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....................................................... 11
Investment Objective and Policies.............................. 11
Investment Practices........................................... 16
Risks.......................................................... 20
Investment Advisory Services................................... 21
Alternative Sales Arrangements................................. 23
Purchase of Shares............................................. 25
Shareholder Services........................................... 34
Redemption of Shares........................................... 39
The Distribution and Service Plans............................. 42
Distributions from the Fund.................................... 44
Tax Status..................................................... 44
Fund Performance............................................... 47
Description of Shares of the Fund.............................. 48
Additional Information......................................... 49
</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> 107

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

PROSPECTUS SUMMARY

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

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

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 provide its
shareholders with current income, while also seeking to provide shareholders
with capital growth. There can be no assurance that the Fund will achieve its
investment objective.

INVESTMENT POLICIES AND RISKS. The Fund will seek to achieve its investment
objective by investing in a diversified portfolio of equity securities
consisting of common and preferred stocks, fixed-income securities (including
government securities, corporate debt securities and convertible securities) and
cash and cash equivalents. The mix of these securities is determined by the
Fund's investment adviser on the basis of existing and anticipated market
conditions. The relative percentages of each type of security in the portfolio
can be expected to fluctuate and at times the Fund may be invested primarily in
debt securities or primarily in equity securities.

In normal market conditions, the Fund will have at least 25% of its total
assets invested in equity securities and 25% of its total assets invested in
investment grade fixed-income debt securities. The Fund's investments in
fixed-income securities will be, at the time of investment, of investment grade
quality. Investment grade securities are those rated at least BBB by Standard &
Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investor Services, Inc.
("Moody's") or comparably rated by any other nationally recognized statistical
rating organization or, if unrated, considered by the Fund's investment adviser
to be of comparable quality. The Fund may, however, invest up to 20% of its
assets in fixed-income securities that are rated below investment grade but not
rated lower than CC by S&P or Ca by Moody's or comparably rated by any other
nationally recognized statistical rating organization or, if unrated, considered
by the Fund's investment adviser to be of comparable or higher quality. The
foregoing 20% limit shall not apply to convertible securities. The Fund may not,
however, invest more than 35% of its total assets in all fixed-income
securities, including convertible securities, rated below investment grade or,
if unrated, deemed by the Adviser to be of comparable quality. Such lower rated
or unrated 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.
While offering opportunities for higher yields, lower-grade securities are
considered below investment grade and involve a greater degree of

4
<PAGE> 108

credit risk than investment grade income securities; although the lower-grade
income securities of an issuer generally involve a lower degree of credit risk
than its common stock.

The Fund may invest up to 25% of its assets in securities issued by non-U.S.
issuers. Under current market conditions, the Fund anticipates that at least one
half of the Fund's investments in such foreign securities will be U.S.
dollar-denominated. Investments in foreign securities involve certain risks not
ordinarily associated with investments in securities of domestic issuers,
including fluctuations in foreign exchange rates, future political and economic
developments, confiscatory taxation and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.

The Fund's net asset value per share will fluctuate depending on market
conditions and other factors. See "Investment Objective and Policies."

The Fund also may use various investment techniques including options,
futures, swaps and other derivatives, entering into when-issued or delayed
delivery transactions, lending portfolio securities, repurchase agreements and
reverse repurchase agreements. Such transactions entail certain risks. See
"Investment Practices."

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

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

5
<PAGE> 109

daily net assets attributable to the Class A Shares. Certain purchases of Class
A Shares qualify for reduced or no initial sales charges and may be subject to a
CDSC.

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the investment adviser for the Fund. See "Investment Advisory Services."

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income are
declared daily and paid quarterly; net realized 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 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."

The above is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

6
<PAGE> 110

- ------------------------------------------------------------------------------
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).......... 5.75%(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 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................ None None None
Exchange fees.............. None None None
</TABLE>

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

(1) Reduced on investments of $50,000 or more. See "Purchase of Shares -- Class
A Shares."

7
<PAGE> 111

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

ANNUAL FUND OPERATING EXPENSES AND EXAMPLE

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)................ 0.00% 0.00% 0.00%
12b-1 fees(2) (as a percentage of average
daily
net assets).............................. 0.25% 1.00% 1.00%
Other expenses(1) (as a percentage of
average daily net assets)................ 0.85% 0.88% 0.90%
Total(1) (as a percentage of average daily
net assets).............................. 1.10% 1.88% 1.90%
</TABLE>

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

(1) Absent the Adviser's waiver of its fee and assumption of a portion of the
expenses of the Fund, "Management fees" would have been 0.70% for each of
the Class A Shares, Class B Shares and Class C Shares, "Other expenses"
would have been 1.76% for Class A Shares, 1.78% for Class B Shares and 1.78%
for Class C Shares and "Total expenses" would have been 2.71% for Class A
Shares, 3.48% for Class B Shares and 3.48% for Class C Shares.

(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. 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. As of June
30, 1995, the Board of Trustees of the Trust reduced 12b-1 and service fees
for the Fund's Class A Shares to 0.25%. See "The Distribution and Service
Plans."

8
<PAGE> 112

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 1.10% for Class
A Shares, 1.88% for Class B Shares and
1.90% for Class C Shares, (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................ $68 $90 $ 115 $ 184
Class B Shares............................ $59 $94 $ 117 $ 190*
Class C Shares............................ $29 $60 $ 103 $ 222
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................ $68 $90 $ 115 $ 184
Class B Shares............................ $19 $59 $ 102 $ 190*
Class C Shares............................ $19 $60 $ 103 $ 222
</TABLE>

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

* Based on conversion to Class A Shares after six 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. As Fund
assets increase, the fees waived or expenses reimbursed by the Adviser are
expected to decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expenses" table. The ten year amount with respect to Class B Shares of
the Fund reflects the lower 12b-1 and service fees applicable to such shares
after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Investment Advisory Services" and
"The Distribution and Service Plans."

9
<PAGE> 113

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

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------------- ------------- -------------
JUNE 24, 1994 JUNE 24, 1994 JUNE 24, 1994
------------- ------------- -------------
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF INVESTMENT OF INVESTMENT OF INVESTMENT
OPERATIONS) OPERATIONS) OPERATIONS)
TO TO TO
JUNE 30, JUNE 30, JUNE 30,
1995 1995 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................................. $14.300 $14.300 $14.300
------ ------ ------
Net Investment Income............................................... .572 .464 .426
Net Realized and Unrealized Gain on Investments..................... 1.041 1.056 1.093
------ ------ ------
Total from Investment Operations..................................... 1.613 1.520 1.519
------ ------ ------
Less Distributions from Net Investment Income........................ .525 .431 .431
------ ------ ------
Net Asset Value, End of Period....................................... $15.388 $15.389 $15.388
========== ========== ==========
Total Return* (Non-Annualized)....................................... 11.53% 10.82% 10.82%
Net Assets at End of Period (in millions)............................ $ 4.8 $ 6.6 $ .8
Ratio of Expenses to Average Net Assets* (Annualized)................ 1.15% 1.88% 1.90%
Ratio of Net Investment Income to Average Net Assets* (Annualized)... 4.01% 3.27% 3.19%
Portfolio Turnover................................................... 120.95% 120.95% 120.95%
- ----------------
* 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 (Annualized)............... 2.76% 3.48% 3.48%
Ratio of Net Investment Income to Average Net Assets (Annualized).. 2.40% 1.67% 1.61%

</TABLE>

See Financial Statements and Notes Thereto

10
<PAGE> 114

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

THE FUND

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

Van Kampen American Capital Balanced Fund (the "Fund") is a mutual fund, which
pools shareholders' money to seek to achieve a specified investment objective.
The Fund is a separate diversified series of Van Kampen American Capital Equity
Trust (the "Trust"), which is an open-end management investment company,
organized as a Delaware business trust. Mutual funds sell their shares to
investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping. Investment in the Fund involves special
considerations as the Fund is a newly organized investment company with no
history of investment operations.

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 the Prospectus.

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

INVESTMENT OBJECTIVE AND POLICIES

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

The Fund's investment objective is to provide its shareholders with current
income, while also seeking to provide shareholders with capital growth. The Fund
will seek to achieve its investment objective by investing in a diversified
portfolio of equity securities consisting of common and preferred stocks,
fixed-income securities (including government securities, corporate debt
securities and convertible securities) and cash and cash equivalents. The mix of
these securities is determined by the Adviser on the basis of existing and
anticipated market conditions. The relative percentages of each type of security
in the portfolio can be expected to fluctuate and at times the Fund may be
invested primarily in debt securities or primarily in equity securities. In
normal market conditions, the Fund will have at least 25% of its total assets
invested in equity securities and 25% of its total assets invested in investment
grade fixed-income debt securities. The Fund's investments in fixed-income
securities will be, at the time of investment, of investment grade quality.
Investment grade rated securities are those rated at least BBB by Standard &
Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors Services,
Inc. ("Moody's") or comparably rated by any other nationally recognized
statistical rating organization ("NRSRO") or, if unrated, considered by the
Adviser to be of comparable quality. The Fund may, however, invest up to 20% of
its assets in fixed-income securities that are rated below investment grade but
not rated lower than CC by S&P or Ca by Moody's or comparably rated by any other
NRSRO or, if unrated, considered by

11
<PAGE> 115

the Adviser to be of comparable quality. The foregoing 20% limit shall not apply
to convertible securities. The Fund may not, however, invest more than 35% of
its total assets in all fixed-income securities, including convertible
securities, which are rated below investment grade or, if unrated, deemed by the
Adviser to be of comparable quality. The Fund may invest up to 25% of its assets
in securities issued by non-U.S. issuers. Under current market conditions, the
Fund anticipates that at least one half of the Fund's investments in foreign
securities will be U.S. dollar-denominated. The Fund's investment objective is
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 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.

ALLOCATION OF INVESTMENTS

The relative proportion of securities held by the Fund at any particular time
in the fixed-income and equity sectors of the market will be based on the
Adviser's views on market and economic conditions at such time and on the
Adviser's assessment of the relative investment opportunities and investment
risks presented in such sectors. In making such assessment, the Adviser will
consider such factors as actual or perceived changes in interest rate cycles,
business or economic conditions, rates of inflation, political factors, currency
relationships, investor demand, new issue or secondary market supply and other
factors. The Adviser applies a fundamental investment analysis in selecting
particular fixed-income and equity securities, including the macroeconomic
factors referenced above and, with respect to the particular issuers of such
securities, factors such as the creditworthiness and overall financial condition
of the issuer, the strength of management, product lines and competitive
positions of such issuer.

Alan T. Sachtleben, Executive Vice President of the Adviser, makes investment
allocation decisions for the Fund between the fixed-income and equity sectors
based on the recommendations of investment professionals of the Adviser. Once
the investment allocation decisions have been made, the Fund's portfolio
manager, B. Robert Baker, makes selections of particular securities consistent
with the foregoing and in consultation with the other investment professionals
of the Adviser. Allocations within the Fund's portfolio between fixed-income and
equity investment may be adjusted at any time and are formally reviewed at least
monthly. See also "Investment Advisory Services -- Portfolio Management."

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.

12
<PAGE> 116

The Fund does not anticipate having annual portfolio turnover rates in excess of
100% with respect to either the equity portfolio or the fixed-income portfolio.
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. See "Investment Policies and
Restrictions" in the Statement of Additional Information.

PORTFOLIO SECURITIES

FIXED-INCOME SECURITIES. The Fund may invest its assets in fixed-income
securities, which include preferred stocks, government securities, corporate
debt securities of various maturities and 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. The Fund's investments in fixed-income securities will be, at the
time of investment, rated investment grade. Investment grade rated securities
are those rated at least BBB by S&P, or at least Baa by Moody's or comparably
rated by any other NRSRO or, if unrated, considered by the Adviser to be of
comparable quality. The Fund may, however, invest up to 20% of its assets in
income securities that are rated at least CC by S&P or at least Ca by Moody's or
comparably rated by any other NRSRO or, if unrated, considered by the Fund's
investment adviser to be of comparable quality. The foregoing 20% limit shall
not apply to convertible securities. The Fund may not, however, invest more than
35% of its total assets in all fixed-income securities, including convertible
securities, which are rated below investment grade or, if unrated, deemed by the
Adviser to be of comparable quality.

Investment in lower grade securities involve a greater degree of credit risk
as compared with investment in higher grade securities. Such lower rated or
unrated 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 and/or repay principal in accordance with their terms.
While offering opportunities for higher yields, lower-grade securities are
considered below investment grade and involve a greater degree of credit risk
that investment grade income

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<PAGE> 117

securities; although the lower-grade income securities of an issuer generally
involve a lower degree of credit risk than its common stock. Such securities are
regarded by the rating agencies, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation; assurance of interest and principal payments or
maintenance of other terms of the securities over any long period of time may be
small. The market for lower grade securities is considered to be less liquid
than the market for investment grade securities which may adversely affect the
ability of the Fund to dispose of such securities in a timely manner at a price
which reflects the value of such security in the Adviser's judgment. Because
issuers of lower grade securities frequently choose not to seek a rating of
their securities, the Fund will rely more heavily on the Adviser's ability to
determine the relative investment quality of such securities than if the Fund
invested exclusively in higher grade securities. For a description of the
ratings assigned to income securities, including lower grade income securities,
please see "Description of Securities Ratings" in 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 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, in addition to the factors
described above, 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 any other NRSRO.

FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in securities
issued by non-U.S. issuers of similar quality as the securities described above
as determined by the Adviser. Under current market conditions, the Fund
anticipates that at least one half of the Fund's investments in foreign
securities will be U.S. dollar-denominated. 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

14
<PAGE> 118

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. 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 security than about a United States security, and foreign
entities may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States entities. In
addition, certain foreign investments made by the Fund may be subject to foreign
withholding taxes, which would reduce the Fund's total return on such
investments and the amounts available for distributions by the Fund to its
shareholders. 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.

