VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST/, 485BPOS, 1996-10-28

VAN KAMPEN AMERICAN CAPITAL EQUITY TRUST/
485BPOS, 1996-10-28

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1996

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
<S> <C>
Post-Effective Amendment No. 27 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28 [X]
</TABLE>

VAN KAMPEN AMERICAN CAPITAL 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)

(630) 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)

Copy 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)

[X] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (B)

[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(1)

[ ] 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 INTENDS TO
FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A FORM 24F-2 FOR ITS FISCAL
YEAR ENDING JUNE 30, 1997 ON OR BEFORE AUGUST 31, 1997.

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

EXPLANATORY NOTE

This Post-Effective Amendment No. 27 to the Registration Statement contains
seven Prospectuses and seven Statements of Additional Information describing the
seven series of the Registrant (the "Applicable Series"). The Registration
Statement is organized as follows:

Facing Page

Cross Reference Sheet with respect to the Applicable Series

Prospectuses relating to the Applicable Series, in the following order:

Van Kampen American Capital Utility Fund

Van Kampen American Capital Balanced Fund

Van Kampen American Capital Growth Fund

Van Kampen American Capital Value Fund

Van Kampen American Capital Great American Companies Fund

Van Kampen American Capital Prospector Fund

Van Kampen American Capital Aggressive Growth Fund

Statements of Additional Information relating to the Applicable Series, in
the following order:

Van Kampen American Capital Utility Fund

Van Kampen American Capital Balanced Fund

Van Kampen American Capital Growth Fund

Van Kampen American Capital Value Fund

Van Kampen American Capital Great American Companies Fund

Van Kampen American Capital Prospector Fund

Van Kampen American Capital Aggressive Growth Fund

Part C Information

Exhibits

<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

VAN KAMPEN AMERICAN CAPITAL VALUE FUND
VAN KAMPEN AMERICAN CAPITAL GREAT AMERICAN COMPANIES FUND

VAN KAMPEN AMERICAN CAPITAL PROSPECTOR FUND

VAN KAMPEN AMERICAN CAPITAL AGGRESSIVE GROWTH FUND

CROSS REFERENCE SHEET

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

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

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

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

Item 3. Condensed Financial
Information.......... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLE; FUND PERFORMANCE; ADDITIONAL
INFORMATION

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........... 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........... PURCHASE OF SHARES; REDEMPTION OF SHARES; SHAREHOLDER
SERVICES
Item 9. Pending Legal
Proceedings.......... Not Applicable
</TABLE>

i
<PAGE> 4

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

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: PURCHASE OF
SHARES; INVESTMENT ADVISORY SERVICES, THE DISTRIBUTION AND
SERVICE PLANS; Investment Advisory and Other Services;
Legal Counsel; Officers and Trustees; The Distributor

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;
PURCHASE OF SHARES; Tax Status of the Fund
Item 21. Underwriters........... The Distributor

Item 22. Calculation of
Performance Data..... Contained in the Prospectus under the caption: FUND
PERFORMANCE; Performance Information

Item 23. Financial Statements... Not Applicable
</TABLE>

PART C

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

ii
<PAGE> 5

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
UTILITY FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Utility Fund (the "Fund") is a diversified
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 is organized as a separate series of Van Kampen American Capital Equity
Trust.

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.

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

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

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

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunication Device For the Deaf at (800) 772-8889. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL (SM)

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 6

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 3
Shareholder Transaction Expenses................................ 5
Annual Fund Operating Expenses and Example...................... 6
Financial Highlights............................................ 8
The Fund........................................................ 9
Investment Objective and Policies............................... 9
Investment Practices............................................ 16
Investment Advisory Services.................................... 21
Alternative Sales Arrangements.................................. 23
Purchase of Shares.............................................. 24
Shareholder Services............................................ 34
Redemption of Shares............................................ 38
The Distribution and Service Plans.............................. 41
Distributions from the Fund..................................... 43
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 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.

2
<PAGE> 7

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

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

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum 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 seeks to achieve its investment objective
by investing primarily in the securities summarized below.

Utility Securities. The Fund seeks 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 are 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 securities 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 are rated, at the time of investment, at least BBB by Standard
& Poor's Ratings Group ("S&P"), or at least Baa by Moody's Investors Service,
Inc. ("Moody's") or 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 does 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 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

3
<PAGE> 8

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."

PURCHASE OF SHARES. Investors may elect to purchase Class A Shares, Class B
Shares or Class C Shares, each with different sales charges and expenses. The
different classes of shares permit an investor to choose the method of
purchasing shares that is 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 "Purchase of 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. The Fund may require the redemption of shares if the value of an account
is $500 or less. See "Redemption of Shares."

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

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

4
<PAGE> 9

- ------------------------------------------------------------------------------
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."

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

5
<PAGE> 10

- ------------------------------------------------------------------------------
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(2) (as a percentage of average
daily net assets)............................ 0.48% 0.48% 0.48%
Total Expenses(2) (as a percentage of average
daily net assets)............................ 1.38% 2.13% 2.13%
</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. See "The
Distribution and Service Plans."

(2) If the Adviser did not waive fees for the fiscal year ending June 30, 1996,
"Other Expenses" would have been 0.49% for Class A Shares, 0.49% for Class B
Shares and 0.50% for Class C Shares and "Total Expenses" would have been
1.39% for Class A Shares, 2.14% for Class B Shares and 2.15% for Class C
Shares.

6
<PAGE> 11

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 1.38% for
Class A Shares, 2.13% for Class B Shares
and 2.13% for Class C Shares, (ii) 5%
annual return and (iii) redemption at
the end of each time period:
Class A Shares......................... $ 71 $ 99 $ 129 $ 214
Class B Shares......................... $ 62 $ 102 $ 129 $ 227*
Class C Shares......................... $ 32 $ 67 $ 114 $ 246
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......................... $ 71 $ 99 $ 129 $ 214
Class B Shares......................... $ 22 $ 67 $ 114 $ 227*
Class C Shares......................... $ 22 $ 67 $ 114 $ 246
</TABLE>

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

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

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. 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 "Purchase of Shares," "Redemption of Shares",
"Investment Advisory Services" and "The Distribution and Service Plans."

7
<PAGE> 12

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

CLASS A SHARES
-----------------------------------
FROM
JULY 28, 1993
(COMMENCEMENT
YEAR YEAR OF INVESTMENT
ENDED ENDED OPERATIONS)
JUNE 30, JUNE 30, TO
1996 1995 JUNE 30, 1994
-------- -------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................................... $13.386 $12.906 $14.300
-------- -------- ------
Net Investment Income............................................................ .538 .595 .479
Net Realized and Unrealized Gain/Loss on Securities.............................. 2.077 .485 (1.513)
-------- -------- ------
Total from Investment Operations.................................................. 2.615 1.080 (1.034)
-------- -------- ------
Less:
Distributions from and in Excess of Net Investment Income........................ .703 .600 .323
Distributions in Excess of Net Realized Gain on Securities....................... --0-- --0-- .037
-------- -------- ------
Total Distributions............................................................... .703 .600 .360
-------- -------- ------
Net Asset Value, End of Period.................................................... $15.298 $13.386 $12.906
======= ======= =======
Total Return* (a)................................................................. 19.93% 8.70% (7.38%)**
Net Assets at End of the Period (in millions)..................................... $57.7 $50.4 $51.5
Ratio of Expenses to Average Net Assets*.......................................... 1.38% 1.34% 1.34%
Ratio of Net Investment Income to Average Net Assets*............................. 3.61% 4.55% 4.10%
Portfolio Turnover................................................................ 121% 109% 102%**
Average Commission Paid Per Equity Share Traded(b)................................ $.059 N/A N/A
- ---------------
*If certain expenses had not been assumed by VKAC, total return would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......................................... 1.39% N/A N/A
Ratio of Net Investment Income to Average Net Assets............................. 3.60% N/A N/A
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of the maximum sales charge or contingent deferred
sales charge.
(b) Represents the average brokerage commissions paid on equity transactions entered into during the period for trades where
commissions were applicable. This disclosure is not applicable for years beginning prior to June 30, 1995.
N/A = Not Applicable

<CAPTION>
CLASS B SHARES
-------------------------------------------
FROM
JULY 28, 1993
(COMMENCEMENT
YEAR YEAR OF INVESTMENT
EMDED ENDED OPERATIONS)
JUNE 30, JUNE 30, TO
1996 1995 JUNE 30, 1994
---------- -------- ---------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................................... $13.356 $12.880 $14.300
------- ------- -------
Net Investment Income............................................................ .426 .507 .394
Net Realized and Unrealized Gain/Loss on Securities.............................. 2.080 .461 (1.519)
------- -------- -------
Total from Investment Operations.................................................. 2.506 .968 (1.125)
------- -------- -------
Less:
Distributions from and in Excess of Net Investment Income........................ .566 .492 .258
Distributions in Excess of Net Realized Gain on Securities....................... --0-- --0-- .037
------- -------- -------
Total Distributions............................................................... .566 .492 .295
------- -------- -------
Net Asset Value, End of Period.................................................... $15.296 $13.356 $12.880
======= ======== =======
Total Return* (a)................................................................. 19.08% 7.80% (8.02%)**
Net Assets at End of the Period (in millions)..................................... $92.9 $81.0 $83.7
Ratio of Expenses to Average Net Assets*.......................................... 2.13% 2.05% 2.06%
Ratio of Net Investment Income to Average Net Assets*............................. 2.86 3.84% 3.36%
Portfolio Turnover................................................................ 121 109% 102%**
Average Commission Paid Per Equity Share Traded(b)................................ $.059 N/A N/A
- ---------------
*If certain expenses had not been assumed by VKAC, total return would have been lower and the ratio would have been as follows:
Ratio of Expenses to Average Net Assets.......................................... 2.14% N/A N/A
Ratio of Net Investment Income to Average Net Assets............................. 2.85% N/A N/A
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of the
maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commissions paid on equity transactions enter
commissions were applicable. This disclosure is not applicable for years begin
N/A = Not Applicable

<CAPTION>
CLASS C SHARES
------------------------------------------
FROM
AUGUST 13, 1993
YEAR YEAR (COMMENCEMENT OF
JUNE 30, JUNE 30, DISTRIBUTION TO
1996 1995 JUNE 30, 1994
-------- -------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period.......................................... $13.356 $12.868 $14.460
-------- -------- -------
Net Investment Income............................................................ .470 .482 .330
Net Realized and Unrealized Gain/Loss on Securities.............................. 2.030 .498 (1.627)
-------- -------- -------
Total from Investment Operations.................................................. 2.500 .980 (1.297)
-------- -------- -------
Less:
Distributions from and in Excess of Net Investment Income........................ .566 .492 .285
--0-- --0-- .037
Distributions in Excess of Net Realized Gain on Securities....................... -------- -------- -------
.566 .492 .295
Total Distributions............................................................... -------- -------- -------
$15.290 $13.356 $12.868
Net Asset Value, End of Period.................................................... ======= ======= =======
19.00% 7.88% (9.11%)**
Total Return* (a)................................................................. $5.0 $1.3 $1.1
Net Assets at End of the Period (in millions)..................................... 2.13% 2.09% 2.05%
Ratio of Expenses to Average Net Assets*.......................................... 2.78% 3.80% 3.38%
Ratio of Net Investment Income to Average Net Assets*............................. 121% 109% 1.02%**
Portfolio Turnover................................................................ $.059 N/A N/A
Average Commission Paid Per Equity Share Traded(b)................................
- ---------------
*If certain expenses had not been assumed by VKAC, total return would have been lower and the ratio would have been has follows:
Ratio of Expenses to Average Net Assets.......................................... 2.15% N/A N/A
Ratio of Net Investment Income to Average Net Assets............................. 2.77% N/A N/A
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of the
maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commissions paid on equity transactions enter
commissions were applicable. This disclosure is not applicable for years begin
N/A = Not Applicable
</TABLE>

See Financial Statements and Notes Thereto.

<PAGE> 13

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

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

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

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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 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;

9
<PAGE> 14

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 1985 through 1995, 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
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

10
<PAGE> 15

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 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

11
<PAGE> 16

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.

Telecommunications Utilities. The telecommunications industry is experiencing
significant changes as local and long distance telephone companies, wireless
communications companies and cable television providers begin to compete to
provide telecommunications services and as new technologies develop. The Adviser
anticipates that new telecommunications legislation also will have a significant
impact on the telecommunications industry. 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 provide better-positioned utility companies
with opportunities for enhanced profitability.

Gas and Electric Utilities. Convergence of gas utilities and electric
utilities continues, as electric utilities begin to deregulate and customers
begin to use a single energy provider instead of multiple energy providers. Gas
companies have been deregulated to a greater extent than electric utilities and
have developed more of the business practices necessary to operate in a
non-monopoly environment. Electric utilities generally are just beginning to
deregulate and may be more likely to experience significant changes than gas
companies, which changes may increase the risk of investing in securities of
electric utilities. In addition, gas and electric utility companies will
continue to be affected by changes in fuel prices and interest rates.

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.

12
<PAGE> 17

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 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

13
<PAGE> 18

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 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."

14
<PAGE> 19

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); 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.

15
<PAGE> 20

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

In connection with the investment policies described above, the Fund 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.

16
<PAGE> 21

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.

17
<PAGE> 22

transaction costs, higher returns, higher quality investments and greater
diversity of investments for the Fund than would be available to the Fund
investing separately. The manner in which the joint account is managed is
subject to conditions set forth in an SEC exemptive order authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.

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

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.

18
<PAGE> 23

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 liquid securities, 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.

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.

19
<PAGE> 24

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.

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,
as amended (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.

20
<PAGE> 25

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 "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 more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,800 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., the distributor of the Fund and the sponsor of the
funds mentioned above, is also a wholly-owned subsidiary of Van Kampen American
Capital.

Van Kampen American Capital is a wholly-owned subsidiary of 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 and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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.

21
<PAGE> 26

ADVISORY AGREEMENT. The business and affairs of the Fund are managed under the
direction of the Board of Trustees of the Trust, of which the Fund is a separate
series. Subject to the Trustees' authority, the Adviser and the officers of the
Fund supervise and implement the Fund's investment activities and are
responsible for overall management of the Fund's business affairs. The Fund pays
the Adviser a fee 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%
Next $500 million...................................... 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 operations, including the compensation of
the Trustees of the Trust (other than those who are affiliated persons, as
defined in the 1940 Act, of the Adviser, Distributor or Van Kampen American
Capital), the charges and expenses of independent accountants, legal counsel,
any transfer or dividend disbursing agent and the custodian (including fees for
safekeeping of securities), costs of calculating net asset value, costs of
acquiring and disposing of portfolio securities, interest (if any) on
obligations incurred by the Fund, costs of share certificates, membership dues
in the Investment Company Institute or any similar organization, reports and
notices to shareholders, costs of registering shares of the Fund under federal
and state securities laws, miscellaneous expenses and all taxes and fees to
federal, state or other governmental agencies. The Adviser reserves the right in
its sole discretion from time to time to waive all or a portion of its
management fee or to reimburse the Fund for all or a portion of its other
expenses.

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

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

PORTFOLIO MANAGEMENT. Mary Jayne Maly has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since June, 1995. Ms.
Maly is currently Vice President of the Adviser and 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.

22
<PAGE> 27

- ------------------------------------------------------------------------------
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 ("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 (a
"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 in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

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

23
<PAGE> 28

weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable to
Class B Shares and Class C Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except 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. Generally, a class of shares subject
to a higher ongoing distribution fee and services fee or subject to the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee and services fee
or not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of 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. 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 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").

24
<PAGE> 29

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.

25
<PAGE> 30

CLASS A SHARES

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
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 brokers, dealers and
financial intermediaries 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 and 0.50% on the excess over $3 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

26
<PAGE> 31

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
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 or in combination with shares of Participating Funds
although other Participating Funds may have different sales charges.

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

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

27
<PAGE> 32

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

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 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.

28
<PAGE> 33

(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 12-month period following such transaction.

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

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

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

(8) Full service participant directed profit sharing and money purchase
plans, full service 401(k) plans, or similar full service recordkeeping
programs made available through Van Kampen American Capital Trust Company
with at least 50 eligible employees or investing at least $250,000 in the
Participating Funds, 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

29
<PAGE> 34

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.

(9) Participants in any 403(b)(7) program of a college or university system
which permits only net asset value mutual fund investments and for which
Van Kampen American Capital Trust Company serves as custodian. In
connection with such purchases, the Distributor may pay, out of its own
assets, a commission to brokers, dealers, or financial intermediaries as
follows: one percent on sales up to $5 million, plus 0.50% on the next $5
million, plus 0.25% on the excess over $10 million.

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge.
For this purpose, a qualified group is one which (i) has been in
existence for more than six months, (ii) has a purpose other than to
acquire shares of the Fund or similar investments, (iii) has given and
continues to give its endorsement or authorization, on behalf of the
group, for purchase of shares of the Fund and other funds in the Van
Kampen American Capital Family of Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified
group does not include one whose sole organization nexus, for example, is
that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar groups.
Shares purchased in each group's participants account in connection with
this privilege will be subject to a CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to
each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 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.

30
<PAGE> 35

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 compensates brokers,
dealers and financial intermediaries participating in the continuous public
offering of the CDSC Shares out of its own assets, and not out of the assets of
the Fund, at a percentage rate of the dollar value of the CDSC Shares purchased
from the Fund by such brokers, dealers and financial intermediaries, which
percentage rate is equal to (i) with respect to Class A Shares, 1.00% on sales
to $2 million, plus 0.80% on the next 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 charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
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 CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents for selling such shares.
The combination of the CDSC and the distribution fee facilitates the ability of
the Fund to sell such CDSC Shares without a sales charge being deducted at the
time of purchase.

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<PAGE> 36

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 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 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 and 0.50% on the excess over $3 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
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------- -------------------------------
<S> <C>
First..................................... 4.00%
Second.................................... 3.75%
Third..................................... 3.50%
Fourth.................................... 2.50%
Fifth..................................... 1.50%
Sixth..................................... 1.00%
Seventh and after......................... 0.00%
</TABLE>

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

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

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<PAGE> 37

CONVERSION FEATURE. Class B Shares and Class C Shares automatically will
convert to Class A Shares eight years or ten years, respectively, after the end
of the month in which a shareholder's order to purchase the shares was accepted
and thereafter will not be subject to the higher distribution fees applicable to
Class B Shares and Class C Shares. The purpose of the conversion feature is to
relieve the holders of Class B Shares and Class C Shares that have been
outstanding for a period of time sufficient for the Distributor to have been
compensated for distribution expenses related to such shares from most of the
burden of such distribution-related expenses. The Fund does not expect to issue
any share certificates upon conversion.

For purposes of conversion to Class A Shares, Class B Shares and Class C
Shares purchased through the reinvestment of dividends and distributions paid in
respect of such in a shareholder's account will be considered to be held in a
separate sub-account. Each time any Class B Shares of Class C 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 shares in the respectively sub-account
also will convert to Class A Shares.

The CDSC schedule and conversion schedule applicable to a CDSC Share acquired
through the exchange privilege is determined by reference to the Van Kampen
American Capital fund from which such share originally was purchased. The
holding period of a CDSC Share acquired through the exchange privilege is
determined by reference to the date such share originally was purchased from a
Van Kampen American Capital fund.

The conversion of Class B Shares and Class C 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.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with 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 CDSC
is also waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption

33
<PAGE> 38

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.

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.

34
<PAGE> 39

each share transaction in an account, the shareholder receives a statement
showing the activity in the account. Each shareholder will receive statements at
least quarterly from ACCESS showing any reinvestments of dividends and capital
gains distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.

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

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((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. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.