DEFENSIVE STRATEGIES. In certain circumstances market conditions 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. Such taxable 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 NRSRO); commercial paper rated in the highest grade by either rating
service (or comparably rated by any other

15
<PAGE> 119

NRSRO); certificates of deposit and bankers' acceptances; repurchase agreements
with respect to any of the foregoing investments; or any other fixed-income
securities that the Adviser considers consistent with such strategy.

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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, enter into
repurchase and reverse repurchase agreements and lend its portfolio securities
in each case, subject to the limitations set forth below. These investments
entail risks.

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, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into 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 of 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, 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 interest rate exposure of the
Fund's portfolio, to protect against changes in currency exchange rates, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.

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<PAGE> 120

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. Certain Strategic Transactions may provide the
opportunity for increased income, but may have characteristics similar to
leverage. As a result, increases and decreases in the net asset value of the
Fund may be larger than comparable changes in the net asset value of the Fund if
the Fund did not engage in such Strategic Transactions. 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.

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."

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<PAGE> 121

ability to invest in repurchase agreements that mature in more than seven days
is subject to an investment restriction that limits the Fund's investments in
"illiquid" securities, including such repurchase agreements, to 15% of the
Fund's net assets.

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 on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale. Restricted securities salable
among qualified institutional buyers without restriction pursuant to Rule 144A
under the Securities Act of 1933, as amended that are determined to be liquid by
the Adviser under guidelines adopted by the Board of Trustees of the Trust
(under which guidelines the Adviser will consider factors such as trading
activities and the availability of price quotations), will not be treated as
restricted securities by the Fund pursuant to such rules.

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<PAGE> 122

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 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.

DOLLAR ROLLS. In order to seek a high level of current income, the Fund may
enter into dollar rolls in which the Fund sells securities for delivery in the
current month and simultaneously contracts to repurchase, typically in 30 or 60
days, substantially similar (same type 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, U.S.
Government Securities or other liquid high-grade debt obligations 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.

REVERSE REPURCHASE AGREEMENTS. 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

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<PAGE> 123

agreements create leverage and will be treated as borrowings for the purposes of
the Fund's investment restriction on borrowings.

The Fund is authorized to enter into dollar rolls and/or reverse repurchase
agreements with banks in an amount up to 33 1/3% of the Fund's total assets
(after giving effect to any such dollar rolls and reverse repurchase agreements)
which amount includes no more than 5% in borrowings and reverse repurchase
agreements from any entity for temporary purposes, such as clearances of
portfolio transactions, share repurchases and payment of dividends and
distributions. The Fund has no current intention to borrow money other than for
such temporary purposes. Accordingly, the Fund will not acquire additional
securities during any period in which its borrowings exceed 5% of the Fund's
total assets. The Fund will borrow only when the Adviser believes that such
borrowings will benefit the Fund.

Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, 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
stockholders as dividends will be reduced.

RISKS. The Fund's investment in certain portfolio securities and other
investment practices entail certain risks. Please see the discussion of such
risks contained under "Investment Objective and Policies -- Portfolio
Securities" and "Investment Practices."

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.

20
<PAGE> 124

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.

In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser
and the Distributor or dealers participating in the offering of the Fund's
shares. In addition, in selecting among firms to handle a particular
transaction, the Adviser and the Fund may take into account whether the firm has
sold or is selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.

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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. ("Van Kampen American Capital"). Van
Kampen American Capital is a diversified asset management company with more than
two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and over $50 billion under management or supervision.
Van Kampen American Capital's more than 40 open-end and 38 closed-end funds and
more than 2,700 unit investment trusts are professionally distributed by leading
financial advisers nationwide.

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<PAGE> 125

Connecticut limited partnership. C&D L.P. is managed by Clayton, Dubilier &
Rice, Inc. a New York based private investment firm. The General Partner of C&D
L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D Associates
L.P."). The general partners of C&D Associates L.P. are Joseph L. Rice, III, B.
Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe, and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of Van Kampen American Capital and its subsidiaries
(some of whom are officers or trustees of the Fund) own, in the aggregate, not
more than 7% of the common stock of VK/AC Holding, Inc. and have the right to
acquire, upon the exercise of options, approximately an additional 11% of the
common stock of VK/AC Holding, Inc. Presently, and after giving effect to the
exercise of such options, no officer or trustee of the Fund owns or would own 5%
or more of the common stock of VK/AC Holding, Inc. The address of the Adviser is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed
under the direction of the Board of Trustees of the Trust, of which the Fund is
a separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for overall management of the Fund's business
affairs. The Fund will pay the Adviser a fee equal to a percentage of the
average daily net assets of the Fund as follows:

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

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

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<PAGE> 126

designed to prevent conflicts of interest including, in some instances,
preclearance of trades.

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. (formerly American Capital Asset Management, Inc.).

PORTFOLIO MANAGEMENT. B. Robert Baker is primarily responsible for the day-to-
day management of the Fund's investment portfolio. Mr. Baker has been an
associate portfolio manager with Van Kampen American Capital Asset Management,
Inc., an affiliate of Van Kampen American Capital, since November, 1991. Prior
to 1991 Mr. Baker was a Vice President and Portfolio Manager with Variable
Annuity Life Insurance Co.

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

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

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and 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.

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

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<PAGE> 127

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 (discussed below). Investors who intend to hold
their shares for a significantly long time may not wish to continue to bear the
ongoing distribution and service expenses of Class C Shares which in the
aggregate, eventually would exceed the aggregate amount of the initial sales
charge and distribution and service expenses applicable to Class A Shares,
irrespective of the fact that a CDSC would eventually not apply to a redemption
of such Class C Shares.

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<PAGE> 128

class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares
that shall be approved by the SEC pursuant to an amended exemptive order. All
such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").

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PURCHASE OF SHARES

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

The Fund has designated three classes of shares for sale 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.

25
<PAGE> 129

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. 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. 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.
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

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<PAGE> 130

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
COMMISSION
TOTAL SALES CHARGE ----------
-------------------------- PERCENTAGE
PERCENTAGE PERCENTAGE OF
SIZE OF TRANSACTION OF OFFERING OF NET OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000....................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.......... 4.75 4.99 4.00
$100,000 but less than $250,000......... 3.75 3.90 3.00
$250,000 but less than $500,000......... 2.75 2.83 2.25
$500,000 but less than $1,000,000....... 2.00 2.04 1.75
$1,000,000 or more*..................... * * *
</TABLE>

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

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

QUANTITY DISCOUNTS

27
<PAGE> 131

Tax Free Money Fund ("Tax Free Money Fund"), Van Kampen American Capital Reserve
Fund ("Reserve Fund") and The Govett Funds, Inc.

OTHER PURCHASE PROGRAMS

28
<PAGE> 132

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:

29
<PAGE> 133

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

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

30
<PAGE> 134

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. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Fund, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate will be equal to (i) with respect to Class A Shares, 1.00%
on sales to $2 million, plus 0.80% on the next million, plus 0.20% on the next
$2 million and 0.08% on the excess over $5 million; (ii) 4.00% with respect to
Class B Shares and (iii) 1.00% with respect to Class C Shares. Such compensation
will not change the price an investor will pay for CDSC Shares or the amount
that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below. 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 on CDSC Shares derived from reinvestment of
dividends or capital gains distributions. Solely for purposes of determining the
number of years from the time of any payment for the purchase of CDSC Shares,
all payments during a month will be aggregated and deemed to have been made on
the last day of the month.

Proceeds from the CDSC 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 and services fees facilitates the ability of the Fund to
sell such CDSC Shares without a sales charge being deducted at the time of
purchase.

In determining whether a CDSC is applicable to a redemption of shares from a
class of CDSC Shares, it will be assumed that the redemption is made first of
any

31
<PAGE> 135

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, if any,
and fourth of CDSC Shares held longest during the period of time that a CDSC is
applicable to shares of the respective CDSC class. The charge will not be
applied to dollar amounts representing an increase in the net asset value per
share since the time of purchase.

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. A commission will be paid to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to $2
million, plus 0.80% on the next million, plus 0.20% on the next $2 million and
0.08% on the excess over $5 million.

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
DOLLAR AMOUNT
YEAR SINCE PURCHASE 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."

32
<PAGE> 136

Conversion Feature. Seven years after the end of the month in which a
shareholder's order to purchase a Class B Share of the Fund was accepted, such
Class B Share automatically will convert to a Class A Share and will no longer
be subject to the higher distribution fee applicable to Class B Shares. The
purpose of the conversion feature is to relieve the holders of Class B Shares
after such seven year period from the higher aggregate distribution and service
fees applicable to Class B Shares. Proceeds received by the Distributor from the
distribution fee and the CDSC, if any, with respect to a particular Class B
Share may be more or less than the Distributor's actual distribution related
expense with respect to such Class B Share.

33
<PAGE> 137

(ii) in connection with certain distributions from an IRA or other retirement
plan, (iii) pursuant to the Fund's systematic withdrawal plan but limited to 12%
annually of the initial value of the account, and (iv) effected pursuant to the
right of the Fund to liquidate a shareholder's account as described herein under
"Redemption of Shares." The contingent deferred sales charge is also waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 120 days after
redemption. See "Shareholder Services" and "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.

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

SHAREHOLDER SERVICES

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

34
<PAGE> 138

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

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.

35
<PAGE> 139

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

36
<PAGE> 140

upon exchange into the Fund. Shares of other funds which have not previously
been charged a sales charge (except for shares purchased via the reinvestment
option) will be charged the sales charge differential applicable to Class A
Shares of the Fund upon exchange into the Fund.

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) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. If the exchanging shareholder does not have an
account in the fund whose shares are being acquired, a new account will be
established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or dividend diversification options for the
new account, an exchanging shareholder must file a specific written request. The
Fund reserves the right to reject any order to acquire its shares through

37
<PAGE> 141

exchange. In addition, the Fund may restrict or terminate the exchange privilege
at any time on 60 days' notice to its shareholders of any termination or
material amendment.

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

SHAREHOLDER SERVICES APPLICABLE TO CLASS A SHAREHOLDERS ONLY

38
<PAGE> 142

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

39
<PAGE> 143

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

40
<PAGE> 144

shareholder's bank account of record. This privilege is not available if the
address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.

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

41
<PAGE> 145

Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans.

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

THE DISTRIBUTION AND SERVICE PLANS

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

42
<PAGE> 146

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.

43
<PAGE> 147

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 quarterly to holders of each class of
shares distributions of all or substantially all net investment income of the
Fund attributable to the respective class. 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
quarterly distribution may vary.

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

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit quarterly 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) 772-8889 for the hearing impaired) or
in writing to ACCESS.

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

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

The following federal income tax discussion is based on the advice of Skadden,
Arps, Slate, Meagher & Flom, and reflects applicable tax laws as of the date of
this Prospectus.

44
<PAGE> 148

FEDERAL INCOME TAXATION. The Fund intends to qualify each year and to elect 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 diversification of its assets.

If the Fund so qualifies and distributes each year to its Shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
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 net capital gains (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
net capital gains 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 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. 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.

45
<PAGE> 149

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.

DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to Shareholders as ordinary income whether paid in cash or reinvested in
additional Shares. Distributions of the Fund's net capital gains ("capital 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). The Fund will
inform Shareholders of the source and tax status of all distributions promptly
after the close of each calendar year. Some 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.

46
<PAGE> 150

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.

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 and will be long-term if such Shares
have been held for more than one year. Any loss realized upon a taxable
disposition of Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gains dividends received with respect
to such Shares. 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.

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

FUND PERFORMANCE

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

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. In
addition the Fund may include in advertisements or other sales literature
information regarding the past performance of certain types of investments or
market indices. Any historical performance information regarding the Fund 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

47
<PAGE> 151

separately for each class of the Fund's shares. In lieu of or in addition to
total return and yield calculations, such information may include performance
rankings and similar information from independent organizations such as Lipper
Analytical Services, Inc., Business Week, Forbes or other industry publications.
From time to time, the Fund may compare its performance to certain securities
and unmanaged indices which may have different risk/reward characteristics than
the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal and/or return.
In addition, from time to time, the Fund may utilize sales literature that
includes hypotheticals.

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

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

DESCRIPTION OF SHARES OF THE FUND

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

The Fund is a series of the Van Kampen American Capital Equity Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1993 as a sub-trust of Van Kampen Merritt Equity Trust,
a Massachusetts business trust under the name Van Kampen Merritt Balanced Fund.
The Fund was reorganized as a series of the Trust as of July 31, 1995. Shares of
the Trust entitle their holders to one vote per share; however, separate votes
are taken by each series on matters affecting an individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into classes. The Fund
currently offers three classes, designated Class A Shares, Class B Shares and
Class C Shares. Each class of shares represent an interest in the same assets of
the Fund and are identical in all respects except that each class bears certain

48
<PAGE> 152

distribution expenses and has exclusive voting rights with respect to its
distribution fee. See "The Distribution and Service Plans."

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.

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

ADDITIONAL INFORMATION

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

The fiscal year of the Fund ends on June 30 of each year. 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 auditors, 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.

Shareholder inquiries should be directed to Van Kampen American Capital
Balanced Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Attn:
Correspondence.

49
<PAGE> 153

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

NUMBER--(800) 421-5666.

PROSPECTIVE INVESTORS--CALL

YOUR BROKER OR (800) 421-5666.

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

NUMBER--(800) 421-5666.

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

DIAL (800) 772-8889.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 421-5666.

VAN KAMPEN AMERICAN CAPITAL

BALANCED FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

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

Investment Adviser

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

Distributor

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

Transfer Agent

ACCESS INVESTOR SERVICES, INC.

P.O. Box 418256

Kansas City, MO 64141-9256

Attn: Van Kampen American Capital Funds

Custodian

STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713

Attn: Van Kampen American Capital Funds

Legal Counsel

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

Independent Auditors

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 154

BALANCED FUND

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

P R O S P E C T U S

SEPTEMBER 1, 1995

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH

VAN KAMPEN AMERICAN CAPITAL

------------------------------------------------------------------------
<PAGE> 155

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

Van Kampen American Capital Balanced Fund, formerly known as Van Kampen
Merritt Balanced Fund (the "Fund"), seeks to provide its shareholders with
current income, while also seeking to provide shareholders with capital growth.
The Fund will seek to achieve its investment objective by investing in a
diversified portfolio of common stocks, fixed-income securities, (including
preferred stock, government securities, corporate debt securities and
convertible securities) and cash and cash equivalents. There can be no assurance
that the Fund will achieve its investment objective. The Fund is a separate
series of Van Kampen American Capital Equity Trust, a Delaware business trust
(the "Trust").

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust................................................................ B-2
Investment Policies and Restrictions.................................................. B-2
Additional Investment Considerations.................................................. B-4
Description of Securities Ratings..................................................... B-14
Officers and Trustees................................................................. B-19
Investment Advisory and Other Services................................................ B-25
Custodian and Independent Auditors.................................................... B-26
Portfolio Transactions and Brokerage Allocation....................................... B-27
Tax Status of the Fund................................................................ B-27
The Distributor....................................................................... B-28
Legal Counsel......................................................................... B-29
Performance Information............................................................... B-29
Independent Auditors' Report.......................................................... B-31
Financial Statements.................................................................. B-32
Notes to Financial Statements......................................................... B-40
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED SEPTEMBER 1, 1995

B-1
<PAGE> 156

THE FUND AND THE TRUST

The Fund is a separate series of the Trust, an open-end diversified management
investment company. The Fund was established pursuant to a Designation of Series
on March 17, 1994. At present, the Fund, Van Kampen American Capital Utility
Fund, Van Kampen American Capital Growth and Income Fund, Van Kampen American
Capital Total Return Fund (which has not commenced investment operations) and
Van Kampen American Capital Growth Fund (which has not yet commenced investment
operations) are the only series of the Trust, although other series may be
organized and offered in the future.

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated as of May
10, 1995, (the "Declaration of Trust"). The Declaration of Trust permits the
Trustees to create one or more separate investment portfolios and issue a series
of shares for each portfolio. The Trustees can further sub-divide each series of
shares into one or more classes of shares for each portfolio. The Trust can
issue an unlimited number of shares at $0.01 par value (prior to July 31, 1995,
the shares had no par value). Each share represents an equal proportionate
interest in the assets of the series with each other share in such series and no
interest in any other series. No series is subject to the liabilities of any
other series. The Declaration of Trust provides that shareholders are not liable
for any liabilities of the Trust or any of its series, requires inclusion of a
clause to that effect in every agreement entered into by the Trust or any of its
series and indemnifies shareholders against any such liability. The Fund was
originally organized as a sub-trust of Van Kampen Merritt Equity Trust, a
Massachusetts business trust by a Declaration of Trust dated March 26, 1987
under the name Van Kampen Merritt Balanced Fund. The Fund was reorganized as a
series of the Trust on July 31, 1995.

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

INVESTMENT POLICIES AND RESTRICTIONS

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

B-2
<PAGE> 157

2. Issue senior securities, enter into reverse repurchase agreements with
banks or engage in dollar rolls in the aggregate in excess of 33 1/3% of
the Fund's total assets (after giving effect to any such borrowing); which
amount includes no more than 5% in bank borrowings and reverse repurchase
agreements with any entity for temporary purposes. The Fund will not
mortgage, pledge or hypothecate any assets other than in connection with
issuances, borrowings, hedging transactions and risk management
techniques.

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.

8. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition and except as permitted under
the 1940 Act.

10. Purchase or sell real estate (including real estate limited partnership
interests), 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 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. 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 100%. 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.

B-3
<PAGE> 158

ADDITIONAL INVESTMENT CONSIDERATIONS

LOWER GRADE SECURITIES

The Fund may invest up to 20% of its assets in lower-grade fixed-income
securities (not including convertible securities). Such lower grade securities
are rated at least CC by Standard & Poor's Ratings Group ("S&P") or at least Ca
by Moody's Investor Services, Inc. ("Moody's"). Investment in such securities
involves special risks, as described herein. Liquidity relates to the ability of
a Fund to sell a security in a timely manner at a price which reflects the value
of that security. As discussed below, the market for lower grade securities is
considered generally to be less liquid than the market for investment grade
securities. The relative illiquidity of some of the Fund's portfolio securities
may adversely affect the ability of the Fund to dispose of such securities in a
timely manner and at a price which reflects the value of such security in the
Adviser's judgment. The market for less liquid securities tends to be more
volatile than the market for more liquid securities and market values of
relatively illiquid securities may be more susceptible to change as a result of
adverse publicity and investor perceptions than are the market values of higher
grade, more liquid securities.

B-4
<PAGE> 159

additional expenses and may determine to invest additional capital with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate.

The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issue. In this evaluation, 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 also may consider, although it does not rely primarily on, the credit
ratings of S&P and Moody's in evaluating fixed-income securities. 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 such securities held in the Fund's
portfolio. The Fund may, if deemed appropriate by the Adviser, retain a security
whose rating has been downgraded by S&P or Moody's, or whose rating has been
withdrawn.

Because the Fund may invest in unrated fixed-income securities, achievement by
the Fund of its investment objective may be more dependent upon the Adviser's
investment analysis than would be the case if the Fund were investing
exclusively in rated securities.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities (such as bonds, debentures,
notes and preferred stock) that may, at the holder's option, be converted into
or exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or in accordance
with a prescribed formula. A convertible security entitles the holder to receive
interest paid or accrued on convertible debt, or the dividend paid on
convertible preferred stock, until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities, until converted, have
the same general characteristics as other non-convertible, fixed income
securities, insofar as they generally provide a stable stream of income with
generally higher yields than those of common equity securities of the same or
similar issuers. By permitting the holder to exchange its investment for common
stock, convertible securities may also enable the investor to benefit from
appreciation in the market price of the underlying common stock. Therefore,
convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. Convertible securities rank
senior to common stock in a corporation's capital structure and, therefore,
generally entail less risk than the corporation's common stock, although the
extent to which such risk is reduced depends in a large measure upon the degree
to which the convertible security sells based on its value as a fixed income
security rather than that of the underlying common stock.

As with other fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. The credit standing of the issuer and other
factors may also have an effect on the value of a convertible security. The
unique feature of the convertible security is that, as the market price of the
underlying common stock declines, a convertible security tends to trade
increasingly in a manner similar to a fixed income security, and may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock approaches or
exceeds the conversion price, the price of a convertible security increasingly
reflects the value of the underlying common stock and may rise accordingly,
although gains may be less for the convertible security than for the underlying
common stock to the extent of any "conversion premium." A convertible security
generally will sell at a premium over its conversion value (i.e., the security's
worth, at market value, if converted into the underlying common stock)
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding the fixed income security. Thus,
appreciation of the underlying common stock will result in substantial
appreciation of the convertible security only after the conversion premium has
been eliminated.

Holders of fixed income securities (including convertible securities) have a
claim on the assets of the issuer prior to the holders of common stock in case
of liquidation. However, convertible securities are typically subordinated to
non-convertible, fixed income securities of the same issuer.

The Adviser believes that the characteristics of convertible securities make
them particularly appropriate vehicles to achieve the Fund's investment
objective. Convertible securities have unique investment characteristics because
(i) they have relatively high yields as compared to common stocks, (ii) they
have defensive

B-5
<PAGE> 160

characteristics since they provide a fixed return even if the market price of
the underlying common stock declines, and (iii) they provide the potential for
capital appreciation if the market price of the underlying common stock
increases.

A convertible security may be subject to redemption at the option of the
issuer at a price established in the charter provision or indenture pursuant to
which the convertible security is issued. If a convertible security held by the
Fund is called for redemption, the Fund will be required to surrender the
security for redemption, convert it into the underlying common stock or sell it
to a third party. Any of these actions could have an adverse effect on the
Fund's ability to achieve its investment objective. If the Fund surrenders the
security for redemption, it will receive the face amount of the security, and
possibly a redemption premium. However, the amount received may be less than the
value of the security before the redemption. Moreover, since a call for
redemption is most likely to occur in a declining interest rate environment, the
Fund may not be able to earn as high a rate of return when it reinvests the
proceeds. Selling or converting the security might be more advantageous than
surrendering for redemption, but the reinvestment risk would remain. Before the
Fund purchases a convertible security, it will review carefully the redemption
provisions of the security.

Convertible securities are generally not investment grade, that is, not rated
within the four highest categories by S&P and Moody's. To the extent that
convertible securities acquired by the Fund are rated lower than investment
grade or are not rated, there is a greater risk as to the timely repayment of
the principal of, and timely payment of interest or dividends on, such
securities. The Fund expects that many convertible securities which it purchases
will be rated below investment grade. Such securities generally are considered
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal and to involve major risk exposures to adverse
conditions that outweigh any quality and protective characteristics. See
"Additional Investment Considerations -- Lower Grade Securities". Under current
market conditions, not more than 35% of the Fund's total assets may be invested
in all fixed income securities that are rated below investment grade, or if
unrated, deemed by the Adviser to be of comparable quality.

In selecting convertible securities for the Fund, the Adviser will consider
the following factors, among others, (1) the Adviser's own evaluation of the
creditworthiness of the issuers of the securities; (2) the interest or dividend
income generated by the securities; (3) the potential for capital appreciation
of the securities and the underlying common stock; (4) the prices of the
securities relative to the underlying common stock; (5) the prices of the
securities relative to other comparable securities; (6) whether the securities
have unfavorable redemption provisions or are entitled to the benefits of
sinking funds or other protective conditions; (7) diversification of the Fund's
portfolio as to issuers and industries; (8) whether the securities are rated by
Moody's and/or S&P and, if so, the ratings assigned; and (9) whether the
underlying common stock can be sold short, although the Fund is not limited to
buying convertible securities the underlying common stock of which may be sold
short.

MONEY MARKET INSTRUMENTS

B-6
<PAGE> 161

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, in addition to the factors described in the
Prospectus under the heading "Investment Objective and Policies," 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 nationally recognized
statistical rating organizations.

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, 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.

B-7
<PAGE> 162

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.

B-8
<PAGE> 163

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 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.

B-9
<PAGE> 164

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 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.

B-10
<PAGE> 165

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.

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.

B-11
<PAGE> 166

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.

B-12
<PAGE> 167

must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high-grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high-grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high-grade
assets equal to the exercise price.

OTC options entered into by the Fund, including those on securities,
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 cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery 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.

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.

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.

B-13
<PAGE> 168

DESCRIPTION OF SECURITIES RATINGS

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, in varying degrees, on the following
considerations:

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

2. Nature of and provisions of the obligation:

LONG-TERM DEBT--INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
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.

LONG-TERM DEBT--SPECULATIVE GRADE

B-14
<PAGE> 169

CC: The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

CI: The rating CI is reserved for income bonds on which no interest is being
paid.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

C: The letter 'C' indicates that the holder's option to tender this security
for purchase may be canceled under certain prestated conditions enumerated in
the tender option documents.

P: The letter 'P' indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of such completion. The investor should exercise his own
judgement with respect to such likelihood and risk. The rating is contingent
upon S&P's receipt of an executed copy of the escrow agreement or closing
documents.

NR: Not rated.

COMMERCIAL PAPER

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

B-15
<PAGE> 170

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
overwhelming as for issues designated "A-1".

B Issues rated "B" are regarded as having only speculative capacity
for timely payment.

C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

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
Standard & Poor's 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.

VARIABLE RATE DEMAND BONDS

Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a variable rate demand or double feature.

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 are used to denote the put
option (for example, 'AAA/A-1') or if the nominal maturity is short, a rating of
'SP-1+/AAA' is assigned.

NOTES

A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due 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 it will be treated as a note).

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

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

SP-3 Speculative capacity to pay principal and interest.

PREFERRED STOCK

B-16
<PAGE> 171

<TABLE>
<S> <C>
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.
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 balance, as
B predominantly speculative with respect to the issuer's capacity to pay preferred
CCC stock obligations. 'BB' indicates the lowest degree of speculation and 'CCC' the
highest degree of speculation. 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 non-paying issue.
D A preferred stock rated 'D' is a non-paying issue with the issuer in default on
debt instruments.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, the ratings from 'AA' to 'B' may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
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.
</TABLE>

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

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.

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.

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 by lacking or may be characteristically unreliable over any great
length of

B-17
<PAGE> 172

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

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

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

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

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

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

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

SHORT-TERM DEBT

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.

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.

B-18
<PAGE> 173

PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

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: Beginning May 3, 1982, Moody's began applying numerical modifiers 1, 2
and 3 in each 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.

OFFICERS AND TRUSTEES

B-19
<PAGE> 174

of the open-end investment companies advised by the VK Adviser (excluding the
Van Kampen Merritt Series Trust) and each of the open-end investment companies
advised by the AC Adviser.

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
2300 205th Street President of MDT Corporation, a company which develops
Torrance, CA 90501 manufactures, markets and services medical and scientific
Age: 63 equipment. Trustee of each of the Van Kampen American
Capital Funds.

Richard E. Caruso.................. Founder, Chairman and Chief Executive Officer, Integra
Two Randor Station, Suite 314 Life Sciences Corporation, a firm specializing in life
King of Prussia Road sciences. Trustee of Susquehanna University and First
Radnor, PA 19087 Vice President, The Baum School of Art; Founder and
Age: 52 Director of Uncommon Individual Foundation, a youth
development foundation. Director of International Board
of Business Performance Group, London School of
Economics. Formerly, Director of First Sterling Bank, and
Executive Vice President and a Director of LFC Financial
Corporation, a provider of lease and project financing.
Trustee of each of the Van Kampen American Capital Funds.