35
<PAGE> 40

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, Tax Free Money Fund or Reserve Fund so long as a
pre-existing account for such class of shares exists for such shareholder. Both
accounts must be of the same type, either non-retirement or retirement. Any two
non-retirement accounts can be used. If the accounts are retirement accounts,
they must both be for the same type of retirement plan (e.g. IRA, 403(b)(7),
401(k) or Keogh) and for the benefit of the same individual. If the qualified
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other requirements of the fund into
which distributions would be invested. Distributions are invested into the
selected fund at its net asset value as of the payable date of the distribution
only.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, the Tax Free Money Fund or the Reserve Fund, subject to
certain limitations. 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.

Class A Shares of Van Kampen American Capital funds that generally impose an
initial sales charge are not subject to any sales charge upon exchange into the
Fund. Class A Shares of Van Kampen American Capital funds that generally do not
impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of the Fund.

No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
or Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

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

36
<PAGE> 41

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
effected. 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
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."

37
<PAGE> 42

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.

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.

38
<PAGE> 43

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.

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.

39
<PAGE> 44

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

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

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

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

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

40
<PAGE> 45

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 CDSC 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.

41
<PAGE> 46

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.

42
<PAGE> 47

As of June 30, 1996, there were $3,482,846 and $2,123 of unreimbursed
distribution-related expenses attributable to Class B Shares and Class C Shares
respectively, representing 3.74% and less than 0.04% of the Fund's net assets
attributable to Class B Shares and Class C Shares, respectively. If the
Distribution Plan was terminated or not continued, the Fund would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through 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 CDSC with respect to a particular class of
shares to defray distribution related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare 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, service fee or not subject to the
conversion feature.

Investors will be entitled to begin receiving dividends on their shares on the
business day after the Fund's transfer agent receives payments for such shares.

43
<PAGE> 48

However, investors' shares become entitled to dividends on the day the Fund's
transfer agent receives payment for the shares either through a fed wire or NSCC
settlement. Shares remain entitled to dividends through the day such shares are
processed for payment or redemption.

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

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit 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 (which includes tax-exempt income and net
short-term capital gain, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses) in each year, it
will not be required to pay federal income taxes on any income distributed to
Shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to Shareholders.

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

44
<PAGE> 49

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
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.

45
<PAGE> 50

DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to Shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional Shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to Shareholders at the rates applicable to long-term capital gains regardless of
the length of time Shares of the Fund have been held by such Shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's Shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
Shares are held as a capital asset). 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.

46
<PAGE> 51

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.

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. or nationally recognized financial 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 or return. In addition, from time to
time, the Fund may utilize sales literature that includes hypotheticals.

47
<PAGE> 52

effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.

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

DESCRIPTION OF SHARES OF THE FUND

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

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"). 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, par value $0.01 per share, divided into classes.
The Fund currently offers three classes, designated Class A Shares, Class B
Shares and Class C Shares. 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."

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 and Class C 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
holders of Class A Shares.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Trust will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed

48
<PAGE> 53

information concerning the Trust is set forth in the Statement of Additional
Information.

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

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

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

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.

49
<PAGE> 54

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) 421-5684.

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 Utility Fund

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

Attn: Van Kampen American Capital Utility Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 55

------------------------------------------------------------------------------
UTILITY FUND
------------------------------------------------------------------------------

P R O S P E C T U S

OCTOBER 28, 1996

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 56

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

Van Kampen American Capital Balanced Fund (the "Fund") is a diversified,
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 is organized as a separate series of Van
Kampen American Capital Equity Trust.

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device For the Deaf at (800) 772-8889. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is available along with other related materials at
the SEC's internet web site (http://www.sec.gov).

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

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 57

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................. 3
Shareholder Transaction Expenses............................... 5
Annual Fund Operating Expenses and Example..................... 6
Financial Highlights........................................... 8
The Fund....................................................... 9
Investment Objective and Policies.............................. 9
Investment Practices........................................... 14
Investment Advisory Services................................... 19
Alternative Sales Arrangements................................. 21
Purchase of Shares............................................. 23
Shareholder Services........................................... 33
Redemption of Shares........................................... 37
The Distribution and Service Plans............................. 40
Distributions from the Fund.................................... 42
Tax Status..................................................... 43
Fund Performance............................................... 46
Description of Shares of the Fund.............................. 47
Additional Information......................................... 47
</TABLE>

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

2
<PAGE> 58

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

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

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum 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.

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 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.

3
<PAGE> 59

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.

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 Objective and Policies" and "Investment Practices."

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

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

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 foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

4
<PAGE> 60

- ------------------------------------------------------------------------------
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."

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

5
<PAGE> 61

<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)................ 0.34% 0.34% 0.34%
Total expenses(1) (as a percentage of
average daily
net assets).............................. 0.59% 1.34% 1.34%
</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 2.14% for Class A Shares, 2.14% for Class B Shares and 2.14%
for Class C Shares and "Total expenses" would have been 3.09% for Class A
Shares, 3.84% for Class B Shares and 3.84% 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. See "The
Distribution and Service Plans."

6
<PAGE> 62

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 0.59% for Class
A Shares, 1.34% for Class B Shares and
1.34% for Class C Shares, (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................. $63 $75 $89 $ 127
Class B Shares............................. $54 $77 $88 $ 141*
Class C Shares............................. $24 $42 $73 $ 161
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................. $63 $75 $89 $ 127
Class B Shares............................. $14 $42 $73 $ 141*
Class C Shares............................. $14 $42 $73 $ 161
</TABLE>

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

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

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. 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 "Purchase of Shares," "Redemption of
Shares," "Investment Advisory Services" and "The Distribution and Service
Plans."

7
<PAGE> 63

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

FINANCIAL HIGHLIGHTS (for a share outstanding throughout the periods indicated)

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

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

<TABLE>
<CAPTION>
CLASS B
CLASS A SHARES SHARES
----------------------------- -----------
JUNE 24, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED OPERATIONS) YEAR ENDED
JUNE 30, TO JUNE 30,
1996 JUNE 30, 1995 1996
----------- ------------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period................................... $15.388 $14.300 $15.389
----------- ------ -----------
Net Investment Income..................................................... .572 .572 .459
Net Realized and Unrealized Gain on Securities............................ 1.678 1.041 1.667
----------- ------ -----------
Total from Investment Operations........................................... 2.250 1.613 2.126
----------- ------ -----------
Less:
Distributions from Net Investment Income.................................. .600 .525 .492
Distributions from Net Realized Gain on Securities........................ .986 -0- .986
----------- ------ -----------
Total Distributions........................................................ 1.586 .525 1.478
----------- ------ -----------
Net Asset Value, End of the Period......................................... $16.052 $15.388 $16.037
=========== ====== ===========
Total Return*(a)........................................................... 15.07% 11.53%** 14.25%
Net Assets at End of the Period (in millions).............................. $ 6.5 $ 4.8 $ 8.2
Ratio of Expenses to Average Net Assets*................................... .59% 1.15% 1.34%
Ratio of Net Investment Income to Average Net Assets*...................... 3.63% 4.01% 2.88%
Portfolio Turnover......................................................... 177% 121%** 177%
Average Commission Paid Per Equity Share Trade(b).......................... $ .048 -- $ .048
- ----------------
* 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................................. 3.09% 2.76% 3.84%
Ratio of Net Investment Income to Average Net Assets.................... 1.13% 2.40% .38%
** Non-annualized.

<CAPTION>
CLASS B SHARES CLASS C SHARES
-------------- -----------------------------
JUNE 24, 1994 JUNE 24, 1994
(COMMENCEMENT (COMMENCEMENT
OF INVESTMENT OF INVESTMENT
OPERATIONS) YEAR ENDED OPERATIONS)
TO JUNE 30, TO
JUNE 30, 1995 1996 JUNE 30, 1995
------------- ----------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period................................... $14.300 $15.388 $14.300
------ ----------- ------
Net Investment Income..................................................... .464 .466 .426
Net Realized and Unrealized Gain on Securities............................ 1.056 1.662 1.093
------ ----------- ------
Total from Investment Operations........................................... 1.520 2.128 1.519
------ ----------- ------
Less:
Distributions from Net Investment Income.................................. .431 .492 .431
Distributions from Net Realized Gain on Securities........................ -0- .986 -0-
------ ----------- ------
Total Distributions........................................................ .431 1.478 .431
------ ----------- ------
Net Asset Value, End of the Period......................................... $15.389 $16.038 $15.388
====== =========== ======
Total Return*(a)........................................................... 10.82%** 14.25% 10.82%**
Net Assets at End of the Period (in millions).............................. $ 6.6 $ 1.1 $ .8
Ratio of Expenses to Average Net Assets*................................... 1.88% 1.34% 1.90%
Ratio of Net Investment Income to Average Net Assets*...................... 3.27% 2.88% 3.19%
Portfolio Turnover......................................................... 121%** 177% 121%**
Average Commission Paid Per Equity Share Trade(b).......................... -- $ .048 --
- ----------------
* If certain expenses had not been assumed by the Adviser, total return w
been as follows:
Ratio of Expenses to Average Net Assets................................. 3.48% 3.84% 3.48%
Ratio of Net Investment Income to Average Net Assets.................... 1.67% .38% 1.61%
** Non-annualized.
</TABLE>

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

(b) Represents the average brokerage commissions paid on equity transactions
entered into during the period where commissions were applicable. This
disclosure is not applicable for periods prior to June 30, 1996.

See Financial Statements and Notes Thereto

8
<PAGE> 64

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

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

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

The Fund's investment objective is to 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 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

9
<PAGE> 65

below investment grade or, if unrated, deemed by the Adviser to be of comparable
quality.

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. The Fund does not anticipate having annual portfolio turnover
rates in excess of 200% with respect to either the equity portfolio or the
fixed-income portfolio. A

10
<PAGE> 66

high rate of portfolio turnover involves correspondingly greater brokerage
commission expenses or dealer costs than a lower rate, which expenses and costs
must be borne by the Fund and its shareholders. A high portfolio turnover rate
may result in the realization of more capital gains taxes than if the Fund had a
lower portfolio turnover rate. 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

11
<PAGE> 67

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

12
<PAGE> 68

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

13
<PAGE> 69

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, 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.

14
<PAGE> 70

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."

15
<PAGE> 71

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.

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

"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.

16
<PAGE> 72

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.

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, 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 securities will be equal in value to its
obligations. Because such assets are maintained in a segregated account, the
Fund will not treat such obligations as senior securities for purposes of the
1940 Act. A "covered roll" is a specific type of dollar roll for which there is
an offsetting cash position or cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction.
"Covered rolls" are not subject to these segregation requirements.

17
<PAGE> 73

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
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 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.

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

18
<PAGE> 74

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.

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.

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

19
<PAGE> 75

company with more than two million retail investor accounts, extensive
capabilities for managing institutional portfolios, and more than $57 billion
under management or supervision. Van Kampen American Capital's more than 40
open-end and 38 closed-end funds and more than 2,800 unit investment trusts are
professionally distributed by leading financial advisers nationwide. Van Kampen
American Capital Distributors, Inc., the distributor of the Fund and sponsor of
the funds mentioned above, is a wholly-owned subsidiary of Van Kampen American
Capital.

Van Kampen American Capital is 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 and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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 are managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to the Trustees' authority, the Adviser and the
officers of the Fund supervise and implement the Fund's investment activities
and are responsible for overall management of the Fund's business affairs. The
Fund pays the Adviser a fee 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>

20
<PAGE> 76

share certificates, membership dues in the Investment Company Institute or any
similar organization, reports and notices to shareholders, costs of registering
shares of the Fund under the federal and state securities laws, miscellaneous
expenses and all taxes and fees to federal, state or other governmental
agencies. The Adviser reserves the right in its sole discretion from time to
time to waive all or a portion of its management fee or to reimburse the Fund
for all or a portion of its other expenses.

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

PORTFOLIO MANAGEMENT. B. Robert Baker has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since August 1995. Mr.
Baker is currently a Vice President of the Adviser and has been an associate
portfolio manager with Van Kampen American Capital Asset Management, Inc., an
affiliate of Van Kampen American Capital, since November 1991.

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

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 (a
"CDSC"), Class B Shares and Class C Shares sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."

21
<PAGE> 77

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 should
weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable to
Class B Shares and Class C Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except 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. Generally, a class of shares subject
to a higher ongoing distribution fee and services fee or subject to the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution and services fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of 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,

22
<PAGE> 78

which expenses typically will be higher with respect to classes of shares
subject to the conversion feature; (ii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxy statements to current shareholders of a specific class; (iii) SEC
registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares.
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 three classes of shares to the public through Van Kampen
American Capital Distributors, Inc. ("the Distributor"), as principal
underwriter, which is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181. Shares are also offered through members of the National Association of
Securities Dealers, Inc. ("NASD") acting as securities dealers ("dealers") and
through NASD members acting as brokers for investors ("brokers") or eligible
non-NASD members acting as agents for investors ("financial intermediaries").
The Fund reserves the right to suspend or terminate the continuous public
offering of its shares at any time and without prior notice.

The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer or
financial intermediary or 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

23
<PAGE> 79

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

24
<PAGE> 80

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>

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

QUANTITY DISCOUNTS

As used herein, "Participating Funds" refers to all open-end investment
companies distributed by the Distributor other than Van Kampen American Capital
Tax

25
<PAGE> 81

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

OTHER PURCHASE PROGRAMS

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

26
<PAGE> 82

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

(1) Current or retired trustees/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.

(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.

27
<PAGE> 83

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

(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.

(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, 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.

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge. For
this

28
<PAGE> 84

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

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

DEFERRED SALES CHARGE ALTERNATIVES

29
<PAGE> 85

next million and 0.50% on the excess over $3 million; (ii) 4.00% with respect to
Class B Shares and (iii) 1.00% with respect to Class C Shares. Such compensation
will not change the price an investor will pay for CDSC Shares or the amount
that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed 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 and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents for selling such shares.
The combination of the CDSC and the distribution fee facilitates the ability of
the Fund to sell CDSC Shares without a sales charge being deducted at the time
of purchase.

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

30
<PAGE> 86

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

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

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

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

CONVERSION FEATURE. Class B Shares and Class C Shares automatically will
convert to Class A Shares eight years or ten years, respectively, after the end
of the month in which a shareholder's order to purchase the shares was accepted
and thereafter will not be subject to the higher distribution fees applicable to
Class B Shares and Class C Shares. The purpose of the conversion feature is to
relieve the holders of Class B Shares and Class C Shares that have been
outstanding for a period of time sufficient for the Distributor to have been
compensated for distribution expenses related to such shares from most of the
burden of such distribution-elated expenses. The Fund does not expect to issue
any share certificates upon conversion.

For purposes of conversion to Class A Shares, Class B Shares and Class C
Shares purchased through the reinvestment of dividends and distributions paid in
respect of such shares in a shareholder's account will be considered to be held
in a separate sub-account. Each time any Class B Shares or Class C 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 shares in the respective sub-account
also will convert to Class A Shares.

31
<PAGE> 87

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with 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 CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 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

32
<PAGE> 88

time to time, however, the per share net asset value of the different classes of
shares may differ.

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

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.

33
<PAGE> 89

value of the issued shares and bill the party to whom the replacement
certificate was mailed.

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

34
<PAGE> 90

certain limitations. 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.

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

35
<PAGE> 91

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.

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.

36
<PAGE> 92

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

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

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

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

37
<PAGE> 93

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 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.

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'

38
<PAGE> 94

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.

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

GENERAL REDEMPTION INFORMATION. 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 CDSC 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.

39
<PAGE> 95

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

40
<PAGE> 96

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

The Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares for any given year may exceed the amounts payable to the
Distributor with respect to such shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed distribution-related expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996, there were $294,044 and
$2,102 of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares, respectively, representing 3.60% and 0.20% of the
Fund's net assets attributable to Class B Shares and Class C Shares,
respectively. If the Distribution Plan was terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred sales
charges.

41
<PAGE> 97

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

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay 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 the conversion
feature will be lower than distributions with respect to a class of shares
subject to a lower distribution fee, service fee or not subject to the
conversion feature.

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

42
<PAGE> 98

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
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.

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.

43
<PAGE> 99

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.

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.

DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional Shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to shareholders at the rates applicable to long-term capital gains regardless of
the length of time shares of the Fund have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
Shares are held as a capital asset). 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

44
<PAGE> 100

Fund will be eligible for the dividends received deduction for corporations if
the Fund receives qualifying dividends during the year and if certain other
requirements of the Code are satisfied.

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such Shares will equal the
fair market value on the distribution date.

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

The Fund is required, 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.

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.

45
<PAGE> 101

- ------------------------------------------------------------------------------
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 separately for each class of the
Fund's shares. In lieu of or in addition to total return and yield calculations,
such information may include performance rankings and similar information from
independent organizations such as Lipper Analytical Services, Inc. or nationally
recognized financial publications. 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 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 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 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).

46
<PAGE> 102

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

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 and Class C 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
holders of Class A Shares.

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

47
<PAGE> 103

accountants, is sent to shareholders each year. After the end of each year,
shareholders will receive federal income tax information regarding dividends and
capital gains distributions.

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

48
<PAGE> 104

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) 421-5684.

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

Balanced Fund

Custodian

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

Balanced Fund

Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 105

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

BALANCED FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 106

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Growth Fund (the "Fund") is a diversified
open-end management investment company, commonly known as a mutual fund. The
Fund's investment objective is to seek capital growth. The Fund will seek to
achieve its investment objective by investing primarily in a diversified
portfolio of common stocks and other equity securities of growth companies.
Growth companies generally include those companies with established records of
growth in sales or earnings and companies with new products, new services or new
processes that the Fund's investment adviser believes offer investors in the
equity securities of such companies above average potential for capital growth.
Any income received on such securities is incidental to the objective of capital
growth. There is no assurance that the Fund will achieve its investment
objective. The fund is organized as a series of Van Kampen American Capital
Equity Trust.

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

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

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this prospectus. A copy of the 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. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 107

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 3
Shareholder Transaction Expenses................................ 5
Annual Fund Operating Expenses and Example...................... 6
Financial Highlights............................................ 8
The Fund........................................................ 9
Investment Objective and Policies............................... 9
Portfolio Securities............................................ 10
Investment Practices............................................ 13
Investment Advisory Services.................................... 18
Alternative Sales Arrangements.................................. 20
Purchase of Shares.............................................. 22
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 45
Description of Shares of the Fund............................... 45
Additional Information.......................................... 46
</TABLE>

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

2
<PAGE> 108

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

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

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

INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
growth. There can be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICY. The Fund will attempt to achieve its investment objective by
investing principally in a diversified portfolio of common stocks and other
equity securities of growth companies. Growth companies generally include those
companies with established records of growth in sales or earnings and companies
with new products, new services or new processes that the Fund's investment
adviser believes offer investors in the equity securities of such companies
above average potential for capital growth. The net asset value per share of the
Fund may increase or decrease depending on changes in the securities markets,
and other factors affecting the issuers of securities in which the Fund may
invest. See "Investment Objective and Policies."

INVESTMENT PRACTICES. The Fund may invest up to 25% of its assets in foreign
securities. Subject to certain limitations, the Fund may enter into strategic
transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."

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

3
<PAGE> 109

respective class of CDSC Shares will not be subject to a deferred sales charge.
The Fund may require the redemption of shares if the value of an account is $500
or less. See "Redemption of Shares."

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
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 foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

4
<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."

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

5
<PAGE> 111

<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)............. 0.00% 0.00% 0.00%
Other expenses (as a percentage of
average daily net assets)............. 1.46% 1.46% 1.46%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.46% 1.46% 1.46%
</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 0.75% for each Class
of Shares, "Other expenses" would have been 14.94% for Class A Shares and
14.95% each for Class B Shares and Class C Shares, and "Total expenses"
would have been 15.69% for Class A Shares, 15.70% for Class B Shares and
15.70% for Class C Shares.