Philip P. Gaughan.................. Prior to February, 1989, Managing Director and Manager of
9615 Torresdale Avenue Municipal Bond Department, W. H. Newbold's Sons & Co.
Philadelphia, PA 19114 Trustee of each of the Van Kampen American Capital Funds.
Age: 66

Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Age: 75

R. Craig Kennedy................... President and Director, German Marshall Fund of the
1341 E. 50th Street United States. Formerly, advisor to the Dennis Trading
Chicago, IL 60615 Group Inc. Prior to 1992, President and Chief Executive
Age: 43 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.

Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser and Van Kampen American
Oakbrook Terrace, IL 60181 Capital Management, Inc. Director of VK/AC Holding, Inc,
Age: 53 Van Kampen American Capital, and McCarthy, Crisanti &
Maffei, Inc. Chairman and a Director of MCM Asia Pacific
Company, Ltd. President, Chief Executive Officer and
Trustee of each of the funds advised by the VK Adviser.
Prior to December, 1991, Senior Vice President of Van
Kampen Merritt Inc.

Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Age: 75 Trust Company of Chicago and Continental Illinois
Corporation. Trustee of each of the Van Kampen American
Capital Funds and Chairman of the Board of each of the
open-end funds (except the Van Kampen Merritt Series
Trust) advised by the VK Adviser.
</TABLE>

B-20
<PAGE> 175

Don G. Powell*..................... President, Chief Executive Officer and a Director of
2800 Post Oak Blvd. VK/AC Holding, Inc. and Van Kampen American Capital.
Houston, TX 77056 Chairman, Chief Executive Officer and a Director of the
Age: 55 Distributor, the VK Adviser, the AC Adviser and Van
Kampen American Capital Management, Inc. Director,
President and Chief Executive Officer of Van Kampen
American Capital Advisers, Inc. and Van Kampen American
Capital Exchange Corp. Director and Executive Vice
President of Advantage Capital Corporation, ACCESS
Investor Services, Inc., Van Kampen American Capital
Services, Inc. and Van Kampen American Capital Trust
Company. Director of McCarthy, Crisanti & Maffei, Inc.
President and Director, Trustee or Managing General
Partner of each of the funds advised by the AC Adviser
and Trustee of each of the funds advised by the VK
Adviser. He is also Chairman of the Board of the Van
Kampen Merritt Series Trust and closed-end investment
companies advised by the VK Adviser.

David Rees......................... Contributing Columnist and, prior to 1995, Senior Editor
1601 Country Club Drive of Los Angeles Business Journal. A director of Source
Glendale, CA 91208 Capital, Inc., a closed-end investment company
Age: 71 unaffiliated with Van Kampen American Capital, a director
and the second vice president of International Institute
of Los Angeles. Trustee of each of the Van Kampen
American Capital Funds.

Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Age: 72 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.

Lawrence J. Sheehan*............... Of Counsel to and formerly Partner (from 1969 to 1994) of
1999 Avenue of the Stars the law firm of O'Melveny & Myers, legal counsel to the
Suite 700 funds advised by the AC Adviser. Director, FPA Capital
Los Angeles, CA 90067 Fund, Inc.; FPA New Income Fund, Inc.; FPA Perennial
Age: 63 Fund, Inc.; Source Capital, Inc.; and TCW Convertible
Security Fund, Inc. Trustee of each of the Van Kampen
American Capital Funds.

Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
Stevens Institute of Graduate School and Chairman, Department of Mechanical
of Technology Engineering, Stevens Institute of Technology. Director of
Castle Point Station Dynalysis of Princeton, a firm engaged in engineering
Hoboken, NJ 07030 research. Trustee of each of the Van Kampen American
Age: 70 Capital Funds and Chairman of the Board of each of the
open-end funds advised by the AC Adviser.

Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to funds advised by the VK Adviser.
Chicago, IL 60606 Trustee of each of the Van Kampen American Capital Funds.
Age: 55 He also is a Trustee of the Van Kampen Merritt Series
Trust and closed-end investment companies advised by the
VK Adviser.
</TABLE>

B-21
<PAGE> 176

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

OFFICERS

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

B-22
<PAGE> 177

Weston B. Assistant Secretary Vice President, Associate General Counsel and
Wetherell.......... Assistant Secretary of Van Kampen American
Age: 39 Capital, the VK Adviser and the Distributor.
Assistant Secretary of McCarthy, Crisanti &
Maffei, Inc. Assistant Secretary of each of
the Van Kampen American Capital Funds and
closed-end funds advised by the VK Adviser.

John L. Sullivan..... Controller First Vice President of the VK Adviser.
Age: 39 Controller of each of the Van Kampen American
Capital Funds and closed-end funds advised by
the VK Adviser.

Steven M. Hill....... Assistant Treasurer Assistant Vice President of the VK Adviser.
Age: 30 Assistant Treasurer of each of the Van Kampen
American Capital Funds and closed-end funds
advised by the VK Adviser.
</TABLE>

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

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

B-23
<PAGE> 178

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF BENEFITS UPON COMPLEX PAID TO
NAME FROM REGISTRANT(2) FUND EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
- ------------------------------- -------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C>
R. Craig Kennedy............... $4,581 $0 $2,500 $62,362
Philip G. Gaughan.............. 6,262 0 2,500 63,250
Donald C. Miller............... 4,414 0 2,500 62,178
Jack A. Nelson................. 4,581 0 2,500 62,362
Jerome L. Robinson............. 4,456 0 2,500 58,475
Wayne W. Whalen................ 6,143 0 2,500 49,875
</TABLE>

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

(1) Messrs. McDonnell and Powell, trustees of the Trust, are affiliated persons
of the VK Adviser and are not eligible for compensation or retirement
benefits from the Trust. Messrs. Branagan, Caruso, Hilsman, Rees, Sheehan,
Sisto and Woodside were elected as trustees of the Trust at a shareholders
meeting held July 21, 1995 and thus received no compensation or retirement
benefits from the Trust during its fiscal year ended June 30, 1995.

(2) The Registrant is Van Kampen American Capital Equity Trust (the "Trust")
which currently is comprised of 3 operating series, including the Fund. The
amounts shown in this column are accumulated from the Aggregate Compensation
of each of these 3 series during such series' fiscal year ended June 30,
1995. Beginning in October 1994 each Trustee, except Messrs. Gaughan and
Whalen, began deferring his entire aggregate compensation. The total
combined amount of deferred compensation (including interest) accrued with
respect to each trustee from the Fund Complex (as defined herein) as of
December 31, 1994 is as follows: Mr. Kennedy $14,737; Mr. Miller $14,553;
Mr. Nelson $14,737 and Mr. Robinson $13,725.

(3) The Retirement Plan commenced as of August 1, 1994 for the Fund. The amounts
in this column are the retirement benefits accrued during the Fund's fiscal
year ended June 30, 1995.

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

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

As of August 18, 1995, the trustees and officers as a group own less than 1%
of the Shares of the Fund.

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

As of August 18, 1995, the following persons owned of record or beneficially
5% or more of the Fund's Class A Shares: Edward D. Jones & Co. F/A/O Clyde M.
Harper & EDJ#788-00123-1-0, P.O. Box 2500, Maryland Heights, MO 63043-8500, 6%.

To the knowledge of the Fund, as of August 18, 1995, no person owned of record
or beneficially 5% or more of the Fund's Class B Shares.

As of August 18, 1995, the following persons owned of record or beneficially
5% or more of the Fund's Class C Shares: Donaldson, Lufkin, Jenrette Securities
Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-2052, 7%; Parker Hunter
Incorporated FBO, Dolores M. L. Esparraguera IRA, Parker/Hunter

B-24
<PAGE> 179

Custodian, 9 Glenview Avenue, Oil City, PA 16301-2137, 38%; and Parker Hunter
Incorporated FBO, Frank Esparraguera IRA, Parker/Hunter Custodian, 9 Glenview
Avenue, Oil City, PA 16301-2137, 43%.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

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

B-25
<PAGE> 180

Fund up to $30 million, 2% of the average annual net assets of the Fund of the
next $70 million, and 1 1/2% of the remaining average annual net assets of the
Fund. In addition to making any required reimbursements, the Adviser may in its
discretion, but is not obligated to, waive all or any portion of its fee or
assume all or any portion of the expenses of the Fund.

For the year ended June 30, 1995, the Fund reorganized advisory expenses of
$0.

OTHER AGREEMENTS

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

For the year ended June 30, 1995, the Fund recognized expenses of
approximately $4,200, representing the Distributor's cost of providing certain
support services.

FUND ACCOUNTING AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares equally, together with the other Van Kampen American Capital
mutual funds advised by the Adviser 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 year ended June 30, 1995, the Fund recognized expenses of
approximately $3,900, representing the Adviser's cost of providing accounting
services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital Funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: 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.

For the year ended June 30, 1995, the Fund recognized expenses of
approximately $5,900, representing Van Kampen American Capital's cost of
providing legal services.

CUSTODIAN AND INDEPENDENT AUDITORS

B-26
<PAGE> 181

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

State securities laws may differ from the interpretations of federal law
expressed herein, and banks and financial institutions may be required to
register as dealers pursuant to state law.

TAX STATUS OF THE FUND

B-27
<PAGE> 182

THE DISTRIBUTOR

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

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

B-28
<PAGE> 183

For the year ended June 30, 1995, the Fund recognized expenses under the Plans
of $12,732, $58,308 and $4,287 for the Class A Shares, Class B Shares and Class
C Shares, respectively, of which $10,718, $14,491 and $0 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 $947, $1,820 and $0 for advertising
expenses, and $1,288, $1,331 and $0 for compensation of the Distributor's sales
personnel for the Class A Shares, Class B Shares and Class C Shares,
respectively.

LEGAL COUNSEL

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

PERFORMANCE INFORMATION

FUND 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
six years after their issuance and Class C Shares redeemed during the first year
after their issuance may be subject to a contingent deferred sales charge in a
maximum amount equal to 4.00% and 1.00%, respectively, of the lesser of the then
current net asset value of the shares redeemed or their initial purchase price
from the Fund. Yield quotations do not reflect the imposition of a contingent
deferred sales charge, and if any such contingent deferred sales charge imposed
at the time of redemption were reflected, it would reduce the performance
quoted.

B-29
<PAGE> 184

BALANCED INVESTING

The Adviser believes that various asset classes have performed differently
overtime after adjusting for inflation. This performance difference among
various asset classes is further reflected in the relative performance of
certain market indices such as certificates of deposit, stock indices and bond
indices.

The Adviser believes a balanced approach to investing provides the opportunity
to benefit from the differing performance described above and that an investment
in a mutual fund which has a balanced investment objective forms a prudent part
of an investor's portfolio.

CLASS A SHARES

The average total return with respect to the Class A Shares for (i) the one
year period ended June 30, 1995 was 5.13% and (ii) the period from June 24, 1994
(the commencement of investment operations of the Fund) through June 30, 1995
was 5.13%.

CLASS B SHARES

The average total return with respect to the Class B Shares for (i) the one
year period ended June 30, 1995 was 6.82% and (ii) the period from June 24, 1994
(the commencement of investment operations of the Fund) through June 30, 1995
was 7.07%.

CLASS C SHARES

The average total return with respect to the Class C Shares for (i) the one
year period ended June 30, 1995 was 9.82% and (ii) the period from June 24, 1994
(the commencement of operations of the Class C Shares) through June 30, 1995 was
10.82%.

B-30
<PAGE> 185

Independent Auditors' Report

The Board of Trustees and Shareholders of

Van Kampen Merritt Balanced Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Balanced Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1995, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the period
from June 24, 1994 (commencement of investment operations) through June 30,
1995. 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, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen Merritt Balanced Fund as of June 30, 1995, the results
of its operations, the changes in its net assets and financial highlights for
the period from June 24, 1994 (commencement of investment operations) through
June 30, 1995, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
July 27, 1995

B-31
<PAGE> 186

Security Market
Description Shares Value
<S> <C> <C>
Common and Preferred Stock 55.2%
Aerospace & Defense 0.5%
Northrop Corp. .................................................... 1,100 $ 57,338
--------
Automobile 2.0%
Borg Warner Automotive Inc. ...................................... 2,600 74,100
Exide Corp. ........................................................ 1,800 77,400
General Motors Corp. - Preferred ................................. 1,400 88,200
--------
239,700
--------
Banking 1.6%
Bank of Boston Corp. ............................................. 1,700 63,750
Bankamerica Corp. ................................................. 1,175 61,834
Crestar Financial Corp. ........................................... 1,275 62,475
--------
188,059
--------
Broadcast, Radio & Television 1.0%
Viacom Inc. ...................................................... 2,500 115,937
--------
Buildings & Materials 0.8%
Owens Corning Fiberglass Corp. .................................... 1,375 50,703
USG Corp. ......................................................... 2,000 47,500
--------
98,203
--------
Buildings & Real Estate 2.1%
Health & Retirement Property Trust ................................ 4,040 60,600
Healthcare Realty Trust Inc. ....................................... 4,845 98,111
Premium Standard Farms Exchangeable Preference Units - Preferred ... 752 92,496
--------
251,207
--------
Chemical 0.5%
Praxair Inc. ....................................................... 2,400 60,000
Computers 2.7%
Compaq Computer Corp. ............................................. 1,400 63,525
International Business Machines .................................... 600 57,600
Lotus Development Corp. ........................................... 1,750 111,562
Oracle Systems Corp. ............................................... 2,500 96,563
--------
329,250
--------
Consumer Services 0.2%
Omnicom Group Common ................................................ 500 30,313
--------

Diversified/Conglomerate Manufacturing 1.8%
Eastman Kodak Co. ................................................. 1,190 72,144
General Electric Co. .............................................. 615 34,671
McDermott International Inc. ....................................... 3,370 81,302
Trinity Industries Inc. ........................................... 725 24,106
--------
212,223
--------
</TABLE>

See Notes to Financial Statements

B-32
<PAGE> 187
Portfolio of Investments (Continued)