(2) No 12b-1 or service fees were accrued by the Fund for the period ended June
30, 1996 because the Fund was not actively distributing its shares during
such period. If the Fund had been actively distributing its shares during
the period ended June 30, 1996, 12b-1 and service fees would have been
0.25%, 1.00% and 1.00% for Class A Shares, Class B Shares and Class C
Shares, respectively.

6
<PAGE> 112

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio of
1.46% for Class A Shares, 1.46% for Class B Shares and
1.46% for Class C Shares, (ii) 5% annual return and
(iii) redemption at the end of each time period:
Class A Shares........................................ $72 $101
Class B Shares........................................ $55 $ 81
Class C Shares........................................ $25 $ 46
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........................................ $72 $101
Class B Shares........................................ $15 $ 46
Class C Shares........................................ $15 $ 46
</TABLE>

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 the
Fund's 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 Expense" table. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Redemption of
Shares," "Investment Advisory Services" and "The Distribution and Service

Plans."

7
<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 financial
statements and related notes thereto included in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
--------------------------- --------------------------- ---------------------------
DECEMBER 27, 1995 DECEMBER 27, 1995 DECEMBER 27, 1995
(COMMENCEMENT OF INVESTMENT (COMMENCEMENT OF INVESTMENT (COMMENCEMENT OF INVESTMENT
OPERATIONS) TO JUNE 30, OPERATIONS) TO JUNE 30, OPERATIONS) TO JUNE 30,
1996 1996 1996
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $10.000 $10.000 $10.000
------- ------- -------
Net Investment Loss................. (0.044) (0.045) (0.045)
Net Realized and Unrealized Gain on
Securities........................ 3.740 3.740 3.740
------- ------- -------
Total from Investment Operations...... 3.696 3.695 3.695
------- ------- -------
Net Asset Value, End of the Period.... $13.696 $13.695 $13.695
======= ======= =======
Total Return*(a)...................... 37.00%** 37.00%** 37.00%**
Net Assets at End of the Period (in
thousands)(b)....................... $ 138.5 $ 89.0 $ 89.0
Ratio of Expenses to Average Net
Assets*............................. 1.46% 1.46% 1.46%
Ratio of Net Investment Income to
Average Net Assets*................. (0.79%) (0.74%) (0.74%)
Portfolio Turnover.................... 94%** 94%** 94%**
Average Commission Paid Per Equity
Share Traded(c)..................... $ 0.028 $ 0.028 $ 0.028
- ----------------
* If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets(b)......................... 15.69% 15.70% 15.70%
Ratio of Net Investment Income to
Average Net Assets................ (15.02%) (14.97%) (14.97%)
</TABLE>

** Non-Annualized

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

(b) The Ratios of Expenses are based upon Total Expenses, which does not
reflect credits earned on overnight cash balances. (See Note 1 to Financial
Statements)

(c) Represents the average brokerage commission paid on equity transactions
entered into during the period for trades where commissions were
applicable.

See Financial Statements and Notes Thereto

8
<PAGE> 114

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

Van Kampen American Capital Growth Fund (the "Fund") is a mutual fund. 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. The Fund is a separate diversified series
of Van Kampen American Capital Equity Trust (the "Trust"). The Trust is an
open-end management investment company organized as a Delaware business trust.

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

The investment objective of the Fund is to seek capital growth. This objective
is fundamental and cannot be changed without approval of the shareholders of the
Fund. Any income received on such securities is incidental to the objective of
capital growth. There can be no assurance that the Fund will achieve its
investment objective.

The Fund seeks to achieve its investment objective by investing principally in
common stocks and other equity securities of growth companies. Growth companies
generally include those companies with established records of growth in sales or
earnings and companies with new products, new services, or new processes that
the Adviser believes offer investors in the equity securities of such companies
above average potential for capital growth. The Fund may also invest in
companies in cyclical industries during periods when the Adviser believes that
such investments offer an above average potential for capital growth. The Fund
may also invest in investment grade income securities for purposes of capital
growth and cash management or as a temporary defensive measure. See "Portfolio
Securities --Income Securities." The Fund may also invest in shares of other
investment companies that pursue investment objectives consistent with that of
the Fund, to the extent and subject to the limitations discussed below. The Fund
may invest up to 25% of its total assets in securities of foreign issuers.

The Fund's primary approach is to seek what the Adviser believes to be above
average growth opportunities on an individual company basis. The Fund may invest
in securities that have above average price volatility. Because prices of common
stocks and other securities fluctuate, the value of an investment in the Fund
will vary based upon the Fund's investment performance. The Fund may also invest
in

9
<PAGE> 115

special situations involving new management, special products and techniques,
unusual developments, mergers or liquidations. Investments in special situations
and less seasoned companies often involve much greater risks than are inherent
in more conservative investments. The Fund attempts to reduce overall exposure
to risk from declines in individual security prices by spreading its investments
over many different companies in a variety of industries.

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.

- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------

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 security holder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity security. 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 primarily on the security's potential for
capital growth.

OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities or preferred stock. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.

10
<PAGE> 116

securities are securities that are rated at least BBB by Standard & Poor's
Ratings Group ("S&P"), Baa by Moody's Investors Services, Inc. ("Moody's") or
comparably rated by any nationally recognized rating organization, or, if
unrated, are considered by the Adviser to be of comparable quality to securities
so rated. Income securities rated A or higher by S&P or A or higher by Moody's
generally are regarded as high grade and have a strong to outstanding capacity
to pay interest or dividends and repay principal or capital. Medium grade
securities (i.e., securities rated BBB by S&P or Baa by Moody's) are regarded as
having an adequate capacity to pay interest or dividends, and repay principal,
although adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make such payments. Securities rated Baa are
regarded by Moody's as having some speculative characteristics. For a
description of such ratings see the Statement of Additional Information
incorporated by reference into this Prospectus.

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. 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
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
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security, the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.

WARRANTS. The Fund may invest in warrants, which are securities permitting,
but not obligating, their holders to subscribe for other securities. Warrants do
not carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not represent
any rights in the assets of the issuer. As a result, an investment in warrants
may be considered to be more speculative than most other types of equity
investment. In addition, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to its expiration date. The Fund may retain in its
portfolio any securities received upon the exercise of a warrant.

INVESTMENTS IN SPECIAL SITUATIONS AND LESS SEASONED COMPANIES. Investments in
special situations and securities of less seasoned companies may present greater
opportunities for growth but also involve greater risks than customarily are
associated

11
<PAGE> 117

with investments in securities of more established companies. Special situations
and securities of less seasoned companies may be subject to more abrupt or
erratic market movements than more established companies. Additionally, these
companies may have limited product lines, markets or financial resources, may be
dependent upon a limited management group, may be subject to a greater degree of
change in earnings and business prospects and may be subject to greater
uncertainties generally than more established companies. In addition, securities
of small capitalization companies are traded in lower volume than those issued
by larger companies.

FOREIGN SECURITIES. The Fund may invest up to 25% of the value of its total
assets in securities of foreign issuers. 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
accounting, auditing and financial reporting standards and requirements
comparable to those of the 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 may
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.

12
<PAGE> 118

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.

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

In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These practices entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.

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 liquid securities, 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.

13
<PAGE> 119

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

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

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may purchase and
sell portfolio securities on a "when issued" and "delayed delivery" basis. No
income accrues to 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
fluctuations 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 such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the account of such purchase commitments until payment is made. The Fund will
make commitments to purchase securities on such basis early with the intention
of actually acquiring these securities, but the Fund may sell such securities
prior to the settlement date if such sale is considered to be advisable. To the
extent the Fund engages in "when issued" and "delayed delivery" transactions, it
will do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose of investment leverage. 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.

14
<PAGE> 120

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 require 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 restrictions 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.

BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes no more than 5% in borrowings and reverse repurchase agreements from
any entity for temporary purposes, such as clearances of portfolio transactions,
share repurchase 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. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated 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 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." The
Fund may also invest in income securities the terms of which include elements of
or are similar in effect to Strategic Transactions in which it may engage.
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, 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 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

15
<PAGE> 121

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 of portfolio securities at inopportune times or for
prices other than at current market values, limit the amount of appreciation the
Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. To the extent that a futures contract or
an option thereon is used to protect against possible changes in the market
value of securities that the Fund anticipates acquiring and the Fund
subsequently does not acquire such securities, the Fund will have incurred the
transactional expenses associated with entering into such transaction and will
be subject to the risks inherent in an unhedged purchase of such futures
contract or option. 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."

16
<PAGE> 122

investment grade corporate debt securities, preferred stocks, convertible bonds,
banker's acceptances and certificates of deposit.

INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in one or more
investment companies advised by the Adviser and its affiliates, including Van
Kampen American Capital Small Capitalization Fund ("Small Cap Fund") and Van
Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund"). The
shares of the Small Cap Fund and Foreign Securities Fund are available only to
investment companies advised by the Adviser. The Adviser believes that the use
of the Small Cap Fund and Foreign Securities Fund may, from time to time,
provide the Fund with the most effective exposure to the performance of the
small capitalization sector of the stock market and to foreign securities while
at the same time minimizing costs. The Adviser charges no advisory fee for
managing the Small Cap Fund or the Foreign Securities Fund, nor are there any
sales load or other charges associated with distribution of their shares. Other
expenses incurred by the Small Cap Fund and Foreign Securities Fund are borne by
them, and thus indirectly by the Van Kampen American Capital funds that invest
in them. With respect to such other expenses, the Adviser anticipates that the
efficiencies resulting from use of the Small Cap Fund and Foreign Securities
Fund will result in cost savings for the Fund and other Van Kampen American
Capital funds that will fully or partially offset such expenses. In large part,
these savings are attributable to the fact that administrative actions that
would have to be performed multiple times if each Van Kampen American Capital
fund held its own portfolio of small capitalization or foreign stocks will need
to be performed only once. The Adviser expects that the Small Cap Fund and
Foreign Securities Fund will experience trading costs that will be substantially
less than the trading costs that would be incurred if small capitalization or
foreign stocks were purchased separately for the Fund and other Van Kampen
American Capital funds. The Fund's investments in the Small Cap Fund and the
Foreign Securities Fund are subject to the terms and conditions set forth in SEC
exemptive orders authorizing such investments.

The securities of small and medium sized companies that the Small Cap Fund may
invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies. Risks associated with investing
in foreign securities are described under "Investment Practices -- Securities of
Foreign Issuers."

The Fund will be deemed to own a pro rata portion of each investment of the
Small Cap Fund and the Foreign Securities Fund. For example, if the Fund's
investment in the Small Cap Fund were $10 million, and the Small Cap Fund had 5%
of its assets invested in the electronics industry, the Fund would be considered
to have an investment of $500,000 in the electronics industry.

17
<PAGE> 123

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 Turnover. The Fund purchases securities which are believed by the
Adviser to have potential for capital growth. Common stocks are disposed of in
situations where it is believed that potential for such capital growth has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been held. The rate may exceed 100%, which is higher
than that of many other investment companies. A 100% turnover rate occurs, for
example, if all the Fund's portfolio securities are replaced during one year.
High portfolio activity increases the Fund's transaction costs, including
brokerage commissions.
- ------------------------------------------------------------------------------
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-

18
<PAGE> 124

owned subsidiary of Van Kampen American Capital, Inc. ("Van Kampen
American Capital"). Van Kampen American Capital is a diversified asset
management company with more than two million retail investor accounts,
extensive capabilities for managing institutional portfolios and more than $57
billion under management or supervision. Van Kampen American Capital's more than
40 open-end and 38 closed-end funds and more than 2,800 unit investment trusts
are professionally distributed by leading financial advisers nationwide. Van
Kampen American Capital Distributors, Inc., the distributor of the Fund and
sponsor of the funds mentioned above, is a wholly-owned subsidiary of Van Kampen
American Capital.

Van Kampen American Capital is 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 United
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 6% of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
12% 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.

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

19
<PAGE> 125

securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, costs of reports and notices to
shareholders; costs of registering shares of the Fund under federal and state
securities laws, miscellaneous expenses and all taxes and fees to federal, state
or other governmental agencies. The adviser reserves the right in its sole
discretion from time-to-time to waive all or a portion of its management fee or
to reimburse the Fund for all or a portion of its other expenses.

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

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

PORTFOLIO MANAGEMENT. Jeff New and Chris Perras are co-managers of the Fund
and have been primarily responsible for the day-to-day management of the Fund's
investment portfolio since its inception. Mr. New is currently a Vice President
of the Adviser and has been Vice President of Van Kampen American Capital Asset
Management, Inc. since 1994. Mr. New has been an associate portfolio manager
with the Adviser since April 1990. Mr. Perras is currently an Officer of the
Adviser and has been an associate portfolio manager with Van Kampen American
Capital Asset Management, Inc. since February 1995. Prior to that time, he was
an assistant portfolio manager and investment analyst with Hellman Jordan
Management 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 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.

20
<PAGE> 126

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

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of 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
purchases 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 should
weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable to
Class B Shares and Class C Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except 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. Generally, a class of shares subject
to a higher ongoing distribution fee and services fee or subject to the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee and service fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time

21
<PAGE> 127

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

The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer, or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. Sales personnel or 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 determines 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

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<PAGE> 128

failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

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

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<PAGE> 129

CLASS A SHARES

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

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 CDSC of
1.00% on redemptions made within one year of the purchase. A commission will
be paid to brokers, dealers and financial intermediaries who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million and 0.50% on the excess over $3
million. See "Purchase of Shares -- Deferred Sales Charge Alternatives" for
additional information with respect to CDSC.

QUANTITY DISCOUNTS

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<PAGE> 130

may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.

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 or in combination with shares of the Participating Funds
although other Participating Funds may have different sales charges.

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<PAGE> 131

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

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

(1) Current or retired trustees/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.

26
<PAGE> 132

(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 12-month
period following such transaction.

(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.

(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, 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.

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<PAGE> 133

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge. For
this purpose, a qualified group is one which (i) has been in existence for
more than six months, (ii) has a purpose other than to acquire shares of
the Fund or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of
shares of the Fund and other funds in the Van Kampen American Capital
Family of Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of
scale in distributing such shares. A qualified group does not include one
whose sole organization nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an insurance
company, customers of a bank or broker-dealer, clients of an investment
adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
CDSC of 1.00% in the event of redemption within one year of purchase, and a
commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million and 0.50% on the excess over $3
million.

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

DEFERRED SALES CHARGE ALTERNATIVES

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

28
<PAGE> 134

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

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the contingent deferred sales
charge will vary depending on (i) the class of CDSC Shares to which such shares
belong and (ii) the number of years from the time of payment for the purchase of
the CDSC Shares until the time of their redemption. The charge will be assessed
on an amount equal to the lesser of the then current market value or the
original purchase price of the CDSC Shares being redeemed. Accordingly, no sales
charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no 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.

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<PAGE> 135

such CDSC Shares. The charge will not be applied to dollar amounts representing
an increase in the net asset value per share since the time of purchase.

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

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

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

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

CONVERSION FEATURE. Class B Shares and Class C Shares automatically will
convert to Class A Shares eight years or ten years, respectively, after the end
of the

30
<PAGE> 136

month in which a shareholder's order to purchase the shares was accepted and
thereafter will not be subject to the higher distribution and service fees
applicable to Class B Shares and Class C Shares. The purpose of the conversion
feature is to relieve the holders of Class B Shares and Class C Shares that have
been outstanding for a period of time sufficient for the Distributor to have
been compensated for distribution expenses related to such shares from most of
the burden of such distribution-related expenses. The Fund does not expect to
issue any stock certificates upon conversion.

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with 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 CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

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<PAGE> 137

NET ASSET VALUE

The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares and dividing the result by the number of
shares of such class of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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.

The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio 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
- ------------------------------------------------------------------------------

32
<PAGE> 138

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.

33
<PAGE> 139

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, Tax Free Money Fund or Reserve Fund so long as a
pre-existing account for such class of shares exists for such shareholder. Both
accounts must be of the same type, either non-retirement or retirement. Any two
non-retirement accounts can be used. If the accounts are retirement accounts,
they must both be for the same type of retirement plan (e.g.) IRA, 403(b)(7),
401(k) or Keogh) and for the benefit of the same individual.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution.

Class A Shares of Van Kampen American Capital funds that generally impose an
initial sales shares are not subject to any sales charge upon exchange into the
Fund Class A Shares of Van Kampen American Capital funds that generally do not
impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of the Fund.

No sales charges is imposed upon the exchange of Class B Shares and Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
or Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital Fund.

34
<PAGE> 140

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
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.

35
<PAGE> 141

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 CDSC. 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."

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

36
<PAGE> 142

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.

37
<PAGE> 143

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

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

38
<PAGE> 144

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value 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
- ------------------------------------------------------------------------------

39
<PAGE> 145

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.

40
<PAGE> 146

will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996 there were no unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively. If the Distribution Plan was terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through the CDSC.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution related expenses attributable to any other class
of 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 annually declare dividends to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.

41
<PAGE> 147

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

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

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit distributions to a shareholder's account in additional shares of the Fund
valued at net asset value, without 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 Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the Fund must comply with certain requirements of
the Code relating to, among other things, the source of its income and the
diversification of its assets. If the Fund so qualifies and if it distributes to
its shareholders at least 90% of its net investment income (including tax-exempt
interest, taxable income and net short-term capital gains, but not net capital
gains, which are the excess of net long-term capital gains over net short-term
capital losses), it will not be required to pay federal income taxes on any
income distributed to shareholders. The Fund intends to distribute at least the
minimum amount of net investment income required to satisfy the 90% distribution
requirement. The Fund

42
<PAGE> 148

will not be subject to federal income tax on any net capital gains distributed
to its shareholders.

Distributions of the Fund's net investment income are taxable to shareholders
as ordinary income to the extent of the Fund's earnings and profits, whether
received in shares or cash. Shareholders who receive distributions in the form
of additional shares will have a basis for federal income tax purposes in each
share equal to the value thereof on the distribution date. Distributions of the
Fund's net capital gains ("capital gain dividends"), if any, are taxable to
shareholders as long-term capital gains regardless of the length of time the
Fund shares have been held by such shareholders. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of the
shares held by the shareholders and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such shareholder (assuming such shares
are held as a capital asset). The Fund will inform shareholders of the source
and tax status of such distributions promptly after the close of each calendar
year. Some portion of the distributions made by the Fund generally 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.

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.

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 recognize gain or loss in an amount equal to
the difference between their basis in such sold shares of the Fund 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 generally be long-term if such
shareholders have held their shares for more than one year. Any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as long-term capital loss to the extent of any capital gain dividends received
with respect to such shares. For purposes of determining

43
<PAGE> 149

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.

Some of the Fund's investment practices are subject to special provisions of
the Code that may, among other things, defer the use of losses of the Fund and
affect the holding period of 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 the cash with which to make distributions in amounts necessary
to satisfy the distribution requirements for avoiding federal income and, as
described below, excise taxes. The Fund will monitor its transactions and may
make certain tax elections in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.

Income from investments in foreign securities may be subject to foreign
taxation imposed by withholding. Shareholders of the Fund will not be able to
claim any deduction or foreign tax credit with respect to such foreign taxes.

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

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

44
<PAGE> 150

withholding. Foreign shareholders, including shareholders who are non-resident
aliens, may be subject to U.S. withholding tax on certain distributions (whether
received in cash or in shares) at a rate of 30% or such lower rate as prescribed
by any applicable treaty.

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

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such total return 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 calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., or nationally recognized financial publications. In addition,
from time to time the Fund may compare its performance to certain securities and
unmanaged indices which may have different risk/reward characteristics than the
Fund. Such characteristics may include, but are not limited to, tax features,
guarantees, insurance and the fluctuation of principal or return. In addition,
from time to time sales materials and advertisements for the Fund may include
hypothetical information.

Further information about the Fund's performance is contained in 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 authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
The Fund currently offers three classes, designated Class A Shares, Class B
Shares and Class C Shares. Each class of shares represents an interest in the
same assets of the Fund and are identical in all respects except that each class
bears certain distribution expenses and has exclusive voting rights with respect
to its distribution fee. See "The Distribution and Service Plans."