JUNE 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Diversified/Conglomerate Service 0.6%
PHH Corp. ................................ 1,500 $ 66,750
---------
Ecological 0.5%
Wheelabrator Technologies Inc. ............ 4,200 64,575
---------
Electric Utilities 1.3%
CMS Energy Corp. ......................... 1,310 32,259
Houston Industries Inc. ................... 1,075 45,284
Northeast Utilities ....................... 2,000 45,000
Public Service Enterprise Group .......... 1,400 38,850
---------
161,393
---------
Electronics 4.8%
American Power Conversion Corp. ............. 3,000 68,625
Avnet Inc. ................................. 2,620 126,742
Litton Industries Inc. ..................... 1,625 59,922
Motorola Inc. ............................. 1,500 100,687
National Semiconductor Corp. - Preferred ... 1,000 98,625
Southern Co. .............................. 1,500 33,563
Teco Energy Inc. ........................... 2,155 47,141
Westinghouse Electric Corp. - Preferred ... 3,000 45,375
---------
580,680
---------
Entertainment 0.5%
Carnival Corp. ............................ 2,500 58,438
---------
Farming & Agriculture 0.6%
IMC Global Inc. ........................... 1,320 71,445
---------
Financial Services 4.9%
American General Corp. .................... 1,660 56,025
Aon Corp. ................................. 2,360 87,910
Capital One Financial Corp. ............... 3,700 72,150
Chubb Corp. ............................... 620 49,678
Citicorp .................................. 1,125 65,109
ITT Corp. ................................. 1,000 117,500
Morgan, J.P. & Co. Inc. ................... 800 56,100
Reliance Group Holdings Inc. .............. 13,625 88,562
---------
593,034
---------
Government and Agency (U.S.) 0.8%
Federal Home Loan Mortgage Corp. .......... 1,330 91,438
---------

</TABLE>

See Notes to Financial Statements

B-33
<PAGE> 188

Portfolio of Investments (Continued)

June 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Healthcare 2.9%
Baxter International Inc. .... 2,080 $ 75,660
Bristol Myers Squibb Co. ..... 940 64,038
Merck & Co. Inc. ............. 1,500 73,500
Tenet Healthcare Corp. <F2>..... 3,650 52,469
U.S. Healthcare Inc. ......... 2,700 82,687
--------
348,354
--------
Leisure 0.5%
Hasbro Inc. ................... 1,800 57,150
--------
Mining 0.6%
Cyprus Amax Minerals Co. ...... 2,660 75,810
--------
Oil & Gas 3.5%
Amoco Corp. .................. 1,250 83,281
Atlantic Richfield Co. ....... 600 65,850
Enron Corp. .................. 1,700 59,713
Exxon Corp. ................... 1,200 84,750
Mobil Corp. .................. 925 88,800
Peco Energy Co. ............... 1,680 46,410
--------
428,804
--------
Paper 0.7%
Fort Howard Corp. <F2>.......... 6,150 86,869
--------
Personal/Food 5.9%
Dean Foods Co. ............... 3,050 85,400
Fleming Cos. Inc. ............. 1,250 33,125
McDonalds Corp. ............... 1,100 43,038
Pepsico Inc. .................. 2,000 91,250
Philip Morris Cos. Inc. ...... 1,500 111,562
Ralston Purina Co. ........... 1,850 94,350
Sara Lee Corp. ............... 4,250 121,125
Sysco Corp. ................... 2,200 64,900
Vons Cos. Inc. <F2>............. 3,640 73,255
--------
718,005
--------
Personal & Non-Durable 1.2%
Colgate Palmolive Co. ........ 1,200 87,750
Procter & Gamble Co. .......... 860 61,812
--------
149,566
--------
Printing & Publishing 0.6%
McGraw Hill Inc. .............. 960 72,840
--------
</TABLE>

See Notes to Financial Statements

B-34
<PAGE> 189

Portfolio of Investments (Continued)

June 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Retail 1.9%
Federated Department Stores Inc. <F2> ............................. 5,050 $130,037
May Department Stores Co. ........................................ 1,500 62,438
Wal-Mart Stores Inc. .............................................. 1,200 32,100
--------
224,575
--------
Telecommunications 5.4%
Airtouch Communications Inc. ..................................... 1,250 35,625
Ameritech Corp. ................................................... 1,375 60,500
AT & T Corp. ..................................................... 1,450 77,031
Bellsouth Corp. .................................................. 1,200 76,200
DSC Communications Corp. <F2> ...................................... 2,250 104,625
GTE Corp. ........................................................ 1,800 61,425
Nynex Corp. ....................................................... 1,910 76,878
SBC Communications Inc. .......................................... 1,280 60,960
Tele Communications Inc. .......................................... 4,200 98,437
--------
651,681
--------
Textiles 0.7%
Westpoint Stevens Inc. <F2> ........................................ 4,800 85,800
--------
Transportation 0.8%
AMR Corp. <F2> ..................................................... 1,300 97,012
--------

Foreign 3.3%
Alcatel Alsthom Compagnie Generale d' Electricite ADR (France) ... 6,200 112,375
Ericsson L M Telephone Co. ADR (Sweden) .......................... 2,800 56,000
Glaxo PLC ADR (United Kingdom) ................................... 2,575 62,766
Portugal Telecom SA ADR (Portugal) <F2> ........................... 100 1,900
Repsol SA ADR (Spain) ............................................ 1,800 56,925
Tele Danmark A/S ADR (Denmark) <F2> ............................... 1,590 44,520
TransCanada Pipelines Ltd (Canada) ................................ 3,000 40,125
Westcoast Energy Inc. (Canada) ................................... 1,750 25,812
---------
400,423
---------
Total Common and Preferred Stock .................................. 6,666,868
---------
Fixed Income Securities 40.6%
Broadcast, Radio & Television 0.7%
Time Warner Inc. ($82,000 par, 8.75% coupon, 01/10/15 maturity,
S&P rating BB+) ................................................... 85,485
--------
Diversified/Conglomerate Manufacturing 2.0%
United Technologies Corp. - Convertible ($233,000 par, 0% coupon,
09/08/97 maturity, S&P rating NR) ................................. 241,155
--------
Electronics 0.7%
Thermo Electron Corp. Senior Debenture - Convertible ($65,000 par,
5.00% coupon, 04/15/01 maturity, S&P rating A) .................... 88,075
--------
</TABLE>

See Notes to Financial Statements

B-35
<PAGE> 190

Portfolio of Investments (Continued)

Security Market
Description Value

<S> <C>
Government and Agency (U.S.) 37.2%
Federal Home Loan Bank Corp. Series P2 ($1,000,000 par, 8.50% coupon,
02/08/02 maturity, S&P rating AAA) .................................. $ 1,051,470
US Treasury Notes ($1,000,000 par, 6.875% coupon, 07/31/99 maturity,
S&P rating AAA) .................................................... 1,031,430
US Treasury Notes ($750,000 par, 7.50% coupon, 10/31/99 maturity,
S&P rating AAA) .................................................... 792,098
US Treasury Notes ($1,500,000 par, 7.50% coupon, 11/15/01 maturity,
S&P rating AAA) .................................................... 1,610,175
------------
4,485,173
------------
Total Fixed Income Securities ....................................... 4,899,888
------------
Total Long-Term Investments 95.8%
(Cost $10,758,050) ................................................. 11,566,756
Repurchase Agreement 2.9%
UBS Securities, U.S. T-Note, $349,000 par, 6.10% coupon, due 01/15/99,
dated 06/30/95, to be sold on 07/03/95 at $349,177 .................. 349,000
Other Assets in Excess of Liabilities 1.3% ......................... 153,938
------------
Net Assets 100% .................................................... $ 12,069,694
------------
</TABLE>

At June 30, 1995, cost for federal income tax purposes is $10,758,050;
the aggregate gross unrealized appreciation is $859,847 and the aggregate
gross unrealized depreciation is $51,141, resulting in net unrealized
appreciation of $808,706.
Non-income producing security as this stock currently does not declare
dividends.

See Notes to Financial Statements

B-36
<PAGE> 191

Statement of Assets and Liabilities

June 30, 1995

<S> <C>
Assets:
Investments, at Market Value (Cost $10,758,050) (Note 1)............................ $ 11,566,756
Short-Term Investments (Note 1)..................................................... 349,000
Cash................................................................................ 56,824
Receivables:
Interest........................................................................... 89,012
Fund Shares Sold................................................................... 40,251
Dividends.......................................................................... 20,280
Unamortized Organizational Expenses and Initial Registration Costs (Note 1)......... 63,693
-------------
Total Assets........................................................................ 12,185,816
-------------
Liabilities:
Payables:
Income Distributions.............................................................. 22,907
Fund Shares Repurchased........................................................... 12,856
Accrued Expenses.................................................................... 80,359
-------------
Total Liabilities................................................................... 116,122
-------------
Net Assets.......................................................................... $ 12,069,694
-------------
Net Assets Consist of:
Paid in Surplus (Note 3)............................................................ $ 11,242,362
Net Unrealized Appreciation on Investments.......................................... 808,706
Accumulated Undistributed Net Investment Income..................................... 28,186
Accumulated Net Realized Loss on Investments........................................ (9,560)
-------------
Net Assets.......................................................................... $ 12,069,694
-------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $4,750,911
and 308,746 shares of beneficial interest issued and outstanding) (Note 3).......... $ 15.39
Maximum sales charge (5.75%* of offering price)..................................... .94
-------------
Maximum offering price to public.................................................... $ 16.33
-------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $6,567,967
and 426,808 shares of beneficial interest issued and outstanding) (Note 3).......... $ 15.39
-------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $750,816
and 48,792 shares of beneficial interest issued and outstanding) (Note 3)........... $ 15.39
-------------
*On sales of $50,000 or more, the sales charge will be reduced.
</TABLE>

See Notes to Financial Statements

B-37
<PAGE> 192

Statement of Operations

For the Period June 24, 1994 (Commencement of Investment Operations)
to June 30, 1995

<S> <C>
Investment Income:
Interest....................................................................... $ 376,648
Dividends (Net of foreign withholding taxes of $4,922)......................... 165,939
-----------
Total Income................................................................... 542,587
-----------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$12,732, $58,308, $4,287 and $4, respectively) (Note 6)........................ 75,331
Investment Advisory Fee (Note 2)............................................... 73,534
Custody........................................................................ 54,802
Shareholder Services........................................................... 32,881
Printing....................................................................... 26,254
Audit.......................................................................... 18,600
Amortization of Organizational Expenses and Initial Registration Costs
(Note 1)..................................................................... 16,307
Legal (Note 2)................................................................. 12,513
Trustees Fees and Expenses (Note 2)............................................ 8,181
Other.......................................................................... 17,865
-----------
Total Expenses................................................................. 336,268
Less Fees Waived and Expenses Reimbursed ($73,534 and $96,010, respectively)... 169,544
-----------
Net Expenses................................................................... 166,724
-----------
Net Investment Income.......................................................... $ 375,863
-----------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................ $11,063,440
Cost of Securities Sold........................................................ 11,073,000
-----------
Net Realized Loss on Investments (Including realized loss on closed and expired
option transactions of $79,892 and realized gain on futures transactions of
$57,054) ...................................................................... (9,560)
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................................ -0-
End of the Period.............................................................. 808,706
-----------
Net Unrealized Appreciation on Investments During the Period................... 808,706
-----------
Net Realized and Unrealized Gain on Investments................................ $ 799,146
-----------
Net Increase in Net Assets from Operations.................................... $ 1,175,009
-----------
</TABLE>

See Notes to Financial Statements

B-38
<PAGE> 193

Statement of Changes in Net Assets

For the Period June 24, 1994 (Commencement of Investment Operations)
to June 30, 1995

<S> <C>
From Investment Activities:
Operations:
Net Investment Income............................................................ $ 375,863
Net Realized Loss on Investments................................................. (9,560)
Net Unrealized Appreciation on Investments During the Period..................... 808,706
-------------
Change in Net Assets from Operations............................................. 1,175,009
-------------
Distributions from Net Investment Income:
Class A Shares................................................................... (156,268)
Class B Shares................................................................... (177,438)
Class C Shares................................................................... (13,922)
Class D Shares................................................................... (49)
-------------
Total Distributions.............................................................. (347,677)
-------------
Net Change in Net Assets from Investment Activities.............................. 827,332
-------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold........................................................ 13,761,643
Net Asset Value of Shares Issued Through Dividend Reinvestment................... 264,667
Cost of Shares Repurchased....................................................... (2,789,668)
-------------
Net Change in Net Assets from Capital Transactions............................... 11,236,642
-------------
Total Increase in Net Assets..................................................... 12,063,974
Net Assets:
Beginning of the Period.......................................................... 5,720
-------------
End of the Period (Including undistributed net investment income of $28,186)..... $ 12,069,694
-------------
</TABLE>

See Notes to Financial Statements

B-39

<PAGE> 194
Notes to Financial Statements

June 30, 1995

1. Significant Accounting Policies

Van Kampen Merritt Balanced Fund (the "Fund") was organized as a subtrust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust, on March 17,
1994, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund commenced
investment operations on June 24, 1994 with four classes of common shares,
Classes A, B, C and D shares. On May 2, 1995, all Class D shareholders redeemed
their shares and the class was eliminated. The Fund will no longer offer Class D
shares.

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

A. Security Valuation-Investments in securities listed on a securities exchange
shall be valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange shall be valued
based on their last quoted bid price or, if not available, their fair value as
determined by the Board of Trustees or its delegate. Fixed income investments
are stated at value using market quotations or, if such valuations are not
available, estimates obtained from yield data relating to instruments or
securities with similar characteristics in accordance with procedures
established in good faith by the Board of Trustees. Short-term securities with
remaining maturities of less than 60 days are valued at amortized cost.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" 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. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

D. Organizational Expenses and Initial Registration Costs-The Fund has agreed
to reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC")

B-40
<PAGE> 195

Notes to Financial Statements (Continued)

June 30, 1995

for costs incurred in connection with the Fund's organization and initial
registration in the amount of $80,000. These costs are being amortized on a
straight line basis over the 60 month period ending June 24, 1999. Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") has agreed that in
the event any of the initial shares of the Fund originally purchased by VKAC are
redeemed during the amortization period, the Fund will be reimbursed for any
unamortized organizational expenses and initial registration costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.