45
<PAGE> 151

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 and Class C 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
holders of Class A Shares.

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

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

46
<PAGE> 152

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) 421-5684

VAN KAMPEN AMERICAN CAPITAL
GROWTH 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

Growth Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713

Boston, MA 02105-1713

Attn: Van Kampen American Capital

Growth Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 153

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

GROWTH FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 154

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
VALUE FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Value Fund (the "Fund") is a diversified
open-end management investment company, commonly known as a mutual fund. The
Fund's investment objective is to seek long-term growth of capital. The Fund
seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of medium and
larger capitalization companies that are believed by the Fund's investment
adviser to be selling below their intrinsic value and to offer the opportunity
for significant growth of capital. Any income received on such securities is
incidental to the objective of long-term growth of capital. There is no
assurance that the Fund will achieve its investment objective. The fund is
organized as a series of Van Kampen American Capital Equity Trust.

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunication Device for the Deaf at (800) 772-8889. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 155

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 3
Shareholder Transaction Expenses................................ 5
Annual Fund Operating Expenses and Example...................... 6
Financial Highlights............................................ 8
The Fund........................................................ 9
Investment Objective and Policies............................... 9
Portfolio Securities............................................ 10
Investment Practices............................................ 12
Investment Advisory Services.................................... 18
Alternative Sales Arrangements.................................. 20
Purchase of Shares.............................................. 22
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 44
Description of Shares of the Fund............................... 45
Additional Information.......................................... 46
</TABLE>

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

2
<PAGE> 156

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

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

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

INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
growth of capital. There can be no assurance that the Fund will achieve its
investment objective.

INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing primarily in a diversified portfolio of common stocks and other equity
securities of medium and larger capitalization companies that are believed by
the Fund's investment adviser to be selling below their intrinsic value and to
offer the opportunity for significant growth of capital. There is no assurance
that the Fund will achieve its investment objective. The net asset value per
share of the Fund may increase or decrease depending on changes in the
securities markets, and other factors affecting the issuers of securities in
which the Fund may invest. See "Investment Objective and Policies."

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

REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. Shares sold subject to a contingent
deferred sales charge ("CDSC Shares") may be redeemed at net asset value less a
deferred sales charge which will vary among each class of CDSC Shares and with
the length of time a redeeming shareholder has owned such shares. CDSC Shares
redeemed after the expiration of the CDSC period applicable to the respective
class of CDSC

3
<PAGE> 157

Shares will not be subject to a deferred sales charge. The Fund may require the
redemption of shares if the value of an account is $500 or less. See "Redemption
of Shares."

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
realized capital gains, if any, are made 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 foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

4
<PAGE> 158

- ------------------------------------------------------------------------------
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."

5
<PAGE> 159

<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)............. 0.00% 0.00% 0.00%
Other expenses (as a percentage of
average daily net assets)............. 1.38% 1.38% 1.38%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.38% 1.38% 1.38%
</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 0.75% for each of
the class of shares, "Other Expenses" would have been 16.82% for each class
of shares and "Total Expenses" would have been 17.57% for each class of
shares.

6
<PAGE> 160

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- ----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.38% for Class A Shares, 1.38% for Class B Shares
and 1.38% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $71 $99
Class B Shares....................................... $54 $79
Class C Shares....................................... $24 $44
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....................................... $71 $99
Class B Shares....................................... $14 $44
Class C Shares....................................... $14 $44
</TABLE>

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 the
Fund's 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 Expense" table. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Redemption of
Shares," "Investment Advisory Services," and "The Distribution and Service

Plans."

7
<PAGE> 161

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

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 audited
financial statements and related notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
CLASS A
SHARES
-------------
DECEMBER 27,
1995
(COMMENCEMENT
OF INVESTMENT
OPERATIONS)
TO
JUNE 30,
1996
-------------
<S> <C>
Net Asset Value, Beginning of the Period...................................................................... $10.000
------
Net Investment Income........................................................................................ 0.018
Net Realized and Unrealized Gain on Securities............................................................... 1.391
------
Total from Investment Operations.............................................................................. 1.409
------
Net Asset Value, End of the Period............................................................................ $11.409
========
Total Return*(A).............................................................................................. 14.00%**
Net Assets at End of the Period (in thousands)................................................................ $ 117.2
Ratio of Expenses to Average Net Assets*(b)................................................................... 1.38%
Ratio of Net Investment Income to Average Net Assets*......................................................... 0.38%
Portfolio Turnover............................................................................................ 41%**
Average Commission Paid Per Equity Share Trade(c)............................................................. $ 0.025
- ----------------
* 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.................................................................... 17.57%
Ratio of Net Investment Income to Average Net Assets....................................................... (15.81)%
** Non-annualized.
(a) Total return is based upon net asset value which does not include payment of the maximum sales charge or contingent
deferred sales charge.
(b) The Ratios of Expenses are based upon Total Expenses which does not reflect credits earned on overnight cash balances.
(c) Represents the average brokerage commissions paid on equity transactions entered into during the period where commissions
were applicable.

<CAPTION>
CLASS B
SHARES
-------------
DECEMBER 27,
1995
(COMMENCEMENT
OF INVESTMENT
OPERATIONS)
TO
JUNE 30,
1996
-------------
<S> <C>
Net Asset Value, Beginning of the Period...................................................................... $10.000
------
Net Investment Income........................................................................................ 0.024
Net Realized and Unrealized Gain on Securities............................................................... 1.386
------
Total from Investment Operations.............................................................................. 1.410
------
Net Asset Value, End of the Period............................................................................ $11.410
========
Total Return*(a).............................................................................................. 14.00%**
Net Assets at End of the Period (in thousands)................................................................ $ 74.2
Ratio of Expenses to Average Net Assets*(b)................................................................... 1.38%
Ratio of Net Investment Income to Average Net Assets*......................................................... 0.44%
Portfolio Turnover............................................................................................ 41%**
Average Commission Paid Per Equity Share Trade(c)............................................................. $ 0.025
- ----------------
* If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios
as follows:
Ratio of Expenses to Average Net Assets.................................................................... 17.57%
Ratio of Net Investment Income to Average Net Assets....................................................... (15.75)%
** Non-annualized.
(a) Total return is based upon net asset value which does not include payment of the maximum sales charge or c
deferred sales charge.
(b) The Ratios of Expenses are based upon Total Expenses which does not reflect credits earned on overnight ca
(c) Represents the average brokerage commissions paid on equity transactions entered into during the period wh
were applicable.

<CAPTION>
CLASS C
SHARES
-------------
DECEMBER 27,
1995
(COMMENCEMENT
OF INVESTMENT
OPERATIONS)
TO
JUNE 30,
1996
-------------
<S> <C>
Net Asset Value, Beginning of the Period...................................................................... $10.000
------
Net Investment Income........................................................................................ 0.024
Net Realized and Unrealized Gain on Securities............................................................... 1.386
------
Total from Investment Operations.............................................................................. 1.410
------
Net Asset Value, End of the Period............................................................................ $11.410
========
Total Return*(a).............................................................................................. 14.00%**
Net Assets at End of the Period (in thousands)................................................................ $ 74.2
Ratio of Expenses to Average Net Assets*(b)................................................................... 1.38%
Ratio of Net Investment Income to Average Net Assets*......................................................... 0.44%
Portfolio Turnover............................................................................................ 41%**
Average Commission Paid Per Equity Share Trade(c)............................................................. $ 0.025
- ----------------
* If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios
as follows:
Ratio of Expenses to Average Net Assets.................................................................... 17.57%
Ratio of Net Investment Income to Average Net Assets....................................................... (15.75)%
** Non-annualized.
(a) Total return is based upon net asset value which does not include payment of the maximum sales charge or c
deferred sales charge.
(b) The Ratios of Expenses are based upon Total Expenses which does not reflect credits earned on overnight ca
(c) Represents the average brokerage commissions paid on equity transactions entered into during the period wh
were applicable.
</TABLE>

See Financial Statements and Notes Thereto

8
<PAGE> 162

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

THE FUND

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

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

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

The investment objective of the Fund is to seek long-term growth of capital.
This objective is fundamental and cannot be changed without approval of the
shareholders of the Fund. Any income received by the Fund is incidental to the
objective of long-term growth of capital. There can be no assurance that the
Fund will achieve its investment objective.

The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of medium and
larger capitalization companies that are believed by the Adviser to be selling
below their intrinsic value and to offer the opportunity for significant growth
of capital. Medium and larger capitalization companies are those companies that
at the time of investment have a market capitalization at least as large as that
of the company having the smallest market capitalization of those companies then
included in the S&P MidCap 400 Index. The Adviser believes that a company's
equity securities have unrecognized intrinsic value when they sell at a
substantial discount to liquidation value, private market value, or going
concern value. Liquidation value is based on the sum of the company's assets,
less the present value of all liabilities. Private market value is determined by
the price at which comparable securities have been sold in arms length
transactions. Going concern value is determined by the present value of all cash
inflows and outflows, discounted at a rate that reflects the expected interest
rate environment and risk profile of the firm. In determining the intrinsic
value and investment suitability of particular issuers, the Adviser may consider
factors such as historical and expected growth rates of earnings, economic
earnings, expected levels of free cash flow, evidence of financial strength,
predictability of future prospects, and quality of management.

9
<PAGE> 163

The Fund may also invest in investment grade income securities for purposes of
long-term growth of capital, cash management or as a temporary defensive
measure. See "Portfolio Securities -- Income Securities." The Fund may also
invest in other investment companies that pursue investment objectives
consistent with that of the Fund, to the extent and subject to the limitations
discussed below. The Fund may invest up to 25% of its total assets in securities
of foreign issuers. See "Additional Investment Considerations" in the Statement
of Additional Information.

- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------

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 security holder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity security. 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 primarily on the security's potential for
capital growth.

OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities or preferred stocks. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.

10
<PAGE> 164

INCOME SECURITIES. The Fund may invest in income securities, which include
primarily debt securities of various maturities. The Fund will invest only in
income securities that are investment grade at the time of investment.
Investment grade securities are securities that are rated at least BBB by
Standard & Poor's Ratings Group ("S&P"), Baa by Moody's Investors Services, Inc.
("Moody's") or comparably rated by any other nationally recognized rating
organization, or, if unrated, considered by the Adviser to be of comparable
quality to securities so rated. Income securities rated A or higher by S&P or A
or higher by Moody's generally are regarded as high grade and have a strong to
outstanding capacity to pay interest or dividends and repay principal or
capital. Medium grade securities (i.e., securities rated BBB by S&P or Baa by
Moody's) are regarded as having an adequate capacity to pay interest or
dividends, and repay principal, although adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make such
payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a description of such ratings see the Statement
of Additional Information incorporated by reference into this Prospectus.

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. 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
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.

11
<PAGE> 165

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.

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

12
<PAGE> 166

liquid securities, 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.

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

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser or its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
in a manner consistent with the foregoing guidelines and the funds that
contributed to the joint account share pro rata in the net revenue generated.
The Adviser believes that the joint account produces greater efficiencies and
economies of scale that may contribute to reduced transaction costs, higher
returns, higher quality investments and greater diversity of investments for the
Fund than would be available to the Fund investing separately. The manner in
which the joint account is managed is subject to

13
<PAGE> 167

conditions set forth in an SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account.

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may purchase and
sell portfolio securities on a "when issued" and "delayed delivery" basis. No
income accrues to 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 such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase securities on such basis only with the intention of
actually acquiring these securities, but the Fund may sell such securities prior
to the settlement date if such sale is considered to be advisable. To the extent
the Fund engages in "when issued" and "delayed delivery" transactions, it will
do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose 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.

14
<PAGE> 168

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. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated 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 and purchase and sell financial futures contracts and enter into
various currency transactions such as currency forward contracts, currency
future contracts, currency swaps or options on currencies or currency futures.
Collectively, all of the above are referred to as "Strategic Transactions." The
Fund may also invest in income securities the terms of which include the element
of or are similar in effect to Strategic Transactions in which it may engage.
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, 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 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.

15
<PAGE> 169

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. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks inherent in
an unhedged purchase of such futures contract or option. 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."

DEFENSIVE STRATEGIES. When, in the judgment of the Fund's Adviser, economic
and market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.

16
<PAGE> 170

will result in cost savings for the Fund and other Van Kampen American Capital
funds that will fully or partially offset such expenses. In large part, these
savings are attributable to the fact that administrative actions that would have
to be performed multiple times if each Van Kampen American Capital fund held its
own portfolio of small capitalization or foreign stocks will need to be
performed only once. The Adviser expects that the Small Cap Fund and Foreign
Securities Fund will experience trading costs that will be substantially less
than the trading costs that would be incurred if small capitalization or foreign
stocks were purchased separately for the Fund and other Van Kampen American
Capital funds. The Fund's investments in the Small Cap Fund and the Foreign
Securities Fund are subject to the terms and conditions set forth in SEC
exemptive orders authorizing such investments.

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.

17
<PAGE> 171

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.

PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for long-term growth of capital. Common stocks are
disposed of in situations where it is believed that potential for such growth
has lessened or that other common stocks have a greater potential. Therefore,
the Fund may purchase and sell securities without regard to the length of time
the security is to be, or has been held. The rate may exceed 100%, which is
higher than that of many other investment companies. A 100% turnover rate
occurs, for example, if all the Fund's portfolio securities are replaced during
one year. High portfolio activity increases the Fund's transaction costs,
including brokerage commissions.

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

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,800 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., the distributor of the Fund and sponsor of the funds
mentioned above, is a wholly-owned subsidiary of Van Kampen American Capital.

18
<PAGE> 172

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 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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.

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

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

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the

19
<PAGE> 173

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. James Gilligan and Bret Stanley are co-managers of the
Fund and have been primarily responsible for the day-to-day management of the
Fund's investment portfolio since its inception. Mr. Gilligan is currently a
Senior Vice President of the Adviser and has been Vice President -- Portfolio
Manager of Van Kampen American Capital Asset Management, Inc. since March 1990.
Prior to that time, he was a securities analyst with Van Kampen American Capital
Asset Management, Inc. Mr. Stanley is currently an Assistant Vice President of
the Adviser and has been an associate portfolio manager of Van Kampen American
Capital Asset Management, Inc. since January 1995. Prior to that time, he was a
securities analyst and portfolio manager with Gulf Investment Management. Prior
to that, he was an analyst at Lovett Underwood Neuhaus & Webb, and Rotan Mosle.
Each portfolio manager is an employee of the Adviser.

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

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

The Fund 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 (a
"CDSC"), Class B Shares and Class C Shares sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."

20
<PAGE> 174

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
purchases 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 should
weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable
Class B Shares and Class C Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except 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. Generally, a class of shares subject
to a higher ongoing distribution fee and service fee or subject to the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution fee and service fee or
not subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of the classes may differ. The
net asset value per share of each class of shares of the Fund will be determined
as described in this Prospectus under "Purchase of Shares -- Net Asset Value."

21
<PAGE> 175

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

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

22
<PAGE> 176

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 pays for shares or the amount that the Fund
will receive from such sale.

CLASS A SHARES

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

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 CDSC sales
charge

23
<PAGE> 177

of 1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers and financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00% on
sales to $2 million, plus 0.80% on the next million and 0.50% on the excess
over $3 million. See "Purchase of Shares -- Deferred Sales Charge
Alternatives" for additional information with respect to contingent deferred
sales charges.

QUANTITY DISCOUNTS

24
<PAGE> 178

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

OTHER PURCHASE PROGRAMS

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

25
<PAGE> 179

(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 12-month
period following such transaction.

(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

26
<PAGE> 180

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

(8) Full service participant directed profit sharing and money purchase plans,
full service 401(k) plans, or similar full service recordkeeping programs
made available through Van Kampen American Capital Trust Company with at
least 50 eligible employees or investing at least $250,000 in the
Participating Funds, 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.

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge. For
this purpose, a qualified group is one which (i) has been in existence for
more than six months, (ii) has a purpose other than to acquire shares of
the Fund or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of
shares of the Fund and other funds in the Van Kampen American Capital
Family of Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of
scale in distributing such shares. A qualified group does not include one
whose sole organization nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an insurance
company, customers of a bank or broker-dealer, clients of an investment
adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
CDSC of 1.00% in the event of redemption within one year of purchase, and a
commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million and 0.50% on the excess over $3
million.

27
<PAGE> 181

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

DEFERRED SALES CHARGE ALTERNATIVES

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

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed 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.

28
<PAGE> 182

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

29
<PAGE> 183

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
SUBJECT
TO
YEAR SINCE PURCHASE 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."

30
<PAGE> 184

determined by reference to the date such share originally was purchased from a
Van Kampen American Capital fund.

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with 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 CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 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 of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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.

31
<PAGE> 185

if actual trade information is not available on any valuation date, are valued
at the mean of the bid and asked prices. Unlisted securities in the portfolio
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
- ------------------------------------------------------------------------------

32
<PAGE> 186

value of the issued shares and bill the party to whom the replacement
certificate was mailed.

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

33
<PAGE> 187

34
<PAGE> 188

35
<PAGE> 189

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

36
<PAGE> 190

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'

37
<PAGE> 191

38
<PAGE> 192

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

39
<PAGE> 193

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.

The Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares for any given year may exceed the amounts payable to the
Distributor with respect to such shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed distribution-related expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996, there were no
unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares. If the Distribution Plan was terminated or not continued, the
Fund would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through CDSC.

40
<PAGE> 194

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

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

41
<PAGE> 195

42
<PAGE> 196

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.

43
<PAGE> 197

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

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 total return 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 calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc. or nationally recognized financial publications. In addition,
from time to time the Fund may compare its performance to certain securities and
unmanaged indices which may have different risk/reward characteristics than the
Fund. Such characteristics may

44
<PAGE> 198

include, but are not limited to, tax features, guarantees, insurance and the
fluctuation of principal or return. In addition, from time to time sales
materials and advertisements for the Fund may include hypothetical information.

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

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 and Class C 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
holders of Class A Shares.

45
<PAGE> 199

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

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

46
<PAGE> 200

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) 421-5684

VAN KAMPEN AMERICAN CAPITAL
VALUE 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

Value Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713

Boston, MA 02105-1713

Attn: Van Kampen American Capital

Value Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 201

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

VALUE FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 202

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Great American Companies Fund (the "Fund") is a
diversified open-end management investment company, commonly known as a mutual
fund. The Fund's investment objective is to seek long-term growth of capital.
The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of U.S.
companies that, in the investment adviser's view, have achieved leading and
sustainable positions within their U.S. industrial sectors. Any income received
on such securities is incidental to the objective of long-term growth of
capital. There is no assurance that the Fund will achieve its investment
objective. The Fund is organized as a series of Van Kampen American Capital
Equity Trust.

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunication Device For the Deaf at (800) 772-8889. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL(SM)

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 203

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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 3
Shareholder Transaction Expenses................................ 5
Annual Fund Operating Expenses and Example...................... 6
Financial Highlights............................................ 8
The Fund........................................................ 9
Investment Objective and Policies............................... 9
Portfolio Securities............................................ 10
Investment Practices............................................ 11
Investment Advisory Services.................................... 16
Alternative Sales Arrangements.................................. 18
Purchase of Shares.............................................. 20
Shareholder Services............................................ 30
Redemption of Shares............................................ 34
The Distribution and Service Plans.............................. 37
Distributions from the Fund..................................... 39
Tax Status...................................................... 40
Fund Performance................................................ 42
Description of Shares of the Fund............................... 43
Additional Information.......................................... 43
</TABLE>

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

2
<PAGE> 204

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

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

INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek long-term
growth of capital. There can be no assurance that the Fund will achieve its
investment objective.

INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing primarily in a diversified portfolio of common stocks and other equity
securities of U.S. companies that, in the investment adviser's view, have
achieved leading and sustainable positions within their U.S. industrial sectors.
The net asset value per share of the Fund may increase or decrease depending on
changes in the securities markets, and other factors affecting the issuers of
securities in which the Fund may invest. See "Investment Objective and
Policies."

INVESTMENT PRACTICES. Subject to certain limitations, the Fund may enter into
strategic transactions, lend its portfolio securities, and enter into repurchase
agreements with selected commercial banks and broker-dealers. These investment
practices entail certain risks. See "Investment Practices."

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

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and
realized capital gains, if any, are made 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 foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

4
<PAGE> 206

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SHAREHOLDER TRANSACTION EXPENSES
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<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>

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(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 CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase.

5
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<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)............. 0.00% 0.00% 0.00%
Other expenses (as a percentage of
average daily net assets)............. 1.37% 1.37% 1.37%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.37% 1.37% 1.37%
</TABLE>

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(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 class
of shares, "Other Expenses" would have been 17.76% for each class of shares
and "Total expenses" would have been 18.46% for each class of shares.

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EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.37% for Class A Shares, 1.37% for Class B Shares
and 1.37% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $71 $98
Class B Shares....................................... $54 $78
Class C Shares....................................... $24 $43
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....................................... $71 $98
Class B Shares....................................... $14 $43
Class C Shares....................................... $14 $43
</TABLE>

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 the
Fund's 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 Expense" table. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Redemption of
Shares," "Investment Advisory Services," and "The Distribution and Service
Plans".

7
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FINANCIAL HIGHLIGHTS (for a share outstanding throughout the period)

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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 audited
financial statements and related notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------
DECEMBER 27, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
TO JUNE 30, 1996
---------------------------
<S> <C>
Net Asset Value, Beginning of the Period....................................... $10.000
------
Net Investment Income......................................................... 0.019
Net Realized and Unrealized Gain on Securities................................ 1.603
------
Total from Investment Operations............................................... 1.622
------
Net Asset Value, End of the Period............................................. $11.622
=======
Total Return* (a).............................................................. 16.10%**
Net Assets at End of the Period (in thousands)................................. $ 81.4
Ratio of Expenses to Average Net Assets* (b)................................... 1.37%
Ratio of Net Investment Income to Average Net Assets*.......................... 0.33%
Portfolio Turnover............................................................. 48%**
Average Commission Paid per Equity Share Traded(c)............................. $ 0.025
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* 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)(b)..................... 18.46%
Ratio of Net Investment Income to Average Net Assets (Annualized)........... (16.76)%

<CAPTION>
CLASS B SHARES
---------------------------
DECEMBER 27, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
TO JUNE 30, 1996
---------------------------
<S> <C>
Net Asset Value, Beginning of the Period....................................... $10.000
------
Net Investment Income......................................................... 0.019
Net Realized and Unrealized Gain on Securities................................ 1.603
------
Total from Investment Operations............................................... 1.622
------
Net Asset Value, End of the Period............................................. $11.622
=======
Total Return* (a).............................................................. 16.10%**
Net Assets at End of the Period (in thousands)................................. $ 75.5
Ratio of Expenses to Average Net Assets* (b)................................... 1.37%
Ratio of Net Investment Income to Average Net Assets*.......................... 0.33%
Portfolio Turnover............................................................. 48%**
Average Commission Paid per Equity Share Traded(c)............................. $ 0.025
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* 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)(b)..................... 18.46%
Ratio of Net Investment Income to Average Net Assets (Annualized)........... (16.76)%

<CAPTION>
CLASS C SHARES
---------------------------
DECEMBER 27, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS)
TO JUNE 30, 1996
---------------------------
<S> <C>
Net Asset Value, Beginning of the Period....................................... $10.000
------
Net Investment Income......................................................... 0.019
Net Realized and Unrealized Gain on Securities................................ 1.603
------
Total from Investment Operations............................................... 1.622
------
Net Asset Value, End of the Period............................................. $11.622
=======
Total Return* (a).............................................................. 16.10%**
Net Assets at End of the Period (in thousands)................................. $ 75.5
Ratio of Expenses to Average Net Assets* (b)................................... 1.37%
Ratio of Net Investment Income to Average Net Assets*.......................... 0.33%
Portfolio Turnover............................................................. 48%**
Average Commission Paid per Equity Share Traded(c)............................. $ 0.025

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* 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)(b)..................... 18.46%
Ratio of Net Investment Income to Average Net Assets (Annualized)........... (16.76)%

</TABLE>

** Non-annualized

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

(b) The Ratio of Expenses to Average Net Assets is based upon total expenses
which does not reflect credits earned on overnight cash balances. (See Note
1 to Financial Statements).

(c) Represents the average brokerage commission paid on equity transactions
entered into during the period for trades where commissions were applicable.

See Financial Statements and Notes Thereto

8
<PAGE> 210

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

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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to seek long-term growth of capital.
This objective is fundamental and cannot be changed without approval of the
shareholders of the Fund. Any income received on such securities is incidental
to the objective of long-term growth of capital. There can be no assurance that
the Fund will achieve its investment objective.

The Fund seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities of U.S.
companies that, in the Adviser's view, have achieved leading and sustainable
market positions within their U.S. industrial sectors. The Adviser believes that
leading U.S. companies are those companies who exhibit competitive and financial
superiority. Competitive superiority may be based on factors such as
manufacturing excellence, product innovation, marketing strength, or other
factors. Financial superiority may be seen in superior returns on equity and
other return measures, or in superior balance sheet measures, and other
financial flexibility measures. There ordinarily is more than one leading
company in an industrial sector. In selecting portfolio investments, the Adviser
will employ traditional valuation measures, such as price/earnings and
price/cash flow ratios to determine whether the common stock or other equity
securities of those companies with competitive and financial strength have
reasonable valuations relative to the overall market. The Fund ordinarily will
not invest in common stocks or other equity securities that the Adviser believes
are overvalued.

The Fund may also invest in investment grade income securities for purposes of
growth of capital and cash management or as a temporary defensive measure. See

9
<PAGE> 211

"Portfolio Securities -- Income Securities". The Fund may invest up to 5% of its
total assets in securities of foreign issuers. See "Additional Investment
Considerations" in the Statement of Additional Information.

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PORTFOLIO SECURITIES
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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 security holder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity security. 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 primarily on the security's potential for
appreciation.

OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities or preferred stock. A convertible security is a
bond debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stocks of the same or
similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.

10
<PAGE> 212

considered by the Adviser to be of comparable quality to securities so rated.
Income securities rated A or higher by S&P or A or higher by Moody's generally
are regarded as high grade and have a strong to outstanding capacity to pay
interest or dividends and repay principal or capital. Medium grade securities
(i.e., securities rated BBB by S&P or Baa by Moody's) are regarded as having an
adequate capacity to pay interest or dividends, and repay principal, although
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make such payments. Securities rated Baa are regarded by
Moody's as having some speculative characteristics. For a description of such
ratings see the Statement of Additional Information incorporated by reference
into this Prospectus.

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. 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
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security, the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.

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

In connection with the investment policies described above, the Fund may also
engage in the investment practices described below. These purchases entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.

11
<PAGE> 213

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.

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

12
<PAGE> 214

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may purchase and
sell portfolio securities on a "when issued" and "delayed delivery" basis. No
income accrues to 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 such securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase securities on such basis only with the intention of
actually acquiring these securities, but the Fund may sell such securities prior
to the settlement date if such sale is considered to be advisable. To the extent
the Fund engages in "when issued" and "delayed delivery" transactions, it will
do so for the purpose of acquiring securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose 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.

13
<PAGE> 215

the Fund will not acquire additional securities during any period in which its
borrowings exceed 5% of the Fund's total assets. Borrowing by the Fund creates
an opportunity for increased net income but, at the same time, creates special
risk considerations. See the Fund's Statement of Additional Information for a
more complete discussion of borrowings and certain of the associated 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 and purchase and sell financial futures contracts. Collectively, all
of the above are referred to as "Strategic Transactions." The Fund may also
invest in income securities the terms of which include elements of or are
similar in effect to Strategic Transactions in which it may engage. 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, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, 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 involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

14
<PAGE> 216

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. To the
extent that a futures contract or an option thereon is used to protect against
possible changes in the market value of securities that the Fund anticipates
acquiring and the Fund subsequently does not acquire such securities, the Fund
will have incurred the transactional expenses associated with entering into such
transaction and will be subject to the risks inherent in an unhedged purchase of
such futures contract or option. 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."

DEFENSIVE STRATEGIES. When, in the judgment of the Adviser, economic and
market conditions warrant, the Fund may invest temporarily for defensive
purposes up to 100% of its total assets in U.S. Government securities of various
maturities, investment grade corporate debt securities, preferred stocks,
convertible bonds, banker's acceptances and certificates of deposit.

15
<PAGE> 217

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.

PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for long-term growth of capital. Common stocks are
disposed of in situations where it is believed that potential for such capital
growth has lessened or that other common stocks have a greater potential.
Therefore, the Fund may purchase and sell securities without regard to the
length of time the security is to be, or has been held. The rate may exceed
100%, which is higher than that of many other investment companies. A 100%
turnover rate occurs, for example, if all the Fund's portfolio securities are
replaced during one year. High portfolio activity increases the Fund's
transaction costs, including brokerage commissions.

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

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,800 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., the distributor of the Fund and sponsor of the funds
mentioned above, is also a wholly-owned subsidiary of Van Kampen American
Capital.

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is
managed by Clayton, Dubilier & Rice, Inc., a New York based private investment
firm. The General Partner of C&D L.P. is Clayton & Dubilier Associates IV
Limited Partnership ("C&D Associates L.P."). The general partners of C&D
Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A. Barbe,
Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and
Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% of the common stock of VK/AC Holding, Inc.
Presently, and after

16
<PAGE> 218

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.

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- -------------------------------------------------- --------------------
<S> <C>
First $500 million................................ 0.70 of 1.00%
Next $500 million................................. 0.65 of 1.00%
Over $1 billion................................... 0.60 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 operations, including the compensation of
the Trustees of the Trust (other than those who are affiliated persons, as
defined in the 1940 Act, of the Adviser, the Distributor or Van Kampen American
Capital), the charges and expenses of independent accountants, legal counsel,
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, costs of
reports and notices to shareholders, costs of registering shares of the Fund
under federal and state securities laws, miscellaneous expenses and all taxes
and fees to federal, state or other governmental agencies. The Adviser reserves
the right in its sole discretion from time to time to waive all or a portion of
its management fee or to reimburse the Fund for all or a portion of its other
expenses.

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

PORTFOLIO MANAGEMENT. Stephen Boyd and Evan Harrel are co-managers of the Fund
and have been primarily responsible for the day-to-day management of the Fund's
investment portfolio since its inception. Mr. Boyd is currently Senior Vice
President of the Adviser and has been Senior Vice President -- Portfolio Manager

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of Van Kampen American Capital Asset Management, Inc. since May 1989. Mr. Harrel
is currently an Assistant Vice President of the Adviser and has been associate
portfolio manager of Van Kampen American Capital Asset Management, Inc. since
May 1994. Prior to that time, he was a vice president with Fayez Sarofim & 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 aggregate
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.

The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (the
"Class A Shares") or (b) on a contingent deferred basis (Class A Share purchases
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 (a
"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> 220

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 should weigh the benefits of deferring the sales charges and
having all of their funds invested against the higher aggregate distribution and
service fee applicable to Class B Shares and Class C Shares.

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. Generally, a class of shares subject
to a higher ongoing distribution and service fee or subject to the conversion
feature will have a higher expense ratio and pay lower dividends than a class of
shares subject to a lower ongoing distribution and service fee or not subject to
the conversion feature. The per share net asset values of the different classes
of shares are expected to be substantially the same; from time to time, however,
the per share net asset values of the classes may differ. The net asset value
per share of each class of shares of the Fund will be determined as described in
this Prospectus under "Purchase of Shares -- Net Asset Value."

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC and state securities registration fees incurred by a class of shares;
(iv) the expense of administrative personnel and services as required to support
the shareholders of a specific class; (v) Trustees' fees or expense incurred as
a result of issues relating to one class of shares; (vi) accounting expenses
relating solely to one class of shares; and (vii) any other incremental expenses
subsequently identified that should be properly allocated to one or more classes
of shares. All such expenses incurred by a class will be borne on a pro rata
basis by the outstanding shares of such class. All allocations of administrative
expenses to a particular class of shares will be limited to the extent necessary
to preserve the Fund's qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").

19
<PAGE> 221

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

20
<PAGE> 222

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.

CLASS A SHARES

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

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
-------------------------- ----------
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 CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers and financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00%
on sales to $2 million, plus 0.80% on the next million and 0.50% on the
excess over

21
<PAGE> 223

$3 million. See "Purchase of Shares -- Deferred Sales Charge Alternatives"
for additional information with respect to contingent deferred sales
charges.

QUANTITY DISCOUNTS

22
<PAGE> 224

during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If trades not initially made under a Letter of
Intent subsequently qualify for a lower sales charge through the 90-day
back-dating provision, an adjustment will be made at the expiration of the
Letter of Intent to give effect to the lower charge. If the goal is not achieved
within the 13-month period, the investor must pay the difference between the
charges applicable to the purchases made and the charges previously paid. When
an investor signs a Letter of Intent, shares equal to at least 5% of the total
purchase amount of the level selected will be restricted from sale or redemption
by the investor until the Letter of Intent is satisfied or any additional sales
charges have been paid; if the Letter of Intent is not satisfied by the investor
and any additional sales charges are not paid, sufficient restricted shares will
be redeemed by the Fund to pay such charges. Additional information is contained
in the application accompanying this Prospectus.

OTHER PURCHASE PROGRAMS

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

23
<PAGE> 225

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.

(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.

(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 12-month
period following such transaction.

(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.

24
<PAGE> 226

with at least 50 eligible employees or investing at least $250,000 in the
Participating Funds, 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.

(9) Participants in any 403(b)(7) program of a college or university system
which permits only net asset value mutual fund investments and for which
Van Kampen American Capital Trust Company serves as custodian. In
connection with such purchases, the Distributor may pay, out of its own
assets, a commission to brokers, dealers, or financial intermediaries as
follows: 1.00% on sales up to $5 million, plus 0.50% on the next $5
million, plus 0.25% on the excess over $10 million.

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge. For
this purpose, a qualified group is one which (i) has been in existence for
more than six months, (ii) has a purpose other than to acquire shares of
the Fund or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of
shares of the Fund and other funds in the Van Kampen American Capital
Family of Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of
scale in distributing such shares. A qualified group does not include one
whose sole organization nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an insurance
company, customers of a bank or broker-dealer, clients of an investment
adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
CDSC of 1.00% in the event of redemption within one year of purchase, and a
commission will be paid to authorized dealers who initiate and are
responsible for such sales to each individual as follows: 1.00% on sales to
$2 million, plus 0.80% on the next million and 0.50% on the excess over $3
million.

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

25
<PAGE> 227

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

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed 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 and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution-related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents for selling such shares.
The combination of the CDSC and the distribution fee facilitates the ability of
the Fund

26
<PAGE> 228

to sell such CDSC Shares without a sales charge being deducted at the time of
purchase.

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

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:

27
<PAGE> 229

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

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

28
<PAGE> 230

from an IRA or other retirement plan, (iii) pursuant to the Fund's systematic
withdrawal plan but limited to 12% annually of the initial value of the account,
and (iv) effected pursuant to the right of the Fund to liquidate a shareholder's
account as described herein under "Redemption of Shares." The CDSC also is
waived on redemptions of Class C Shares as it relates to the reinvestment of
redemption proceeds in shares of the same class of the Fund within 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 of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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.

The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio 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.

29
<PAGE> 231

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

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.

30
<PAGE> 232

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, Tax Free Money Fund or Reserve Fund so long as a
pre-existing account for such class of shares exists for such shareholder. Both
accounts must be of the same type, either non-retirement or retirement. Any two
non-retirement accounts can be used. If the accounts are retirement accounts,
they must both be the same type of retirement plan (e.g. IRA, 403(b)(7),401(k)
or Keogh) and for the benefit of the same individual. If the qualified
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other requirements of the fund into
which distributions would be invested. Distributions are invested into the
selected fund at its net asset value as of the payable date of the distribution.

31
<PAGE> 233

impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of 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 accompanying 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
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.

32
<PAGE> 234

33
<PAGE> 235

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

34
<PAGE> 236

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.

35
<PAGE> 237

The Fund reserves the right at any time to terminate, limit or otherwise modify
this telephone redemption privilege.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value 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.

36
<PAGE> 238

- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------

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

37
<PAGE> 239

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 Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares for any given year may exceed the amounts payable to the
Distributor with respect to such shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed distribution-related expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996, there were no
unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares, respectively. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
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 CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

38
<PAGE> 240

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

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

39
<PAGE> 241

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

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

40
<PAGE> 242

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.

41
<PAGE> 243

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 total return 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 calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., or nationally recognized financial publications. In addition,
from time to time the Fund may compare its performance to certain securities and
unmanaged indices which may have different risk/reward characteristics than the
Fund. Such characteristics may include, but are not limited to, tax features,
guarantees, insurance and the fluctuation of principal or return. In addition,
from time to time sales materials and advertisements for the Fund may include
hypothetical information.

42
<PAGE> 244

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

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

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 and Class C 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
holders of Class A Shares.

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

43
<PAGE> 245

accountants, is sent to shareholders each year. After the end of each year,
shareholders will receive federal income tax information regarding dividends and
capital gains distributions.

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

44
<PAGE> 246

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) 421-5684

VAN KAMPEN AMERICAN CAPITAL
GREAT AMERICAN COMPANIES
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

Great American Companies Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713

Boston, MA 02105-1713

Attn: Van Kampen American Capital

Great American Companies Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 247

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

GREAT AMERICAN
COMPANIES FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 248

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Prospector Fund (the "Fund") is a diversified
open-end management investment company, commonly known as a mutual fund. The
Fund's investment objective is to seek capital growth and income. The Fund will
seek to achieve its investment objective by investing primarily in a diversified
portfolio of income producing equity securities, including dividend paying
common and preferred stocks and income securities convertible into common or
preferred stock. There is no assurance that the Fund will achieve its investment
objective. The Fund is organized as a separate series of Van Kampen American
Capital Equity Trust.

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

A Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference 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. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related materials at the SEC's internet web site
(http://www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITALSM

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 249

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................. 3
Shareholder Transaction Expenses................................ 5
Annual Fund Operating Expenses and Example...................... 6
Financial Highlights............................................ 8
The Fund........................................................ 9
Investment Objective and Policies............................... 9
Portfolio Securities............................................ 10
Investment Practices............................................ 12
Investment Advisory Services.................................... 18
Alternative Sales Arrangements.................................. 20
Purchase of Shares.............................................. 21
Shareholder Services............................................ 32
Redemption of Shares............................................ 36
The Distribution and Service Plans.............................. 39
Distributions from the Fund..................................... 41
Tax Status...................................................... 42
Fund Performance................................................ 44
Description of Shares of the Fund............................... 45
Additional Information.......................................... 45
</TABLE>

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

2
<PAGE> 250

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

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

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

INVESTMENT OBJECTIVE. The investment objective of the Fund is to seek capital
growth and income. There can be no assurance that the Fund will achieve its
investment objective.

INVESTMENT POLICY. The Fund will seek to achieve its investment objective by
investing primarily in a diversified portfolio of income producing equity
securities, including dividend paying common and preferred stocks and income
securities convertible into common or preferred stock. The net asset value per
share of the Fund may increase or decrease depending on changes in the
securities markets, and other factors affecting the issuers of securities in
which the Fund may invest. See "Investment Objective and Policies."