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, 1995, the Fund had an accumulated capital loss carryforward
for tax purposes of $9,560, which will expire on June 30, 2003. 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.

F. Distribution of Income and Gains-The Fund declares daily and pays quarterly
dividends from 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 Net Assets % Per Annum
<S> <C>
First $500 million..... .70 of 1%
Over $500 million...... .65 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

For the year ended June 30, 1995, the Fund recognized expenses of
approximately $14,000, representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.

B-41
<PAGE> 196

Notes to Financial Statements (Continued)

June 30, 1995

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$4,400.

At June 30, 1995, VKAC owned 100 shares each of Classes A, B and C.

3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.

At June 30, 1995, paid in surplus aggregated $4,424,914, $6,123,381 and
$694,067 for Classes A, B and C, respectively. For the period ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 375,263 $ 5,399,046
Class B ...................... 532,317 7,659,184
Class C ...................... 49,426 703,213
Class D ...................... 14 200
-------- --------------
Total Sales .................. 957,020 $ 13,761,643
-------- --------------
Dividend Reinvestment:
Class A ...................... 8,285 $ 121,482
Class B ...................... 9,487 139,212
Class C ...................... 273 3,968
Class D ...................... -0- 5
-------- --------------
Total Dividend Reinvestment ... 18,045 $ 264,667
-------- --------------
Repurchases:
Class A ...................... (74,902) $ (1,097,044)
Class B ...................... (115,096) (1,676,445)
Class C ...................... (1,007) (14,544)
Class D ...................... (114) (1,635)
-------- --------------
Total Repurchases ............. (191,119) $ (2,789,668)
-------- --------------
</TABLE>

B-42
<PAGE> 197

Notes to Financial Statements (Continued)

June 30, 1995

<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>

For the period ended June 30, 1995, VKAC, as Distributor for the Fund,
paid net commissions on sales of the Fund's Class A shares of approximately $800
and received CDSC on the redeemed shares of Classes B and C of approximately
$40,800. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the period ended June 30, 1995, were $21,436,677 and
$10,690,895, 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, to manage the portfolio's effective yield, maturity and
duration or to 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 the unrealized appreciation/depreciation on investments.
Upon

B-43
<PAGE> 198

Notes to Financial Statements (Continued)

June 30, 1995

disposition, a realized gain or loss is recognized accordingly, except for
exercised option contracts where the recognition of gain or loss is postponed
until the disposal of the security underlying the option contract.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. The Fund generally invests in options on U.S.
Treasury bonds and the S&P 500 Index. These contracts are generally used by the
Fund to manage the portfolio's effective maturity and duration and as a
substitute for purchasing or selling specific securities.

Transactions in options for the period ended June 30, 1995 were as follows:

<TABLE>
<CAPTION>
Contracts Premium
<S> <C> <C>
Options Written and
Purchased (Net) ............. 535 $ (83,008)
Options Terminated in Closing
Transactions (Net) ......... (335) 55,633
Options Expired (Net) ...... (200) 27,375
------ -----------
Outstanding at
June 30, 1995 .............. -0- $ -0-
------ -----------
</TABLE>

B. Futures Contracts-A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on the S&P 500 Index and typically closes the
contract prior to the delivery date. These contracts are generally used as a
substitute for purchasing or selling specific securities.

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

Transactions in futures contracts for the period ended June 30, 1995, were as
follows:

<TABLE>
<CAPTION>
Contracts
<S> <C>
Futures Opened ................. 6
Futures Closed ................. (6)
-----
Outstanding at June 30, 1995 ... -0-
=====
</TABLE>

B-44

<PAGE> 199

Notes to Financial Statements (Continued)

June 30, 1995

6. Distribution and Service Plans

Annual fees under the Plans of up to .30% for Class A shares and 1.00%
each for Class B and Class C shares are accrued daily. Included in these fees
for the period ended June 30, 1995, are payments to VKAC of approximately
$50,600.

B-45
<PAGE> 200

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:

Included in Part A of the Registration Statement:

UTILITY FUND AND BALANCED FUND:

Financial Highlights

GROWTH FUND AND TOTAL RETURN FUND:
Not applicable

Included in Part B of the Registration Statement:

UTILITY FUND AND BALANCED FUND:

Independent Auditor's Report

Financial Statements

Notes to Financial Statements

GROWTH FUND AND TOTAL RETURN FUND:
Not applicable

GROWTH AND INCOME FUND:

Refer to Post-Effective Amendment No. 23 to the Registration
Statement of the Registrant.

(B) EXHIBITS:

<TABLE>
<S> <C> <C>
(1) (a) Form of Agreement and Declaration of Trust(23)
(b) Form of Certificate of Designation For:
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Growth Fund++
(iii) Van Kampen American Capital Total Return Fund++
(iv) Van Kampen American Capital Utility Fund(23)
(v) Van Kampen American Capital Balanced Fund+
(2) Form of By-Laws(23)
(4) Form of Specimen Certificate of share of beneficial interest in
(a) Van Kampen Merritt Growth and Income Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(b) Van Kampen American Capital Growth Fund(3)
(c) Van Kampen American Capital Total Return Fund(3)
(d) Van Kampen American Capital Utility Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(e) Van Kampen American Capital Balanced Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(5) (a) Form of Investment Advisory Agreement for
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Growth Fund(3)
(iii) Van Kampen American Capital Total Return Fund(3)
(iv) Van Kampen American Capital Utility Fund(23)
(v) Van Kampen American Capital Balanced Fund+
</TABLE>

C-1
<PAGE> 201

<TABLE>
<S> <C> <C>
(b) Form of Investment Sub-Advisory Agreement for
(i) Van Kampen American Capital Growth Fund(3)
(ii) Van Kampen American Capital Total Return Fund(3)
(6) (a) Form of Distribution and Service Agreement(23)
(b) Form of Dealer Agreement(23)
(c) Form of Broker Agreement(23)
(d) Form of Bank Agreement(23)
(8) (a) Form of Custodian Agreement(13)
(b) Form of Transfer Agency Agreement(23)
(9) (a) Form of Fund Accounting Agreement(23)
(b) Form of Legal Services Agreement(23)
(10) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Utility Fund(23)
(iii) Van Kampen American Capital Balanced Fund+
(11) Consents of KPMG Peat Marwick LLP
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Utility Fund+
(iii) Van Kampen American Capital Balanced Fund+
(13) Letter of Understanding relating to initial capital(1)
(15) (a) Form of Distribution Plan pursuant to Rule 12b-1(23)
(b) Form of Shareholder Assistance Agreement(23)
(c) Form of Administrative Services Agreement(23)
(d) Form of Service Plan(23)
(16) Computation of Performance Quotations
(i) Van Kampen Merritt Growth and Income Fund(22)
(ii) Van Kampen American Capital Utility Fund+
(iii) Van Kampen American Capital Balanced 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)+
(24) Power of attorney+
(27) Financial Data Schedules+
</TABLE>

- ---------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, File Number 33-8122,
filed October 29, 1986.
(3) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File Number 33-8122, filed April 19,
1988.
(13) Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File Number 33-8122,
filed June 8, 1993.

(22) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement, File No. 33-8122, filed on April 28,
1995.

(23) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement, File No. 33-8122, filed on August 1,
1995.

+ Filed herewith.
++ To be filed by amendment.

C-2
<PAGE> 202

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

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

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of August 18, 1995:

<TABLE>
<CAPTION>
(1) (2)
NUMBER
OF
RECORD
TITLE OF CLASS HOLDERS
----------------------------------------------------------------- -----
<S> <C>
Shares of Beneficial Interest of Van Kampen Merritt Growth and
Income Fund, $0.01 par value*
Class A Shares.............................................. 4,685
Class B Shares.............................................. 2,729
Class C Shares.............................................. 47
Shares of Beneficial Interest of Van Kampen American Capital
Utility Fund, $0.01 par value*
Class A Shares.............................................. 4,777
Class B Shares.............................................. 6,903
Class C Shares.............................................. 118
Shares of Beneficial Interest of Van Kampen American Capital
Balanced Fund, $0.01 par value*
Class A Shares.............................................. 356
Class B Shares.............................................. 456
Class C Shares.............................................. 23
Shares of Beneficial Interest of Van Kampen American Capital
Growth Fund, $0.01 par value................................... 0
Shares of Beneficial Interest of Van Kampen American Capital
Total Return Fund, $0.01 par value............................. 0
</TABLE>

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

ITEM 27. INDEMNIFICATION.

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

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

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

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if

C-3
<PAGE> 203

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

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:

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

ITEM 29. PRINCIPAL UNDERWRITERS

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

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
the Registrant will be maintained at its offices located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, Access Investor Services, Inc., 7501 Tiffany
Springs Parkway, Kansas City, Missouri, 64153, or at State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, Massachusetts, 02171; (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 its offices
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

C-4
<PAGE> 204

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

(a) Registrant hereby undertakes to file an amendment to Registration
Statement, using financial statements for Van Kampen American Capital Growth
Fund and Van Kampen American Capital Total Return Fund, which financial
statements need not be certified, within six months from the commencement of
investment operations of each such Fund.

(b) Not applicable.

C-5
<PAGE> 205

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT, VAN KAMPEN AMERICAN CAPITAL
EQUITY TRUST, CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS OF
THIS REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF
1933, HAS DULY CAUSED THIS AMENDMENT TO THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED IN THE CITY OF
OAKBROOK TERRACE, AND THE STATE OF ILLINOIS ON THE 20TH DAY OF AUGUST, 1995.

VAN KAMPEN AMERICAN CAPITAL
EQUITY TRUST

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

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON AUGUST 20, 1995, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ DONALD C. MILLER* Chairman of the Board and Trustee
- ---------------------------------------------
Donald C. Miller

Chief Executive Officer:

/s/ DENNIS J. McDONNELL* President and Trustee
- ---------------------------------------------
Dennis J. McDonnell

Chief Financial and Accounting Officer:

/s/ EDWARD C. WOOD, III* Vice President and Treasurer
- ---------------------------------------------
Edward C. Wood, III

Trustees:

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

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

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

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

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

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

/s/ DON G. POWELL* Trustee
- ---------------------------------------------
Don G. Powell
</TABLE>

C-6
<PAGE> 206

<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ DAVID REES* Trustee
- ---------------------------------------------
David Rees

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

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

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

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

/s/ WILLIAM S. WOODSIDE* Trustee
- ---------------------------------------------
William S. Woodside
</TABLE>

- ---------------
* Signed by Ronald A. Nyberg pursuant to a power of attorney.

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

August 20, 1995

C-7
<PAGE> 207

SCHEDULE OF EXHIBITS TO

POST-EFFECTIVE AMENDMENT 24 TO FORM N-1A

SUBMITTED TO THE SECURITIES AND EXCHANGE

COMMISSION ON AUGUST 29, 1995

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE NUMBER
- ------------------------------------------------------------------------------------ -----------
<S> <C> <C> <C> <C>
(1) (a) Form of Agreement and Declaration of Trust(23)
(b) Form of Certificate of Designation For:
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Growth Fund++
(iii) Van Kampen American Capital Total Return Fund++
(iv) Van Kampen American Capital Utility Fund(23)
(v) Van Kampen American Capital Balanced Fund+
(2) Form of By-Laws(23)
(4) Form of Specimen Certificate of share of beneficial interest in
(a) Van Kampen Merritt Growth and Income Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(b) Van Kampen American Capital Growth Fund(3)
(c) Van Kampen American Capital Total Return Fund(3)
(d) Van Kampen American Capital Utility Fund
(i) Class A Shares(23)
(ii) Class B Shares(23)
(iii) Class C Shares(23)
(e) Van Kampen American Capital Balanced Fund
(i) Class A Shares+
(ii) Class B Shares+
(iii) Class C Shares+
(5) (a) Form of Investment Advisory Agreement for
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Growth Fund(3)
(iii) Van Kampen American Capital Total Return Fund(3)
(iv) Van Kampen American Capital Utility Fund(23)
(v) Van Kampen American Capital Balanced Fund+
(b) Form of Investment Sub-Advisory Agreement for
(i) Van Kampen American Capital Growth Fund(3)
(ii) Van Kampen American Capital Total Return Fund(3)
(6) (a) Form of Distribution and Service Agreement(23)
(b) Form of Dealer Agreement(23)
(c) Form of Broker Agreement(23)
(d) Form of Bank Agreement(23)
(8) (a) Form of Custodian Agreement(13)
(b) Form of Transfer Agency Agreement(23)
(9) (a) Form of Fund Accounting Agreement(23)
(b) Form of Legal Services Agreement(23)
(10) Opinion and consent of Skadden, Arps, Slate, Meagher & Flom
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Utility Fund(23)
(iii) Van Kampen American Capital Balanced Fund+
(11) Consents of KPMG Peat Marwick LLP
(i) Van Kampen Merritt Growth and Income Fund(23)
(ii) Van Kampen American Capital Utility Fund+
(iii) Van Kampen American Capital Balanced Fund+
(13) Letter of Understanding relating to initial capital(1)
</TABLE>

<PAGE> 208

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE NUMBER
- ------------------------------------------------------------------------------------ -----------
<S> <C> <C> <C> <C>
(15) (a) Form of Distribution Plan pursuant to Rule 12b-1(23)
(b) Form of Shareholder Assistance Agreement(23)
(c) Form of Administrative Services Agreement(23)
(d) Form of Service Plan(23)
(16) Computation of Performance Quotations
(i) Van Kampen Merritt Growth and Income Fund(22)
(ii) Van Kampen American Capital Utility Fund+
(iii) Van Kampen American Capital Balanced 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)+
(24) Power of attorney+
(27) Financial Data Schedules+
</TABLE>

(22) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement, File No. 33-8122, filed on April 28,
1995.

(23) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement, File No. 33-8122, filed on August 1,
1995.

+ Filed herewith.
++ To be filed by amendment.