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

3
<PAGE> 251

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. is
the Fund's investment adviser. The annual advisory fee for the Fund is 0.70% of
average daily net assets, reduced on net assets over $500 million.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed quarterly. Realized capital gains, if any, are made 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
and may cause the distributions relating to the different classes of shares to
differ. See "Distributions from the Fund."

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

4
<PAGE> 252

- ------------------------------------------------------------------------------
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."

5
<PAGE> 253

<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)............. 0.00% 0.00% 0.00%
Other expenses (as a percentage of
average daily net assets)............. 1.33% 1.33% 1.33%
Total expenses(1) (as a percentage of
average daily net assets)............. 1.33% 1.33% 1.33%
</TABLE>

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

(1) If the Adviser did not waive its fees for the period ended June 30, 1996,
"Management Fees" would have been 0.70% for each class of shares, "Other
Expenses" would have been 20.05% for each class of shares and "Total
Expenses" would have been 20.75% for each class of shares.

(2) No 12b-1 fees or service fees were accrued by the Fund for the period ended
June 30, 1996 because the Fund was not actively distributing its shares
during such period. If the Fund had been actively distributing its shares
during the period ended June 30, 1996, 12b-1 and service fees would have
been 0.25%, 1.00% and 1.00% for Class A Shares, Class B Shares and Class C
Shares, respectively. See "The Distribution and Service Plans."

6
<PAGE> 254

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (i) an operating expense ratio
of 1.33% for Class A Shares, 1.33% for Class B Shares
and 1.33% for Class C Shares, (ii) 5% annual return
and (iii) redemption at the end of each time period:
Class A Shares....................................... $70 $97
Class B Shares....................................... $54 $77
Class C Shares....................................... $24 $42
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 $97
Class B Shares....................................... $14 $42
Class C Shares....................................... $14 $42
</TABLE>

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 the
Fund's 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 Expense" table. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "The Distribution and Service Plans" and "Redemption of
Shares."

7
<PAGE> 255

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

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 financial
statements and related notes thereto included in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------- -------------------------
DECEMBER 27, 1995 DECEMBER 27, 1995
(COMMENCEMENT OF (COMMENCEMENT OF
INVESTMENT OPERATIONS) TO INVESTMENT OPERATIONS) TO
JUNE 30, 1996 JUNE 30, 1996
------------------------- -------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.............................. $10.000 $10.000
Net Investment Income............................................... 0.072 0.072
Net Realized and Unrealized Gain on Investments..................... 1.239 1.240
------- -------
Total from Investment Operations...................................... 1.311 1.312
------- -------
Less Distributions from Net Investment Income......................... 0.040 0.019
------- -------
Net Asset Value, End of the Period.................................... $11.271 $11.293
==================== ====================
Total Return*(a)...................................................... 13.10%** 13.19%**
Net Assets at End of the Period (in thousands)........................ $ 78.90 $ 73.4
Ratio of Expenses to Average Net Assets*(b)........................... 1.33% 1.33%
Ratio of Net Investment Income to Average Net Assets*................. 1.34% 1.34%
Portfolio Turnover.................................................... 69%** 69%**
Average Commission Paid Per Equity Share Traded(c).................... $ 0.32 $ 0.32
- ----------------
* 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............................. 20.75% 20.75%
Ratio of Net Investment Income to Average Net Assets................ (18.07)% (18.07)%
**Non-annualized

<CAPTION>
CLASS C SHARES
-------------------------
DECEMBER 27, 1995
(COMMENCEMENT OF
INVESTMENT OPERATIONS) TO
JUNE 30, 1996
-------------------------
<S> <C>
Net Asset Value, Beginning of the Period.............................. $10.000
Net Investment Income............................................... 0.072
Net Realized and Unrealized Gain on Investments..................... 1.240
-------
Total from Investment Operations...................................... 1.312
-------
Less Distributions from Net Investment Income......................... 0.019
-------
Net Asset Value, End of the Period.................................... $11.293
====================
Total Return*(a)...................................................... 13.19%**
Net Assets at End of the Period (in thousands)........................ $ 73.4
Ratio of Expenses to Average Net Assets*(b)........................... 1.33%
Ratio of Net Investment Income to Average Net Assets*................. 1.34%
Portfolio Turnover.................................................... 69%**
Average Commission Paid Per Equity Share Traded(c).................... $ 0.32
- ----------------
* If certain expenses had not been assumed by the Adviser, total retur
follows:
Ratio of Expenses to Average Net Assets............................. 20.75%
Ratio of Net Investment Income to Average Net Assets................ (18.07)%
**Non-annualized
</TABLE>

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

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

(b) The Ratio of Expenses to Average Net Assets is based upon Total Expenses
which does not reflect credits earned on overnight cash balances. (See Note
1 to the Financial Statements)

(c) Represents the average brokerage commissions paid on equity transactions
entered into during the period for trades where commissions were applicable.

See Financial Statements and Notes Thereto

8
<PAGE> 256

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

Van Kampen American Capital Prospector Fund (the "Fund") is a mutual fund. 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. The Fund is a separate diversified series
of Van Kampen American Capital Equity Trust (the "Trust"). The Trust is an
open-end management investment company organized as a Delaware business trust.

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

The investment objective of the Fund is to seek capital growth and income.
This objective is fundamental and cannot be changed without approval of the
shareholders of the Fund. There can be no assurance that the Fund will achieve
its investment objective.

The Fund will seek to achieve its investment objective by investing primarily
in a diversified portfolio of income producing equity securities, including
dividend paying common and preferred stocks and income securities convertible
into common or preferred stock. The Fund generally invests in dividend paying
equity securities of larger capitalization companies that are believed by the
Adviser to be selling at low valuations relative to historical norms and to
future earnings prospects. Larger capitalization companies generally are those
companies consisting of the approximately 500 largest capitalization companies
listed on national securities exchanges and automated trading systems.

The Fund may invest in investment grade income securities for purposes of
growth or income, cash management or as a temporary defensive measure. The Fund
may invest in shares of other investment companies that pursue investment
objectives consistent with that of the Fund, to the extent and subject to the
limitations discussed below. The Fund may invest up to 25% of its total assets
in securities of foreign issuers.

9
<PAGE> 257

- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------

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,
including holders of such entity's debt securities, 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 primarily on the security's potential for
appreciation and on its dividend paying capacity.

OTHER EQUITY SECURITIES. The Fund may invest in other equity securities,
including convertible securities and preferred stocks. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock or other equity
security of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. The Fund may invest in adjustable or fixed rate
preferred stock. Preferred stock generally has a preference as to dividends and
liquidation over an issuer's common stock but ranks junior to debt securities in
an issuer's capital structure. Unlike interest payments on debt securities,
preferred stock dividends are payable only if declared by the issuer's board of
directors. Preferred stock also may be subject to optional or mandatory
redemption provisions.

INCOME SECURITIES. The Fund may invest in fixed-income securities which, at
the time of purchase, are rated at least BBB by Standard & Poor's Ratings Group
("S&P"), Baa by Moody's Investors Services, Inc. ("Moody's") or comparably rated
by a nationally recognized statistical rating organization, or if unrated, are
considered by the Adviser to be of comparable quality to securities so rated.
Income securities rated A by S&P or A by Moody's or higher generally are
regarded as high grade and have a strong to outstanding capacity to pay interest
or dividends and repay principal or capital. Medium grade securities (i.e.,
securities rated BBB by S&P or Baa by Moody's) are regarded as having an
adequate capacity to pay interest or dividends, and repay principal, although
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make such payments. Securities rated Baa are regarded by
Moody's as having some speculative characteristics. For a description of such
ratings, see the Statement of Additional Information incorporated by reference
into this Prospectus.

10
<PAGE> 258

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
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
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.

11
<PAGE> 259

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. The 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.

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

In connection with the investment policies described above, the Fund may
engage in the investment practices described below. These practices entail
risks. The investment practices described below are not fundamental and can be
changed without a vote of the shareholders of the Fund.

REPURCHASE AGREEMENTS. The Fund may use up to 20% of its assets to enter into
repurchase agreements with selected commercial banks and broker-dealers, under

12
<PAGE> 260

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

13
<PAGE> 261

advantageous. When the Fund is the buyer in such a transaction, however, it will
maintain, in a segregated account with its custodian, cash or liquid securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. The Fund will make commitments to purchase securities on such
basis only with the intention of actually acquiring these securities, but the
Fund may sell such securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
securities for the Fund's portfolio consistent with the Fund's investment
objective and policies and not for the purpose 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.

BORROWINGS. The Fund is authorized to borrow money from banks (including
entering into reverse repurchase agreements) in an amount up to 33 1/3% of the
Fund's total assets (after giving effect to any such borrowing) which amount
excludes 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. Borrowing by the
Fund creates an opportunity for increased net income but, at the same time,
creates special risk considerations. See the Fund's Statement of Additional
Information for a more complete discussion of borrowings and certain of the
associated risks.

14
<PAGE> 262

rency swaps or options or currencies or currencies futures. Collectively, all of
the above are referred to as "Strategic Transactions." The Fund may also invest
in income securities the form of which include the elements of or are similar in
effect to Strategic Transactions in which it may engage. 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, 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 protect against changes in currency or exchange rates for investment
purposes, 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 of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver a
specific 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. To the extent that a futures contract or an option thereon is used to
protect against possible changes in the market value of securities that the Fund
anticipates acquiring and the Fund subsequently does not acquire such
securities, the Fund will have incurred the transactional expenses associated
with entering into such transaction and will be subject to the risks

15
<PAGE> 263

inherent in an unhedged purchase of such futures contract or option. 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."

INVESTMENT IN INVESTMENT COMPANIES. The Fund may invest in one or more
investment companies advised by the Adviser and its affiliates, including Van
Kampen American Capital Small Capitalization Fund ("Small Cap Fund") and Van
Kampen American Capital Foreign Securities Fund ("Foreign Securities Fund"). The
shares of the Small Cap Fund and Foreign Securities Fund are available only to
investment companies advised by the Adviser or an affiliate. The Adviser
believes that the use of the Small Cap Fund and Foreign Securities Fund may,
from time to time, provide the Fund with the most effective exposure to the
performance of the small capitalization sector of the stock market and to
foreign securities, while at the same time minimizing costs. The Adviser charges
no advisory fee for managing the Small Cap Fund or the Foreign Securities Fund,
nor are there any sales load or other charges associated with distribution of
their shares. Other expenses incurred by the Small Cap Fund and Foreign
Securities Fund are borne by them, and thus indirectly by the Van Kampen
American Capital funds that invest in them. With respect to such other expenses,
the Adviser anticipates that the efficiencies resulting from use of such funds
will result in cost savings for the Fund and other Van Kampen American Capital
funds that will fully or partially offset such expenses. In large part, these
savings are attributable to the fact that administrative actions that would have
to be performed multiple times if each Van Kampen American Capital fund held its
own portfolio of small capitalization or foreign stocks will need to be
performed only once. The Adviser expects that the Small Cap Fund and Foreign
Securities Fund will experience trading costs that will be substantially less
than the trading costs that would be incurred if small capitalization or foreign
stocks were purchased separately for the Fund and other Van Kampen American
Capital funds. The Fund's investments in the Small Cap Fund and Foreign
Securities Fund are subject to the terms and conditions set forth in SEC
exemptive orders authorizing such investments.

16
<PAGE> 264

17
<PAGE> 265

PORTFOLIO TURNOVER. The Fund purchases securities which are believed by the
Adviser to have potential for capital growth. Securities are disposed of in
situations where it is believed that potential for such capital growth has
lessened or that other securities have a greater potential. Therefore, the Fund
may purchase and sell securities without regard to the length of time the
security is to be, or has been held.

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

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

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is controlled, through the ownership of a substantial
majority of its common stock, by The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C & D L.P."), a Connecticut limited partnership. C&D L.P.
is managed by Clayton, Dubilier & Rice, Inc., a New York based private
investment firm. The General Partner of C&D L.P. is Clayton & Dubilier
Associates IV Limited Partnership ("C&D Associates L.P."). The general partners
of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames, William A.
Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe
and Andrall E. Pearson, each of whom is a principal of Clayton, Dubilier & Rice,
Inc. In addition, certain officers, directors and employees of Van Kampen
American Capital and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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 are managed under the
direction of the Board of Trustees of the Trust, of which the Fund is a separate

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<PAGE> 266

series. Subject to the Trustees' authority, the Adviser and the officers of the
Fund supervise and implement the Fund's investment activities and are
responsible for overall management of the Fund's business affairs. The Fund pays
the Adviser a fee equal to a percentage of the average daily net assets of the
Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS PERCENTAGE PER ANNUM
- ---------------------------------------------------- --------------------
<S> <C>
First $500 million.................................. 0.70 of 1%
Next $500 million................................... 0.65 of 1%
Over $1 billion..................................... 0.60 of 1%
</TABLE>

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

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

PORTFOLIO MANAGEMENT. B. Robert Baker and Jason Leder are co-managers to the
Fund and are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Messrs. Baker and Leder have been primarily responsible
for managing the Fund's investment portfolio since its inception. Mr. Baker has
been portfolio manager of Van Kampen American Capital Asset Management, Inc.
since 1994. From 1991 to 1994, Mr. Baker was an associate portfolio manager of
Van Kampen American Capital Asset Management, Inc. Mr. Leder has been an
associate portfolio manager of Van Kampen American Capital Asset Management,
Inc. since April 1995. Prior to that time, he was a securities analyst with
Salomon Brothers, Inc., Fidelity Management and Research, Gabrelli and Company,
and Austin, Calvert and Flavin. Each portfolio manager is an employee of the
Adviser.

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<PAGE> 267

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

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

The Fund 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 purchases
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 (a
"CDSC"), Class B Shares and Class C Shares sometimes are referred to herein
collectively as "Contingent Deferred Sales Charge Shares" or "CDSC Shares."

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of 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
purchases 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 should

20
<PAGE> 268

weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable to
Class B Shares and Class C Shares.

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) transfer agency expenses attributable to a specific
class of shares, which expenses typically will be higher with respect to classes
of shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) SEC registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; (vi) accounting expenses relating solely to one
class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares.
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
- ------------------------------------------------------------------------------

21
<PAGE> 269

reserves the right to suspend or terminate the continuous public offering at any
time and without prior notice.

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

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<PAGE> 270

CLASS A SHARES

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

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 brokers, dealers and financial
intermediaries 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 and 0.50% on the excess over $3 million. See "Purchase of Shares --
Deferred Sales Charge Alternatives" for additional information with respect
to contingent deferred sales charges.

QUANTITY DISCOUNTS

23
<PAGE> 271

24
<PAGE> 272

restricted from sale or redemption by the investor until the Letter of Intent is
satisfied or any additional sales charges have been paid; if the Letter of
Intent is not satisfied by the investor and any additional sales charges are not
paid, sufficient restricted shares will be redeemed by the Fund to pay such
charges. Additional information is contained in the application accompanying
this Prospectus.

OTHER PURCHASE PROGRAMS

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

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

25
<PAGE> 273

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.

(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 12-month
period following such transaction.

(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.

26
<PAGE> 274

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.

(10) Individuals who are members of a "qualified group" may purchase Class A
Shares of the Fund without the imposition of a front end sales charge. For
this purpose, a qualified group is one which (i) has been in existence for
more than six months, (ii) has a purpose other than to acquire shares of
the Fund or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of
shares of the Fund and other funds in the Van Kampen American Capital
Family of Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of
scale in distributing such shares. A qualified group does not include one
whose sole organization nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an
insurance company, customers of a bank or broker-dealer, clients of an
investment adviser or other similar groups. Shares purchased in each
group's participants account in connection with this privilege will be
subject to a CDSC of 1.00% in the event of redemption within one year of
purchase, and a commission will be paid to authorized dealers who initiate
and are responsible for such sales to each individual as follows: 1.00% on
sales to $2 million, plus 0.80% on the next million and 0.50% on the
excess over $3 million.

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

27
<PAGE> 275

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

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed 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.

28
<PAGE> 276

have been held for a sufficient period of time such that the CDSC no longer is
applicable to such shares, third of Class A Shares in the shareholder's Fund
account that have converted from Class B Shares or Class C Shares, if any, and
fourth of CDSC Shares held longest during the period of time that a CDSC is
applicable to such CDSC Shares. The charge will not be applied to dollar amounts
representing an increase in the net asset value per share since the time of
purchase.

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

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

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

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

29
<PAGE> 277

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

30
<PAGE> 278

as described herein under "Redemption of Shares." The CDSC also is waived on
redemptions of Class C Shares as it relates to the reinvestment of redemption
proceeds in shares of the same class of the Fund within 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 of the Fund outstanding. The net asset value for the Fund
is computed once daily as of the close of the daily trading session of the New
York Stock Exchange, 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.

The securities of the Fund that are listed on a securities exchange are valued
at their closing sales price on the day of the valuation. Price valuations for
listed securities are based on market quotations where the security is primarily
traded or, if actual trade information is not available on any valuation date,
are valued at the mean of the bid and asked prices. Unlisted securities in the
portfolio 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.

31
<PAGE> 279

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

32
<PAGE> 280

Both accounts must be of the same type, either non-retirement or retirement.
Any two non-retirement accounts can be used. If the accounts are retirement
accounts, they must both be for the same class and of the same type of
retirement plan (e.g. IRA, 403(b)(7), 401(k) or Keogh) and for the benefit of
the same individual. If the qualified pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value as of
the payable date of the distribution.

33
<PAGE> 281

impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of the Fund.

34
<PAGE> 282

35
<PAGE> 283

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

36
<PAGE> 284

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.

37
<PAGE> 285

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value 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.

38
<PAGE> 286

- ------------------------------------------------------------------------------
THE DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------

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

39
<PAGE> 287

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 Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares for any given year may exceed the amounts payable to the
Distributor with respect to such shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed distribution-related expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996, there were no
unreimbursed distribution-related expenses with respect to Class B Shares and
Class C Shares, respectively. If the Distribution Plan was terminated or not
continued, the Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
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 CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

40
<PAGE> 288

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare dividends quarterly to holders of each class of shares
from net investment income and net short-term capital gains attributable to each
respective class. The Fund also presently intends to make distributions of net
long-term capital gains, if any, annually. Dividends are composed of all or a
portion of investment income earned by each class of shares of the Fund plus all
or a portion of net short-term capital gains by the Fund on transactions in
securities and futures and options hedging transactions, less the expenses
attributable to the respective class. Long-term capital gains distributions
consist of the Fund's gain on transactions in securities and futures and options
hedging transactions, net of any realized capital losses, less any carryover
capital losses from previous years.

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

41
<PAGE> 289

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

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

42
<PAGE> 290

43
<PAGE> 291

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 total return 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 calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc., or other nationally recognized financial publications. In
addition, from time to time the Fund may compare its performance to certain
securities and unmanaged indices which may have different risk/reward
characteristics than the Fund. Such characteristics may include, but are not
limited to, tax features, guarantees, insurance and the fluctuation of principal
or return. In addition, from time to time sales materials and advertisements for
the Fund may include hypothetical information.

44
<PAGE> 292

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

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

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 and Class C 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
holders of Class A Shares.

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

45
<PAGE> 293

accountants, is sent to shareholders each year. After the end of each year,
shareholders will receive federal income tax information regarding dividends and
capital gains distributions.

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

46
<PAGE> 294

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) 421-5684

VAN KAMPEN AMERICAN CAPITAL
PROSPECTOR 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

Prospector Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713

Boston, MA 02105-1713

Attn: Van Kampen American Capital

Prospector Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 295

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

PROSPECTOR FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 296

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
AGGRESSIVE GROWTH FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Aggressive Growth Fund (the "Fund") is a newly
organized diversified open-end management investment company, commonly known as
a mutual fund. The Fund's investment objective is to seek capital growth. The
Fund will seek to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks and other equity securities. The Fund
expects to often have a substantial portion of its assets invested in small and
medium sized companies. 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 Statement of Additional Information, dated October 28, 1996, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Fund's Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device For the Deaf at (800) 772-8889. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other related materials at the
SEC's internet web site (http://www.sec.gov).

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

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

THIS PROSPECTUS IS DATED OCTOBER 28, 1996.

<PAGE> 297

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................. 3
Shareholder Transaction Expenses............................... 5
Annual Fund Operating Expenses and Example..................... 6
Financial Highlights........................................... 8
The Fund....................................................... 9
Investment Objective and Policies.............................. 9
Portfolio Securities........................................... 11
Investment Practices........................................... 13
Investment Advisory Services................................... 19
Alternative Sales Arrangements................................. 21
Purchase of Shares............................................. 23
Shareholder Services........................................... 33
Redemption of Shares........................................... 37
The Distribution and Service Plans............................. 40
Distributions from the Fund.................................... 42
Tax Status..................................................... 43
Fund Performance............................................... 46
Description of Shares of the Fund.............................. 46
Additional Information......................................... 47
</TABLE>

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

2
<PAGE> 298

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

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

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

INVESTMENT OBJECTIVE. The Fund's investment objective is to seek 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 common stocks and, when
viewed appropriate, in other securities such as debt securities, preferred
stocks, convertible securities and warrants. Under normal market conditions, the
Fund will invest at least 65% of its total assets in common stock or other
equity securities believed by the Adviser at the time of investment to have an
above average potential for capital growth. The Fund expects that it often will
have a substantial portion of its assets invested in equity securities of small
and medium size companies, although the Fund is free to invest any portion of
its assets in securities of larger companies that the Adviser believes have an
above average potential for capital growth. Small and medium size companies are
companies that have a total market capitalization not greater than that of the
500 largest companies whose securities are listed or admitted for trading on a
national securities exchange or market system.

The Fund's primary approach is to seek what the Adviser believes to be
unusually attractive growth opportunities on an individual company basis. The
Adviser will utilize a bottom-up, disciplined approach in selecting companies
for investment. The Fund generally will seek companies that appear to be
positioned to produce an attractive level of future earnings through the
development of new products, services or markets or as a result of changing
market or industry conditions. The Adviser expects that many of the companies in
the Fund's portfolio will at the time of investment be experiencing high rates
of earnings growth. Investments in such companies may offer greater
opportunities for growth of capital than do companies having more established
products, services or markets or in later stages of the growth cycle, but also
involve special risks.

Such companies often have limited or cyclical product lines, markets, or
financial resources, and may be dependent upon one or a few key people for
management. Common stock of such companies may trade at high price to earnings
ratios relative to more established companies, and rates of earnings growth may
be volatile. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of more established companies or the
market averages in general.

Although the Fund will not make any investment if as a result more than 25% of
its total assets will be invested in any single industry, a significant portion
of the

3
<PAGE> 299

Fund's assets may from time to time be invested in securities of companies in
the same sector of the market. To the extent that the Fund invests a significant
portion of its assets in a limited number of market sectors, the Fund will be
more susceptible to economic, political, regulatory and other factors
influencing such sectors.

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

INVESTMENT PRACTICES AND RISKS. The Fund may invest up to 20% 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.

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

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

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

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. distributes the
Fund's shares.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income and 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 foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

4
<PAGE> 300

- ------------------------------------------------------------------------------
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--5.00% Year 1--1.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
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. See "Purchase
of Shares-- Deferred Sales Charge Alternatives--Class A Shares of $1 million
or more."

5
<PAGE> 301

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

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; after expense
reimbursement)........................... 1.04% 1.05% 1.05%
Total expenses(1) (as a percentage of
average
daily net assets)........................ 1.29% 2.05% 2.05%
</TABLE>

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

(1) The Adviser has agreed to waive management fees or reimburse ordinary Fund
expenses through June 30, 1997 to the extent necessary so that total annual
Fund operating expenses for such period would not exceed 1.30%, 2.05% and
2.05% for Class A Shares, Class B Shares and Class C Shares, respectively.
Absent the Adviser's waiver of its fees and assumption of the expenses of
the Fund for the fiscal year ending June 30, 1996 the "Management fees"
would have been 0.75% for each class of shares, "Other expenses" would have
been 1.05%, 1.06% and 1.06% for Class A Shares, Class B Shares and Class C
Shares, respectively, and "Total expenses" would have been 2.05%, 2.81% and
2.81% for Class A Shares, Class B Shares and Class C Shares, respectively.

6
<PAGE> 302

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE
YEAR YEARS
---- -----
<S> <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
2.05% for Class C Shares, (ii) 5% annual return and (iii)
redemption at the end of each time period:
Class A Shares........................................... $70 $96
Class B Shares........................................... $71 $94
Class C Shares........................................... $31 $64
You 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
Class B Shares........................................... $21 $64
Class C Shares........................................... $21 $64
</TABLE>

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

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

7
<PAGE> 303

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

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

<TABLE>
<CAPTION>
CLASS A SHARES
----------------
MAY 29, 1996
(COMMENCEMENT OF
INVESTMENT
OPERATIONS)
TO JUNE 30,
1996
----------------
<S> <C>
Net Asset Value, Beginning of Period................................................................... $9.430
-----
Net Investment Income................................................................................. (.002)
Net Realized and Unrealized Gain on Investments....................................................... (.310)
-----
Total from Investment Operations....................................................................... (.312)
-----
Less Distributions from Net Investment Income.......................................................... --
-----
Net Asset Value, End of Period......................................................................... $9.118
======
Total Return* (Non-Annualized)......................................................................... (3.29)%
Net Assets at End of Period (in millions).............................................................. $ 30.3
Ratio of Expenses to Average Net Assets* (Annualized).................................................. 1.29%
Ratio of Net Investment Income to Average Net Assets* (Annualized)..................................... (.50)%
Portfolio Turnover..................................................................................... 4%
- ----------------
* 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).................................................. 2.05%
Ratio of Net Investment Income to Average Net Assets (Annualized)..................................... (1.25)%

<CAPTION>
CLASS B SHARES
----------------
MAY 29, 1996
(COMMENCEMENT OF
INVESTMENT
OPERATIONS)
TO JUNE 30,
1996
----------------
<S> <C>
Net Asset Value, Beginning of Period................................................................... $9.430
-----
Net Investment Income................................................................................. (.006)
Net Realized and Unrealized Gain on Investments....................................................... (.312)
-----
Total from Investment Operations....................................................................... (.318)
-----
Less Distributions from Net Investment Income.......................................................... --
-----
Net Asset Value, End of Period......................................................................... $9.112
======
Total Return* (Non-Annualized)......................................................................... (3.39)%
Net Assets at End of Period (in millions).............................................................. $ 25.5
Ratio of Expenses to Average Net Assets* (Annualized).................................................. 2.05%
Ratio of Net Investment Income to Average Net Assets* (Annualized)..................................... (1.28)%
Portfolio Turnover..................................................................................... 4%
- ----------------
* 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).................................................. 2.81%
Ratio of Net Investment Income to Average Net Assets (Annualized)..................................... (2.04)%

<CAPTION>
CLASS C SHARES
----------------
MAY 29, 1996
(COMMENCEMENT OF
INVESTMENT
OPERATIONS)
TO JUNE 30,
1995
----------------
Net Asset Value, Beginning of Period................................................................... $9.430
-----
Net Investment Income................................................................................. (.006)
Net Realized and Unrealized Gain on Investments....................................................... (.311)
-----
Total from Investment Operations....................................................................... (.317)
-----
Less Distributions from Net Investment Income.......................................................... --
-----
Net Asset Value, End of Period......................................................................... $9.113
======
Total Return* (Non-Annualized)......................................................................... (3.39)%
Net Assets at End of Period (in millions).............................................................. $ 3.9
Ratio of Expenses to Average Net Assets* (Annualized).................................................. 2.05%
Ratio of Net Investment Income to Average Net Assets* (Annualized)..................................... (1.28)%
Portfolio Turnover..................................................................................... 4%

- ----------------
* 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).................................................. 2.81%
Ratio of Net Investment Income to Average Net Assets (Annualized)..................................... (2.04)%

</TABLE>

See Financial Statements and Notes Thereto.

8
<PAGE> 304

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

Van Kampen American Capital Aggressive Growth Fund (the "Fund") is a mutual
fund. 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. The Fund is a separate
diversified series of Van Kampen American Capital Equity Trust (the "Trust").
The Trust is an open-end management investment company organized as a Delaware
business trust.

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

The Fund's investment objective is to seek capital growth. This objective is
fundamental and cannot be changed without approval of the shareholders of the
Fund. Any income received on investments is incidental to the objective of
capital growth. There can be no assurance that the Fund will achieve its
investment objective and full consideration should be given to the risks
inherent in the investment techniques that the Fund may use.

Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stock or other equity securities believed by the Adviser at the
time of investment to have an above average potential for capital growth. The
Fund expects that it often will have a substantial portion of its assets
invested in equity securities of small and medium size companies, although the
Fund is free to invest any portion of its assets in securities of larger
companies that the Adviser believes have an above average potential for capital
growth. Small and medium size companies are companies that have a total market
capitalization not greater than that of any of the 500 largest companies whose
securities are listed or admitted for trading on a national securities exchange
or market system. The Fund may invest up to 20% of its total assets (measured at
the time of investment) in securities of foreign issuers. While the Fund will
invest primarily in common stocks, it also may invest in other securities such
as debt securities, preferred stocks, convertible securities and warrants.

9
<PAGE> 305

attractive level of future earnings through the development of new products,
services or markets or as a result of changing market or industry conditions.
The Adviser expects that many of the companies in the Fund's portfolio will at
the time of investment be experiencing high rates of earnings growth.
Investments in such companies may offer greater opportunities for growth of
capital than do companies having more established products, services or markets
or in later stages of the growth cycle, but also involve special risks. Such
companies often have limited or cyclical product lines, markets, or financial
resources, and may be dependent upon one or a few key people for management.
Common stock of such companies may trade at high price to earnings ratios
relative to more established companies, and rates of earnings growth may be
volatile. The securities of such companies may be subject to more abrupt or
erratic market movements than securities of more established companies or the
market averages in general.

The companies and industries in which the Fund invests will change over time
depending on the Adviser's analyses of growth opportunities. Although the Fund
will not make any investment if as a result more than 25% of its total assets
will be invested in any single industry, a significant portion of the Fund's
assets may from time to time be invested in securities of companies in the same
sector of the market. This may occur, for example, when the Adviser believes
that several companies in the same sector each offer unusually attractive growth
opportunities. To the extent that the Fund invests a significant portion of its
assets in a limited number of market sectors, the Fund will be more susceptible
to economic, political, regulatory and other factors influencing such sectors.

The Fund may also invest in special situations. Special situations typically
involve new management, special products and techniques, unusual developments,
mergers or liquidations. Investments in unseasoned companies and special
situations often involve much greater risks than are inherent in ordinary
investments, because securities of such companies may be more likely to
experience unexpected fluctuations in price. In addition, securities of small
capitalization companies generally are traded in lower volume than those issued
by larger companies. There is no direct limitation on the Fund's ability to
invest in special situations as a class. The Fund's investments in special
situations will be subject to the Fund's investment policies and restrictions,
including its fundamental investment restrictions. These policies and
restrictions may restrict the Fund's ability to make particular special
situation investments. See "Investment Policies and Restrictions" in the
Statement of Additional Information. Because prices of common stocks and other
securities fluctuate, the value of an investment in the Fund will vary based
upon the Fund's investment performance.

10
<PAGE> 306

- ------------------------------------------------------------------------------
PORTFOLIO SECURITIES
- ------------------------------------------------------------------------------

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 security holder or class of shareholders,
including holders of such entity's debt securities, preferred stock and other
senior equity security. 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 primarily on the security's potential for
capital growth.

INCOME SECURITIES. The Fund may invest in income securities, which include
primarily debt securities of various maturities. The Fund will only invest in
income securities that are investment grade at the time of investment.
Investment grade securities are securities that are rated as least BBB by
Standard & Poor's Ratings Group ("S&P"), Baa by Moody's Investors Service, Inc.
("Moody's") or comparably rated by any nationally recognized rating
organization, or, if unrated, are considered by the Adviser to be of comparable
quality to securities so rated. Income securities A or higher by S&P or A or
higher by Moody's generally are regarded as high grade and have a strong to
outstanding capacity to pay interest or dividends and repay principal or
capital. Medium grade securities (i.e. securities rated BBB by S&P or Baa by
Moody's) are regarded as having an adequate capacity to pay

11
<PAGE> 307

interest or dividends, and repay principal, although adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to make
sure payments. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. For a description of such ratings see the Statement
of Additional Information incorporated by reference into this Prospectus.

The net asset value of the Fund will change with changes in the value of the
portfolio securities. The values of income securities may change as interest
rate levels 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
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
rating organization) or, in the case of unrated income securities, the Adviser,
downgrades its assessment of the credit characteristics of a particular issuer.
In determining whether the Fund will retain or sell such a security the Adviser
may consider such factors as the Adviser's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other nationally recognized
statistical rating organizations.

WARRANTS. The Fund may invest up to 5% of its assets in warrants (measured at
the time of investment), which are securities permitting, but not obligating,
their holders to subscribe for other securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that they
entitle their holder to purchase, and they do not represent any rights in the
assets of the issuer. As a result, an investment in warrants may be considered
to be more speculative than most other types of equity investment. In addition,
the value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to its expiration date. The Fund may retain in its portfolio any
securities received upon the exercise of a warrant.

FOREIGN SECURITIES. The Fund may invest up to 20% of the value of its total
assets in securities of foreign issuers (measured at the time of investment).
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

12
<PAGE> 308

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 the 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."

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

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,

13
<PAGE> 309

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.

The Fund expects to utilize options, futures contracts and options thereon in
several different ways, depending upon the status of the Fund's portfolio and
the Adviser's expectations concerning the securities markets. In times of stable
or rising stock prices, the Fund generally seeks to obtain maximum exposure to
the stock market, i.e., to be "fully invested." Nevertheless, even when the Fund
is fully invested, prudent management requires that at least a small portion of
assets be available as cash to honor redemption requests and for other
short-term needs. The Fund may also have cash on hand that has not yet been
invested. The portion of the Fund's assets that is invested in cash equivalents
does not fluctuate with stock market prices, so that, in times of rising market
prices, the Fund may underperform the market in proportion to the amount of cash
equivalents in its portfolio. By purchasing stock index futures contracts,
however, the Fund can "equitize" the cash portion of its assets and obtain
equivalent performance to investing 100% of its assets in equity securities.

If the Adviser forecasts a market decline, the Fund may take a defensive
position, reducing its exposure to the stock market by increasing its cash
position. By selling stock index futures contracts instead of portfolio
securities, a similar result can be achieved to the extent that the performance
of the stock index futures contracts correlates to the performance of the Fund's
portfolio securities. Sale of futures contracts could frequently be accomplished
more rapidly and at less cost than the actual sale of securities. Once the
desired hedged position has been effected, the Fund could then liquidate
securities in a more deliberate manner, reducing its

14
<PAGE> 310

futures position simultaneously to maintain the desired balance, or it could
maintain the hedged position.

As an alternative to selling stock index futures contracts, the Fund can
purchase stock index puts (or stock index futures puts) to hedge the portfolio's
risk in a declining market. Since the value of a put increases as the index
declines below a specified level, the portfolio's value is protected against a
market decline to the degree the performance of the index correlates with the
performance of the Fund's investment portfolio. If the market remains stable or
advances, the Fund can refrain from exercising the put and its portfolio will
participate in the advance, having incurred only the premium cost for the put.

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

15
<PAGE> 311

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 25% 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.

16
<PAGE> 312

such securities obtained pursuant to such transactions. Because the Fund relies
on the buyer or seller, as the case may be, to consummate the transaction,
failure by the other party to complete the transaction may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. When the Fund is the buyer in such a transaction, however, it will
maintain, in a segregated account with its custodian, cash or liquid securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. The Fund will make commitments to purchase securities on such
basis only with the intention of actually acquiring these securities, but the
Fund may sell such securities prior to the settlement date if such sale is
considered to be advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
securities for the Fund's portfolio consistent with the Fund's investment
objectives and policies and not for the purposes of investment leverage. No
specific limitation exists as to the percentage of the Fund's assets which may
be used to acquire securities on a "when issued" or "delayed delivery" basis.

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 (the "Securities Act"), 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 liquid securities, 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

17
<PAGE> 313

other party may cause delays or other collection difficulties. The Fund may pay
finders' fees in connection with loans of its portfolio securities.

BORROWINGS. The Fund is authorized to borrow money (including entering into
reverse repurchase agreements) to the full extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"), although it has no intention
to do so in an amount exceeding 5% of the Fund's total assets or for other than
temporary purposes, such as clearances of portfolio transactions, share
repurchase and payment of dividends and distributions. Accordingly, the Fund
will not acquire additional securities during any period in which its borrowings
exceed 5% of the Fund's total assets. Borrowing by the Fund creates an
opportunity for increased net income but, at the same time, creates special risk
considerations. See the Fund's Statement of Additional Information for a more
complete discussion of borrowings and certain of the associated risks.

SHORT-TERM TRADING. Under certain market conditions, the Fund may seek
profits by engaging in short-term trading. The length of time the Fund has held
a particular security is not generally a consideration in investment decisions.
A change in the securities owned by the Fund is known as "portfolio turnover."
The Fund anticipates that the annual portfolio turnover rate of the Fund's
portfolio may exceed 100% but should generally be less than 200%. Portfolio
turnover generally involves expense to the Fund, including brokerage commissions
or dealer mark-ups and other transaction costs on the sale of securities and
reinvestment in other securities. To the extent short-term trading strategies
are used, the Fund's portfolio turnover rate and expenses may be higher than
that of other mutual funds. Such transactions may also result in realization of
taxable capital gains. The Fund's ability to engage in short-term trading 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. See "Tax Status."

SHORT SALES. The Fund may engage in "short-sales against the box." A short
sale is a transaction in which the Fund would sell securities it does not own
(but has borrowed) in anticipation of a decline in the market price of
securities. A short-sale against the box is a transaction where at all times a
short position is open the Fund owns an equal amount of such securities or
securities convertible or exchangeable into such securities without payment of
additional consideration. The Fund will not engage in short sales other than
against the box.

RISKS. The Fund's investment in certain portfolio securities and other
investment practices entail certain risks. Please see the discussion of such
risks contained

18
<PAGE> 314

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.

The Adviser is also 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
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.

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

19
<PAGE> 315

closed-end funds and more than 2,800 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., the Distributor of the Fund and sponsor of the funds
mentioned above, is a wholly-owned subsidiary of Van Kampen American Capital.

Van Kampen American Capital is 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 and its subsidiaries (some of whom are officers or trustees of
the Fund) own, in the aggregate, not more than 6% of the common stock of VK/AC
Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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 are managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to the Trustees' authority, the Adviser and the
officers of the Fund supervise and implement the Fund's investment activities
and are responsible for overall management of the Fund's business affairs. The
Fund pays the Adviser a fee 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...................................... 0.75 of 1.00%
Next $500 million....................................... 0.70 of 1.00%
Over $1 billion......................................... 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 operations, including the compensation of
the Trustees of the Trust (other than those who are affiliated persons, as
defined in the 1940 Act, of the Adviser, the Distributor or Van Kampen American
Capital), the charges and expenses of independent accountants, legal counsel,
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, costs of
reports and notices to shareholders, costs of registering shares of the Fund
under federal and state securities laws, miscellaneous expenses

20
<PAGE> 316

and all taxes and fees to federal, state or other governmental agencies. The
Adviser reserves the right in its sole discretion from time to time to charge
all or a portion of its management fee or to reimburse the Fund for all or a
portion of its other expenses.