<PAGE> 1
EXHIBIT 1(b)(V)
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST
Certificate of Designation
of
Van Kampen American Capital Balanced Fund

The undersigned, being the Secretary of Van Kampen American Capital Equity
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 establish and designate as a Series
of the Trust the Van Kampen American Capital Balanced Fund (the "Fund")
with following the 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 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.

May 10, 1995

- ----------------------
Ronald A. Nyberg,
Secretary

<PAGE> 1
EXHIBIT 4(e)i

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST

CLASS A

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP
_________________

fully paid and nonassessable shares of beneficial interest of the par value
of $0.01 per share of Van Kampen American Capital Balanced Fund, transferable
on the books of the Fund by the holder thereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent.

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
BALANCED FUND
DELAWARE SEAL]

RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

NUMBER CLASS A SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

----------------------------------------
----------------------------------------
----------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------

REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

THE 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.

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants UNIF GIFT MIN. ACT - ________ Custodian _________
in common (Cust) (Minor)
under Uniform Gifts to
TEN ENT - as tenants by Minors Act
the entireties
____________________________
JT TEN - as joint tenants (State)
with right of sur-
vivorship and not
as tenants in common

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 4(e)ii

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST

CLASS B

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP
_________________

fully paid and nonassessable shares of beneficial interest of the par
value of $0.01 per share of Van Kampen American Capital Balanced Fund,
transferable on the books of the Fund by the holder thereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the
Transfer Agent.

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
BALANCED FUND
DELAWARE SEAL]

RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

NUMBER CLASS B SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 4(e)iii

NUMBER SHARES

__________ __________

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND, a series of
VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST

CLASS C

ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES that is the owner of

*SEE REVERSE FOR CERTAIN DEFINITIONS
_________________

CUSIP
_________________

WITNESS THE FACSIMILE SEAL OF THE FUND AND THE FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.

Dated

[VAN KAMPEN AMERICAN CAPITAL
BALANCED FUND
DELAWARE SEAL]

RONALD A. NYBERG DENNIS J. MCDONNELL
SECRETARY PRESIDENT

KC 002717

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

COUNTERSIGNED by ACCESS INVESTOR SERVICES, INC.
P.O. BOX 418256, KANSAS CITY, MO 64141-9256

TRANSFER AGENT

By
----------------------------------------------------
AUTHORIZED OFFICER

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

PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

NUMBER CLASS C SHARES
KC

ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.

TRADE DATE CONFIRM DATE BATCH I.D. NO.

CHANGE NOTICE: IF THE ABOVE INFORMATION
IS INCORRECT OR MISSING, PLEASE PRINT
THE CORRECT INFORMATION BELOW, AND RETURN
TO:

ACCESS
P.O. BOX 418256
KANSAS CITY, MISSOURI 64141-9256

THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING:

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

For value received, hereby sell, assign and transfer unto

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)

________________________________________________________________________________

_________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby

irrevocably constitute and appoint _____________________________________________

_______________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with

full power of substitution in the premises.

Dated, _________________________________________ 19 ______

__________________________________________________________________
Owner

__________________________________________________________________
Signature of Co-Owner, if any

IMPORTANT { BEFORE SIGNING, READ AND COMPLY CAREFULLY
{ WITH REQUIREMENTS PRINTED ABOVE.

SIGNATURE(S) guaranteed by:

________________________________________________________________________________

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

*The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

Additional abbreviations may also be used though not in the above list

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

________________________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY

<PAGE> 1
EXHIBIT 5(a)(v)

FORM OF

INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT dated as of _________, 199_, by and
between VAN KAMPEN AMERICAN CAPITAL BALANCED FUND (the "Fund"), a series of VAN
KAMPEN AMERICAN CAPITAL EQUITY TRUST, a Delaware business trust (the "Trust"),
and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (the "Adviser"), a
Delaware corporation.

1. (a) Retention of Adviser by Fund. 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 objective 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) 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.

(d) 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.

1
<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 a percentage of the average daily net assets of the
Fund as follows:

FEE PERCENT OF

AVERAGE DAILY AVERAGE DAILY

NET ASSETS NET ASSETS

____________________ ____________________

(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 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 statute 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 the close of the New York
Stock Exchange 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 of 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.

2
<PAGE> 3

(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.

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
charges 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 of the
New York Stock Exchange or other exchange 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 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 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 interest 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 the second
anniversary of the date hereof unless sooner terminated as
hereinafter provided. This Agreement shall continue in force

3
<PAGE> 4

from year to year thereafter, but only as long as such
continuance is specifically approved as least annually in the
manner required by the Investment Company Act of 1940, as
amended.

(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, statute, rule or
otherwise, the remainder shall not thereby 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 Article 8, Section 8.1 of the Agreement and Declaration of Trust of
the Trust, 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.

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.

<PAGE> 5

IN WITNESS WHEREOF, the Fund and the Adviser have caused this
Agreement to be executed on the day and year first above written.

VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.

By:_____________________________________________

Dennis J. McDonnell, President

VAN KAMPEN AMERICAN CAPITAL BALANCED
FUND, a series of VAN KAMPEN AMERICAN CAPITAL EQUITY
TRUST

By:_____________________________________________

Dennis J. McDonnell, President

<PAGE> 1
EXHIBIT 10(iii)

August 29, 1995

Van Kampen American Capital
Equity Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Re: Van Kampen American Capital
Equity Trust --
Registration Statement on Form N-1A
(File Nos. 33-8122 and 811-4805)

Ladies and Gentlemen:

We have acted as counsel to Van Kampen American Capital Balanced Fund
(the "Fund"), a series of Van Kampen American Capital Equity Trust (the
"Trust"), a voluntary association with transferable shares formed and existing
under and by virtue of the laws of the State of Delaware, in connection with
the preparation of Post-Effective Amendment No. 24 to the Trust's Registration
Statement on Form N-1A (as so amended, the "Registration Statement") to be
filed under the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act") with the Securities
and Exchange Commission (the "Commission") on August 29, 1995. The Registration
Statement relates to the registration under the 1933 Act and 1940 Act of an
indefinite number of each of Class A Shares of beneficial interest, $.01 par
value per share, Class B Shares of beneficial interest, $.01 par value per
share, and Class C Shares of beneficial interest, $.01 par value per share, of
the Fund (collectively, the "Shares"). The Trust has stated in Post-Effective
Amendment No. 23 to the Registration Statement that it is thereby adopting the
Registration Statement of Van Kampen Merritt Equity Trust, a Massachusetts
business trust (the "Old Trust"), reorganized into the Trust as of July 31,
1995.

<PAGE> 2
Van Kampen American Capital
Equity Trust
August 29, 1995
Page 2

The Shares will be sold pursuant to a distribution and service
agreement to be entered into among the Trust, on behalf of the Fund, and Van
Kampen American Capital Distributors, Inc. (the "Distribution Agreement").

The Old Trust is a party to an "Order Pursuant to Section 6(c) of the
Investment Company Act for an Exemption from the Provisions of Sections
2(a)(32), 2(a)(35), 18(f), 18(g), 18(i), 22(c) and 22(d) of such Act and Rule
22c-1 thereunder" (the "Exemptive Order"), issued by the Commission on July 28,
1993, allowing registered investment companies party thereto to issue an
unlimited number of classes of securities (including the Class A Shares,
Class B Shares and Class C Shares) with varying combinations of sales charges,
distribution fees and service fees, the application for which Exemptive Order
requested that such order apply to entities organized for the purpose of
changing the state of domicile of the original parties to such order.

This opinion is delivered in accordance with the requirements of Item
24(b)(10) of Form N-1A under the 1933 Act and the 1940 Act.

In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement, (ii) the Agreement and Declaration of Trust and By-Laws of the
Trust, each as amended to date (the "Declaration of Trust" and "By-Laws",
respectively), (iii) the designations of series with respect to the Fund,
(iv) copies of the resolutions adopted by the Board of Trustees of the Trust
relating to the authorization, issuance and sale of the Shares, the filing of
the Registration Statement and any amendments or supplements thereto and
related matters, (v) the form of Distribution Agreement, which is included as
an exhibit to the Registration Statement, (vi) the Exemptive Order and (vii)
such other documents as we have deemed necessary or appropriate as a basis for
the opinions set forth herein. In such examination, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submited to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or

<PAGE> 3
Van Kampen American Capital
Equity Trust
August 29, 1995
Page 3

photostatic copies and the authenticity of the originals of such copies. We
have also assumed that the Distribution Agreement, when executed and delivered
by the parties thereto, will be in the form reviewed by us in connection with
this opinion and that the Fund will be entitled to rely on the Exemptive Order
as if it were a party thereto. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Trust and others.

Members of our firm are admitted to the practice of law in the State of
Delaware, and we express no opinion as to the laws of any other jurisdiction.

Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement (and such other Post-Effective Amendments,
if any, to the Registration Statement relating to the public offering of the
Shares) shall have become effective under the 1933 Act and shall be deemed to
be the Registration Statement of the Trust pursuant to the rules and
regulations of the Commission under the 1933 Act, (ii) the Distribution
Agreement is duly executed and delivered by the Trust and the other respective
parties thereto and (iii) certificates representing the Shares are duly
executed, countersigned, registered and duly delivered and paid for in
accordance with the Distribution Agreement, the Shares will be validly issued,
fully paid and nonassessable.

<PAGE> 4
Van Kampen American Capital
Equity Trust
August 29, 1995
Page 4

We hereby consent to the filing of this opinion with the Commission as
Exhibit 10(iii) to the Registration Statement. We also consent to the
reference to our firm under the heading "Legal Counsel" in the Registration
Statement. In giving this consent, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act or the rules and regulations of the Commission.

Very truly yours,

/s/ Skadden, Arps, Slate, Meagher & Flom

<PAGE> 1
EXHIBIT 11(ii)

CONSENT OF INDEPENDENT AUDITORS

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

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

KPMG Peat Marwick LLP

Chicago, Illinois

August 23, 1995

<PAGE> 1
EXHIBIT 11(iii)

CONSENT OF INDEPENDENT AUDITORS

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

KPMG Peat Marwick LLP

Chicago, Illinois

August 23, 1995

<PAGE> 1
Exhibit 16(ii)

UTILITY FUND
CALCULATION OF DISTRIBUTION RATE
PERIOD ENDED JUNE 30, 1995

Current Annual Income Per Share
-------------------------------
Current Offering Price

<TABLE>

<S> <C> <C>
Class A Shares

$.600
------
$14.21 = 4.22%

Class B Shares

$.492
------
$13.36 = 3.68%

Class C Shares

$.492
------
$13.36 = 3.68%
</TABLE>

<PAGE> 2
UTILITY FUND - CLASS A SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $926.30 = P
Ending Redeemable Value $948.99 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 2.45% = T

Excluding Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $873.04 = P
Ending Redeemable Value $948.99 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 8.70 = T

</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $948.99 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD (2.69%) = T

Excluding Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $942.65 = P
Ending Redeemable Value $948.99 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD 0.35% = T

</TABLE>

<PAGE> 3
UTILITY FUND - CLASS A SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

Formula ERV - P
-------
P = T

Including Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $948.99 = ERV

TOTAL RETURN FOR THE PERIOD (5.10%) = T

Excluding Payment of the Sales Charge
Net Asset Value $13.39
Initial Investment $942.65 = P
Ending Redeemable Value $948.99 = ERV

TOTAL RETURN FOR THE PERIOD 0.67% = T

</TABLE>
<PAGE> 4
UTILITY FUND - CLASS B SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $919.76 = P
Ending Redeemable Value $954.67 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 3.80% = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $919.76 = P
Ending Redeemable Value $991.46 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 7.80% = T

</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $956.43 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD (2.30%) = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $991.46 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD (0.45%) = T

</TABLE>

<PAGE> 5
UTILITY FUND - CLASS B SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
Formula ERV - P
-------
P = T

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $956.43 = ERV

TOTAL RETURN FOR THE PERIOD (4.36%) = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $991.46 = ERV

TOTAL RETURN FOR THE PERIOD (0.85%) = T

</TABLE>

<PAGE> 6
UTILITY FUND - CLASS C SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $908.91 = P
Ending Redeemable Value $971.47 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 6.88% = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $908.91 = P
Ending Redeemable Value $980.56 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 7.88% = T

</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $980.56 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD (1.02%) = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $980.56 = ERV
Inception through 06/30/95 = (23 Mos.) 1.91667 = n

TOTAL RETURN FOR THE PERIOD (1.02%) = T

</TABLE>

<PAGE> 7
UTILITY FUND - CLASS C SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

Formula ERV - P
-------
P = T

Including Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $980.56 = ERV

TOTAL RETURN FOR THE PERIOD (1.94%) = T

Excluding Payment of the CDSC
Net Asset Value $13.36
Initial Investment $1,000.00 = P
Ending Redeemable Value $980.56 = ERV

TOTAL RETURN FOR THE PERIOD (1.94%) = T
</TABLE>

<PAGE> 1

Exhibit 16 (iii)

BALANCED FUND
CALCULATION OF DISTRIBUTION RATE
PERIOD ENDED JUNE 30, 1995

Current Annual Income Per Share
-------------------------------
Current Offering Price

Class A Shares

$ .600
------
$16.33 = 3.67%

Class B Shares

$ .492
------
$15.39 = 3.20%

Class C Shares

$ .492
------
$15.39 = 3.20%
<PAGE> 2

BALANCED FUND - CLASS A SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,051.32 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 5.13% = T

Excluding Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $942.66 = P
Ending Redeemable Value $1,051.32 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 11.53% = T

</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,051.32 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 5.13% = T

Excluding Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $942.66 = P
Ending Redeemable Value $1,051.32 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 11.53% = T

</TABLE>

<PAGE> 3
BALANCED FUND - CLASS A SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
Formula ERV - P
-------
P = T

Including Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,051.32 = ERV

TOTAL RETURN FOR THE PERIOD 5.13% = T

Excluding Payment of the Sales Charge
Net Asset Value $15.39
Initial Investment $942.66 = P
Ending Redeemable Value $1,051.32 = ERV

TOTAL RETURN FOR THE PERIOD 11.53% = T

</TABLE>
<PAGE> 4
BALANCED FUND - CLASS B SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,068.17 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 6.82% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 10.82% = T

</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,070.67 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 7.07% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 10.82% = T

</TABLE>

<PAGE> 5
BALANCED FUND - CLASS B SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
Formula ERV - P
-------
P = T

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,070.67 = ERV

TOTAL RETURN FOR THE PERIOD 7.07% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV

TOTAL RETURN FOR THE PERIOD 10.82% = T

</TABLE>
<PAGE> 6
BALANCED FUND - CLASS C SHARES

TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,098.17 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 9.82% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV
One year period ended 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 10.82% = T
</TABLE>

TOTAL RETURN CALCULATION INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
n
Formula P(1+T) = ERV

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 10.82% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV
Inception through 06/30/95 = (12 Mos.) 1 = n

TOTAL RETURN FOR THE PERIOD 10.82% = T

</TABLE>

<PAGE> 7
BALANCED FUND - CLASS C SHARES

NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH JUNE 30, 1995

<TABLE>
<S> <C>
Formula ERV-P
-------
P = T

Including Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV

TOTAL RETURN FOR THE PERIOD 10.82% = T

Excluding Payment of the CDSC
Net Asset Value $15.39
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,108.17 = ERV

TOTAL RETURN FOR THE PERIOD 10.82% = T

</TABLE>

<PAGE> 1

EXHIBIT 17 (a)

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

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

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

<PAGE> 3

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

</TABLE>

<PAGE> 1

EXHIBIT 17(b)

OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

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

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

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

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

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

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

<PAGE> 2

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

<PAGE> 3

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

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

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

<PAGE> 4

DIRECTORS

VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.

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

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

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

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

<PAGE> 1

EXHIBIT 24
POWER OF ATTORNEY

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

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

Dated: July 25, 1995

Signature Title

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

<PAGE> 2

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

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

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

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

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

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

<PAGE> 3

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

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

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

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

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

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

<PAGE> 4

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

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

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

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> UTILITY A

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 129417332<F1>
<INVESTMENTS-AT-VALUE> 129736238<F1>
<RECEIVABLES> 3302125<F1>
<ASSETS-OTHER> 70711<F1>
<OTHER-ITEMS-ASSETS> 489190<F1>
<TOTAL-ASSETS> 133598264<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 936191<F1>
<TOTAL-LIABILITIES> 936191<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 54774866
<SHARES-COMMON-STOCK> 3764785
<SHARES-COMMON-PRIOR> 3989613
<ACCUMULATED-NII-CURRENT> 1563610<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (13683409)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 319167<F1>
<NET-ASSETS> 50394201
<DIVIDEND-INCOME> 6281372<F1>
<INTEREST-INCOME> 1659396<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2397956)<F1>
<NET-INVESTMENT-INCOME> 5542812<F1>
<REALIZED-GAINS-CURRENT> (11154213)<F1>
<APPREC-INCREASE-CURRENT> 15931333<F1>
<NET-CHANGE-FROM-OPS> 10319932<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2381991)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 542836
<NUMBER-OF-SHARES-REDEEMED> (918564)
<SHARES-REINVESTED> 150900
<NET-CHANGE-IN-ASSETS> (1095087)
<ACCUMULATED-NII-PRIOR> 1512453<F1>
<ACCUMULATED-GAINS-PRIOR> (2454383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355171)<F1>
<GROSS-ADVISORY-FEES> 874190<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2397956<F1>
<AVERAGE-NET-ASSETS> 51226930
<PER-SHARE-NAV-BEGIN> 12.906
<PER-SHARE-NII> .595
<PER-SHARE-GAIN-APPREC> .485
<PER-SHARE-DIVIDEND> (.600)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.386
<EXPENSE-RATIO> 1.34
<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> UTILITY B

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 129417332<F1>
<INVESTMENTS-AT-VALUE> 129736238<F1>
<RECEIVABLES> 3302125<F1>
<ASSETS-OTHER> 70711<F1>
<OTHER-ITEMS-ASSETS> 489190<F1>
<TOTAL-ASSETS> 133598264<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 936191<F1>
<TOTAL-LIABILITIES> 936191<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 88342760
<SHARES-COMMON-STOCK> 6064329
<SHARES-COMMON-PRIOR> 6499096
<ACCUMULATED-NII-CURRENT> 1563610<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (13683409)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 319167<F1>
<NET-ASSETS> 80994205
<DIVIDEND-INCOME> 6281372<F1>
<INTEREST-INCOME> 1659396<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2397956)<F1>
<NET-INVESTMENT-INCOME> 5542812<F1>
<REALIZED-GAINS-CURRENT> (11154213)<F1>
<APPREC-INCREASE-CURRENT> 15931333<F1>
<NET-CHANGE-FROM-OPS> 10319932<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3137968)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 907385
<NUMBER-OF-SHARES-REDEEMED> (1539119)
<SHARES-REINVESTED> 196967
<NET-CHANGE-IN-ASSETS> (2711092)
<ACCUMULATED-NII-PRIOR> 1512453<F1>
<ACCUMULATED-GAINS-PRIOR> (2454383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355171)<F1>
<GROSS-ADVISORY-FEES> 874190<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2397956<F1>
<AVERAGE-NET-ASSETS> 82424545
<PER-SHARE-NAV-BEGIN> 12.880
<PER-SHARE-NII> .507
<PER-SHARE-GAIN-APPREC> .461
<PER-SHARE-DIVIDEND> (.492)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.356
<EXPENSE-RATIO> 2.05
<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> UTILITY C

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 129417332<F1>
<INVESTMENTS-AT-VALUE> 129736238<F1>
<RECEIVABLES> 3302125<F1>
<ASSETS-OTHER> 70711<F1>
<OTHER-ITEMS-ASSETS> 489190<F1>
<TOTAL-ASSETS> 133598264<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 936191<F1>
<TOTAL-LIABILITIES> 936191<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 1345079
<SHARES-COMMON-STOCK> 95362
<SHARES-COMMON-PRIOR> 88630
<ACCUMULATED-NII-CURRENT> 1563610<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (13683409)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 319167<F1>
<NET-ASSETS> 1273667
<DIVIDEND-INCOME> 6281372<F1>
<INTEREST-INCOME> 1659396<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2397956)<F1>
<NET-INVESTMENT-INCOME> 5542812<F1>
<REALIZED-GAINS-CURRENT> (11154213)<F1>
<APPREC-INCREASE-CURRENT> 15931333<F1>
<NET-CHANGE-FROM-OPS> 10319932<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (46441)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34020
<NUMBER-OF-SHARES-REDEEMED> (30118)
<SHARES-REINVESTED> 2830
<NET-CHANGE-IN-ASSETS> 133142
<ACCUMULATED-NII-PRIOR> 1512453<F1>
<ACCUMULATED-GAINS-PRIOR> (2454383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355171)<F1>
<GROSS-ADVISORY-FEES> 874190<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2397956<F1>
<AVERAGE-NET-ASSETS> 1209781
<PER-SHARE-NAV-BEGIN> 12.868
<PER-SHARE-NII> .482
<PER-SHARE-GAIN-APPREC> .498
<PER-SHARE-DIVIDEND> (.492)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.356
<EXPENSE-RATIO> 2.09
<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> 014
<NAME> UTILITY D

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 129417332<F1>
<INVESTMENTS-AT-VALUE> 129736238<F1>
<RECEIVABLES> 3302125<F1>
<ASSETS-OTHER> 70711<F1>
<OTHER-ITEMS-ASSETS> 489190<F1>
<TOTAL-ASSETS> 133598264<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 936191<F1>
<TOTAL-LIABILITIES> 936191<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 114
<ACCUMULATED-NII-CURRENT> 1563610<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (13683409)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 319167<F1>
<NET-ASSETS> 0
<DIVIDEND-INCOME> 6281372<F1>
<INTEREST-INCOME> 1659396<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2397956)<F1>
<NET-INVESTMENT-INCOME> 5542812<F1>
<REALIZED-GAINS-CURRENT> (11154213)<F1>
<APPREC-INCREASE-CURRENT> 15931333<F1>
<NET-CHANGE-FROM-OPS> 10319932<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (68)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (115)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (1473)
<ACCUMULATED-NII-PRIOR> 1512453<F1>
<ACCUMULATED-GAINS-PRIOR> (2454383)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> (355171)<F1>
<GROSS-ADVISORY-FEES> 874190<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2397956<F1>
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 12.921
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<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> BALANCED A

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUN-24-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 11107050<F1>
<INVESTMENTS-AT-VALUE> 11915756<F1>
<RECEIVABLES> 149543<F1>
<ASSETS-OTHER> 63693<F1>
<OTHER-ITEMS-ASSETS> 56824<F1>
<TOTAL-ASSETS> 12185816<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 116122<F1>
<TOTAL-LIABILITIES> 116122<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 4424914
<SHARES-COMMON-STOCK> 308746
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 28186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9560)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 808706<F1>
<NET-ASSETS> 4750911
<DIVIDEND-INCOME> 165939<F1>
<INTEREST-INCOME> 376648<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (166724)<F1>
<NET-INVESTMENT-INCOME> 375863<F1>
<REALIZED-GAINS-CURRENT> (9560)<F1>
<APPREC-INCREASE-CURRENT> 808706<F1>
<NET-CHANGE-FROM-OPS> 1175009<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (156268)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 375263
<NUMBER-OF-SHARES-REDEEMED> (74902)
<SHARES-REINVESTED> 8285
<NET-CHANGE-IN-ASSETS> 4749481
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 73534<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 336268<F1>
<AVERAGE-NET-ASSETS> 4173276
<PER-SHARE-NAV-BEGIN> 14.300
<PER-SHARE-NII> .572
<PER-SHARE-GAIN-APPREC> 1.041
<PER-SHARE-DIVIDEND> (.525)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.388
<EXPENSE-RATIO> 1.15
<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> 022
<NAME> BALANCED B

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUN-24-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 11107050<F1>
<INVESTMENTS-AT-VALUE> 11915756<F1>
<RECEIVABLES> 149543<F1>
<ASSETS-OTHER> 63693<F1>
<OTHER-ITEMS-ASSETS> 56824<F1>
<TOTAL-ASSETS> 12185816<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 116122<F1>
<TOTAL-LIABILITIES> 116122<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 6123381
<SHARES-COMMON-STOCK> 426808
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 28186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9560)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 808706<F1>
<NET-ASSETS> 6567967
<DIVIDEND-INCOME> 165939<F1>
<INTEREST-INCOME> 376648<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (166724)<F1>
<NET-INVESTMENT-INCOME> 375863<F1>
<REALIZED-GAINS-CURRENT> (9560)<F1>
<APPREC-INCREASE-CURRENT> 808706<F1>
<NET-CHANGE-FROM-OPS> 1175009<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (177438)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 532317
<NUMBER-OF-SHARES-REDEEMED> (115096)
<SHARES-REINVESTED> 9487
<NET-CHANGE-IN-ASSETS> 6566537
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 73534<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 336268<F1>
<AVERAGE-NET-ASSETS> 5740102
<PER-SHARE-NAV-BEGIN> 14.300
<PER-SHARE-NII> .464
<PER-SHARE-GAIN-APPREC> 1.056
<PER-SHARE-DIVIDEND> (.431)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.389
<EXPENSE-RATIO> 1.88
<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> 023
<NAME> BALANCED C

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUN-24-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 11107050<F1>
<INVESTMENTS-AT-VALUE> 11915756<F1>
<RECEIVABLES> 149543<F1>
<ASSETS-OTHER> 63693<F1>
<OTHER-ITEMS-ASSETS> 56824<F1>
<TOTAL-ASSETS> 12185816<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 116122<F1>
<TOTAL-LIABILITIES> 116122<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 694067
<SHARES-COMMON-STOCK> 48792
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 28186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9560)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 808706<F1>
<NET-ASSETS> 750816
<DIVIDEND-INCOME> 165939<F1>
<INTEREST-INCOME> 376648<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (166724)<F1>
<NET-INVESTMENT-INCOME> 375863<F1>
<REALIZED-GAINS-CURRENT> (9560)<F1>
<APPREC-INCREASE-CURRENT> 808706<F1>
<NET-CHANGE-FROM-OPS> 1175009<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (13922)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49426
<NUMBER-OF-SHARES-REDEEMED> (1007)
<SHARES-REINVESTED> 273
<NET-CHANGE-IN-ASSETS> 749386
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 73534<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 336268<F1>
<AVERAGE-NET-ASSETS> 420981
<PER-SHARE-NAV-BEGIN> 14.300
<PER-SHARE-NII> .426
<PER-SHARE-GAIN-APPREC> 1.093
<PER-SHARE-DIVIDEND> (.431)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.388
<EXPENSE-RATIO> 1.90
<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> 024
<NAME> BALANCED D

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUN-24-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 11107050<F1>
<INVESTMENTS-AT-VALUE> 11915756<F1>
<RECEIVABLES> 149543<F1>
<ASSETS-OTHER> 63693<F1>
<OTHER-ITEMS-ASSETS> 56824<F1>
<TOTAL-ASSETS> 12185816<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 116122<F1>
<TOTAL-LIABILITIES> 116122<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 28186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9560)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 808706<F1>
<NET-ASSETS> 0
<DIVIDEND-INCOME> 165939<F1>
<INTEREST-INCOME> 376648<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (166724)<F1>
<NET-INVESTMENT-INCOME> 375863<F1>
<REALIZED-GAINS-CURRENT> (9560)<F1>
<APPREC-INCREASE-CURRENT> 808706<F1>
<NET-CHANGE-FROM-OPS> 1175009<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (49)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14
<NUMBER-OF-SHARES-REDEEMED> (114)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1430)
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 73534<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 336268<F1>
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 14.300
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<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>