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

PORTFOLIO MANAGEMENT. Gary M. Lewis is primarily responsible for the day-to-
day management of the Fund's investment portfolio. Mr. Lewis has been Senior
Vice President and Portfolio Manager with Van Kampen American Capital Asset
Management, Inc., an affiliate of the Adviser, since October 31, 1995, and
Senior Vice President and Portfolio Manager with the Adviser since December,
1995. From December, 1987 to December, 1995, Mr. Lewis was a Vice President and
Portfolio Manager of Van Kampen American Capital Asset Management, Inc. Mr.
Lewis has been primarily responsible for managing the Fund's investment
portfolio since its inception.

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

The Fund currently offers three classes of shares, designated Class A Shares,
Class B Shares and Class C Shares. Shares of each class are offered at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser, may be imposed (a) at the time of purchase (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 (a
"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> 317

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 should
weigh the benefits of deferring the sales charge and having all of their funds
invested against the higher aggregate distribution and service fee applicable to
Class B Shares and Class C Shares.

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except 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. Generally, a class of shares subject
to a higher ongoing distribution and services fee or subject to the conversion
feature will have a higher expense ratio and pay lower dividends than a class of
shares subject to a lower ongoing distribution and services fee or not subject
to the conversion feature. The per share net asset values of the different
classes of shares are expected to be substantially the same; from time to time,
however, the per share net asset values of 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."

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<PAGE> 318

the conversion feature; (ii) printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class; (iii) SEC and state
securities registration fees incurred by a class of shares; (iv) the expense of
administrative personnel and services as required to support the shareholders of
a specific class; (v) Trustees' fees or expense incurred as a result of issues
relating to one class of shares; and (vi) accounting expenses relating solely to
one class of shares; and (vii) any other incremental expenses subsequently
identified that should be properly allocated to one or more classes of shares.
All such expenses incurred by a class will be borne on a pro rata basis by the
outstanding shares of such class. All allocations of administrative expenses to
a particular class of shares will be limited to the extent necessary to preserve
the Fund's qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").

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

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

The Fund's shares are offered at net asset value per share next computed after
an investor places an order to purchase with the investor's broker, dealer or
financial intermediary or directly with the Distributor, plus any applicable
sales charge. 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 determines 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

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<PAGE> 319

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

CLASS A SHARES

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<PAGE> 320

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 brokers, dealers and financial
intermediaries 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
and 0.50% on the excess over $3 million. See "Purchase of Shares -- Deferred
Sales Charge Alternatives" for additional information with respect to
contingent deferred sales charges.

QUANTITY DISCOUNTS

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<PAGE> 321

OTHER PURCHASE PROGRAMS

26
<PAGE> 322

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

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

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

(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.

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<PAGE> 323

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

(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.

(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, 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.

(9) Participants in any 403(b)(7) program of a college or university system
which permits only net asset value mutual fund investments and for which
Van Kampen American Capital Trust Company serves as custodian. In
connection with such purchases, the Distributor may pay, out of its own
assets, a commission to brokers, dealers, or financial intermediaries as
follows: 1.00% on sales up to $5 million, plus 0.50% on the next $5
million, plus 0.25% on the excess over $10 million.

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<PAGE> 324

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

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

DEFERRED SALES CHARGE ALTERNATIVES

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

29
<PAGE> 325

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed 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.

To provide an example, assume an investor purchased 100 Class B Shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B Shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge because of dividend reinvestment. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
4.00% (the applicable rate in the second year after purchase).

30
<PAGE> 326

responsible for purchases of $1 million or more as follows: 1.00% on sales to $2
million, plus 0.80% on the next million and 0.50% on the excess over $3 million.

CLASS B SHARES. Class B Shares redeemed within five 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................................................... 5.00%
Second.................................................. 4.00%
Third................................................... 3.00%
Fourth.................................................. 2.50%
Fifth................................................... 1.50%
Sixth 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."

For purposes of conversion to Class A Shares, Class B Shares and Class C
Shares purchased through the reinvestment of dividends and distributions paid in
respect of shares in a shareholder's account will be considered to be held in a
separate sub-account. Each time any Class B Shares or Class C 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 shares in the respective sub-account
also will convert to Class A Shares.

31
<PAGE> 327

The holding period of a CDSC Share acquired through the exchange privilege is
determined by reference to the date such share originally was purchased from a
Van Kampen American Capital fund.

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

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with 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 CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 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. Such computation is made by using prices as of
the close of trading on the New York Stock Exchange and (i) valuing securities
listed or traded on a national securities exchange at the last reported sale
price, or if there has been no sale that day at the mean between the last
reported bid and asked prices, (ii) valuing over-the-counter securities for
which the last sale price is available from the National Association of
Securities Dealers Automated Quotations ("NASDAQ") at that price and (iii)
valuing any securities for which market quotations are not readily available and
any other assets at fair value as determined in good faith by the Trustees of
the Fund. The net asset value for the Fund is computed once daily as of the
close of the daily trading session of the New York Stock Exchange, 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

32
<PAGE> 328

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

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.

33
<PAGE> 329

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."

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, Tax Free Money Fund or Reserve Fund so long as a
pre-existing account for such class of shares exists for such shareholder. Both
accounts must be of the same type, either non-retirement or retirement. Any two
non-retirement accounts can be used. If the accounts are retirement accounts,
they must both be the same type of retirement plan (e.g. IRA, 403(b)(7), 401(k)
or Keogh) and for the benefit of the same individual. If the qualified
pre-existing account does not exist, the shareholder must establish a new
account subject to minimum investment and other requirements of the fund into
which distributions would be invested. Distributions are invested into the
selected fund at its net asset value as of the payable date of the distribution.

34
<PAGE> 330

receipt of prior approval of the Adviser. Under normal circumstances, it is the
policy of the Adviser not to approve such requests.

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 accompanying 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.

35
<PAGE> 331

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.

36
<PAGE> 332

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

37
<PAGE> 333

38
<PAGE> 334

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 CDSC will be deducted from the proceeds of this redemption. An
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 CDSC 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.

39
<PAGE> 335

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

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

40
<PAGE> 336

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 Distributor's actual distribution-related expenses with respect to a class
of CDSC Shares for any given year may exceed the amounts payable to the
Distributor with respect to such shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed distribution-related expenses
will be carried forward and paid by the Fund (up to the amount of the actual
expenses incurred) in future years so long as such Distribution Plan is in
effect. Except as mandated by applicable law, the Fund does not impose any limit
with respect to the number of years into the future that such unreimbursed
expenses may be carried forward (on a Fund level basis). Because such expenses
are accounted on a Fund level basis, in periods of extreme net asset value
fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of June 30, 1996, there were $951,670 and
$51,161 of unreimbursed distribution-related expenses with respect to Class B
Shares and Class C Shares, respectively, representing 3.73% and 1.30% of the
Fund's net assets attributable to Class B Shares and Class C Shares,
respectively. If the Distribution Plan was terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through 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 CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

41
<PAGE> 337

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

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to annually declare dividends to holders of each class of shares of
all or substantially all net investment income 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 annually. Distributions cannot be assured,
and the amount of each 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 the conversion
feature will be lower than distributions with respect to a class of shares
subject to a lower distribution fee, service fee or not subject to the
conversion feature.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund automatically will
credit 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.

42
<PAGE> 338

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

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), 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.

43
<PAGE> 339

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 sold for fair market value at the end of the
tax-year), 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.

DISTRIBUTIONS. Distributions of the Fund's net investment income are taxable
to Shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether paid in cash or reinvested in additional Shares. Distributions
of the Fund's net capital gains ("capital gains dividends"), if any, are taxable
to Shareholders as 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). Tax-exempt Shareholders not subject to federal income tax on
their income generally will not be taxed on distributions from the Fund.

44
<PAGE> 340

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.

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

The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to Shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.

45
<PAGE> 341

- ------------------------------------------------------------------------------
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 total return 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 calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc. or nationally recognized financial publications. In addition,
from time to time the Fund may compare its performance to certain securities and
unmanaged indices which may have different risk/reward characteristics than the
Fund. Such characteristics may include, but are not limited to, tax features,
guarantees, insurance and the fluctuation of principal or return. In addition,
from time to time sales materials and advertisements for the Fund may include
hypothetical information.

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

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 and Class C 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

46
<PAGE> 342

distribution expenses, the liquidation proceeds to holders of Class B Shares and
Class C Shares are likely to be lower than to holders of Class A Shares.

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

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

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

47
<PAGE> 343

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) 421-5684.
VAN KAMPEN AMERICAN CAPITAL
AGGRESSIVE GROWTH 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
Aggressive Growth Fund

Custodian

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

Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 344

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

AGGRESSIVE GROWTH

FUND

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

P R O S P E C T U S

OCTOBER 28, 1996

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 345

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL UTILITY FUND

Van Kampen American Capital 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.

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Prospectus for the Fund dated the date hereof (the
"Prospectus"). This Statement of Additional Information does not include all the
information that a prospective investor should consider before purchasing shares
of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge, by
calling (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
Trustees and Officers................................................................... B-20
Investment Advisory and Other Services.................................................. B-28
Custodian and Independent Accountants................................................... B-29
Portfolio Transactions and Brokerage Allocation......................................... B-29
Tax Status of the Fund.................................................................. B-30
The Distributor......................................................................... B-30
Legal Counsel........................................................................... B-31
Performance Information................................................................. B-31
Independent Accountants' Report......................................................... B-35
Financial Statements.................................................................... B-36
Notes to Financial Statements........................................................... B-42
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1996.

<PAGE> 346

THE FUND AND THE TRUST

The Fund is a separate diversified series of Van Kampen American Capital
Equity Trust (the "Trust"), an open-end diversified management investment
company. 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"). At present, the Fund, Van Kampen American Capital
Balanced Fund, Van Kampen American Capital Growth Fund, Van Kampen American
Capital Value Fund, Van Kampen American Capital Prospector Fund, Van Kampen
American Capital Great American Companies Fund and Van Kampen American Capital
Aggressive Growth Fund are the only series of the Trust, although other series
may be organized and offered in the future. Each series of the Trust will be
treated as a separate corporation for federal income tax purposes.

The 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. Each share represents an equal proportionate interest in
the assets of the series with each other share in such series and no interest in
any other series. No series is subject to the liabilities of any other series.
The Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.

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

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

The Trust originally was organized as the Van Kampen Merritt Equity Trust, a
Massachusetts business trust, created by a Declaration of Trust dated March 26,
1987 (the "Massachusetts Trust"). The Massachusetts Trust was reorganized into
the Trust on July 31, 1995 pursuant to an Agreement and Plan of Reorganization
and Liquidation. The Trust was formed pursuant to an Agreement and Declaration
of Trust dated May 10, 1995 for the purpose of facilitating the Massachusetts
Trust's reorganization into a Delaware business trust. The Trust filed a
Certificate of Trust with the Delaware Secretary of State on July 28, 1995.

The Fund originally was organized as a sub-trust of the Massachusetts Trust.
In connection with the Massachusetts Trust's reorganization into a Delaware
business trust, the Fund was reorganized into a series of the Trust.

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.

B-2
<PAGE> 347

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 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.

B-3
<PAGE> 348

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.

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

B-4
<PAGE> 349

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.

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.

B-5
<PAGE> 350

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.

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

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institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

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

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

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."

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

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, 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.

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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.

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

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subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price nor that
delivery will occur.

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

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

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

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

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.

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

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

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

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

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. The Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange 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

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the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

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

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.

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

OTC options entered into by the Fund, including those on securities,
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.

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:

1. DEBT

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

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

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

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

1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation:

2. Nature of and provisions of the obligation:

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

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as
having significantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.

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

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

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

CC: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.

B-14
<PAGE> 359

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

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

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

NR: Not rated.

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

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

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

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

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

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
(+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
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 significant speculative
characteristics.

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

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

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

B-15
<PAGE> 360

The ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of such information, or based on other circumstances.

3. VARIABLE RATE DEMAND BONDS

S&P assigns "dual" ratings to all debt issues that have a put 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+"). With short-term demand debt, S&P's note rating symbols are
used with the commercial paper rating symbols (for example, "SP-1+/A-1+").

4. NOTES

An S&P note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assignment:

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

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

Note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

5. PREFERRED STOCK

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

B-16
<PAGE> 361

<TABLE>
<S> <C>
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. While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a nonpaying issue.
D A preferred stock rated "D" is a nonpaying issue with the issuer in default on debt
instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular type
of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</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 (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:

1. LONG-TERM DEBT

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

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

B-17
<PAGE> 362

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

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

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

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

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

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

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

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.

2. SHORT-TERM DEBT

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

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

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

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

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

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

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

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

B-18
<PAGE> 363

characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.

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

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

3. 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.

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.

B-19
<PAGE> 364

TRUSTEES AND OFFICERS

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"), Van Kampen American Capital Asset
Management, Inc. (the "AC Adviser"), Van Kampen American Capital Distributors,
Inc. (the "Distributor"), Van Kampen American Capital, Inc. ("Van Kampen
American Capital"), VK/AC Holding, Inc. or ACCESS Investor Services, Inc.
("ACCESS"). For purposes hereof, the terms "Van Kampen American Capital Funds"
or "Fund Complex" includes each of the open-end investment companies advised by
the VK Adviser (excluding The Explorer Institutional Trust) and each of the
open-end investment companies advised by the AC Adviser (excluding the Van
Kampen American Capital Exchange Fund and the Common Sense Trust).

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
1632 Morning Mountain Road President of MDT Corporation, a company which develops
Raleigh, NC 27614 manufactures, markets and services medical and scientific
Date of Birth: 07/14/32 equipment. Trustee of each of the Van Kampen American
Capital Funds.
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndtson, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Date of Birth: 06/03/49 of La Salle National Bank. Trustee of each of the Van
Kampen American Capital Funds.
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.
Date of Birth: 11/23/19
R. Craig Kennedy................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee 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, Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. and Van Kampen American Capital
Date of Birth: 05/20/42 Management, Inc. Executive Vice President and a Director
of VK/AC Holding, Inc. and Van Kampen American Capital.
President and Director of Van Kampen Merritt Equity
Advisors Corp. Director of Van Kampen Merritt Equity
Holdings Corp. Director of McCarthy, Crisanti & Maffei,
Inc. Prior to September 1996, Chief Executive Officer
McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited. Prior to
July 1996, President, Chief Operating Officer and Trustee
of VSM Inc. and VCJ Inc. President, Chief Executive
Officer and Trustee of each of the Van Kampen American
Capital Funds. President, Chairman of the Board and
Trustee of other investment companies advised by the VK
Adviser. Executive Vice President of other investment
companies advised by the AC Adviser.
</TABLE>

B-20
<PAGE> 365

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
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
Date of Birth: 03/31/20 Trust Company of Chicago and Continental Illinois
Corporation. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Date of Birth: 02/13/36 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.
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
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
155 Hickory Lane of Graduate School and Chairman, Department of Mechanical
Closter, NJ 07624-2322 Engineering, Stevens Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to the Van Kampen American Capital
Chicago, IL 60606 Funds, The Explorer Institutional Trust and the
Date of Birth: 08/22/39 closed-end investment companies advised by the VK
Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the
closed-end investment companies advised by the VK
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Date of Birth: 01/31/22 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>

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

* Such trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. McDonnell is an interested person of the VK Adviser, the
AC Adviser and the Fund by reason of his positions with the VK Adviser and the
AC Adviser. Mr. Whalen is an interested person of the Fund by reason of his
firm acting as legal counsel to the Fund.

B-21
<PAGE> 366

OFFICERS

The address for William N. Brown, Curtis W. Morell, Robert C. Peck, Jr., Alan
T. Sachtleben, Paul R. Wolkenberg, Tanya M. Loden, Huey P. Falgout, Jr. and
Robert Sullivan is 2800 Post Oak Blvd., Houston, TX 77056. The address for Peter
W. Hegel, Ronald A. Nyberg, Edward C. Wood III, John L. Sullivan, Nicholas
Dalmaso, Scott E. Martin, Weston B. Wetherell and Steven M. Hill is One Parkview
Plaza, Oakbrook Terrace, IL 60181.

B-22
<PAGE> 367

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
<S> <C> <C>
Ronald A. Nyberg........ Vice President and Executive Vice President, General Counsel
Date of Birth: Secretary and Secretary of Van Kampen American
07/29/53 Capital and VK/AC Holding, Inc. Executive
Vice President, General Counsel and a
Director of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen Merritt Equity Advisors Corp., and
Van Kampen Merritt Equity Holdings Corp.
Executive Vice President, General Counsel
and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American
Capital Contractual Services, Inc., Van
Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc. and ACCESS. Executive Vice
President, General Counsel, Assistant
Secretary and Director of Van Kampen
American Capital Trust Company. Director of
ICI Mutual Insurance Co., a provider of
insurance to members of the Investment
Company Institute. Prior to September 1996,
General Counsel of McCarthy, Crisanti &
Maffei, Inc. Prior to July 1996, Executive
Vice President and General Counsel of VSM
Inc. and VCJ Inc. Vice President and
Secretary of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
Robert C. Peck, Jr...... Vice President Executive Vice President of the VK Adviser
Date of Birth: and Van Kampen American Capital Management,
10/01/46 Inc. Executive Vice President and Director
of the AC Adviser and Van Kampen American
Capital Advisors, Inc. Vice President of
each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Alan T. Sachtleben...... Vice President Executive Vice President of the VK Adviser
Date of Birth: and Van Kampen American Capital Management,
04/20/42 Inc. Executive Vice President and a
Director of the AC Adviser and Van Kampen
American Capital Advisors, Inc. Vice
President of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
Paul R. Wolkenberg...... Vice President Executive Vice President of VK/AC Holding,
Date of Birth: Inc., Van Kampen American Capital, the
11/10/44 Distributor and the AC Adviser. President,
Chief Executive Officer and a Director of
Van Kampen American Capital Trust Company
and ACCESS. Director of American Capital
Contractual Services, Inc. Vice President
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Edward C. Wood III...... Vice President and Senior Vice President of the VK Adviser,
Date of Birth: Chief Financial Officer the AC Adviser and Van Kampen American
01/11/56 Capital Management, Inc. Vice President and
Chief Financial Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-23
<PAGE> 368

<TABLE>
<CAPTION>
<S> <C> <C>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
John L. Sullivan........ Treasurer First Vice President of the VK Adviser and
Date of Birth: the AC Adviser. Treasurer of each of the
08/20/55 Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Tanya M. Loden.......... Controller Vice President of the VK Adviser and the AC
Date of Birth: Adviser. Controller of each of the Van
11/19/59 Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso........ Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
03/01/65 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Huey P. Falgout, Jr..... Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
11/15/63 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin......... Assistant Secretary Senior Vice President, Deputy General
Date of Birth: Counsel and Assistant Secretary of Van
08/20/56 Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-24
<PAGE> 369

Each of the foregoing trustees and officers holds the same position with each
of the funds in the Fund Complex. As of December 31, 1995, there were 50 funds
in the Fund Complex. Each trustee who is not an affiliated person of the VK
Adviser, the AC Adviser, the Distributor or Van Kampen American Capital (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to the funds in the Fund Complex. Each fund in the Fund Complex
provides a deferred compensation plan to its Non-Affiliated Trustees that allows
trustees to defer receipt of his or her compensation and earn a return on such
deferred amounts based upon the return of the common shares of the funds in the
Fund Complex as more fully described below. Each fund in the Fund Complex also
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.

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

The trustees have approved an aggregate compensation cap with respect to funds
in the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding
any retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. In addition, each of the VK Adviser or
the AC Adviser, as the case may be, has agreed to reimburse each fund in the
Fund Complex through December 31, 1996 for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by such fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

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

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<PAGE> 370

The Fund adopted a retirement plan on July 21, 1994. Under the Fund's
retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from
the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten
years of service and retires at or after attaining the age of 60, is eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Trustees retiring prior to the age of 60 or
with fewer than 10 years but more than 5 years of service may receive reduced
retirement benefits from a series. The retirement plan contains a Fund Complex
retirement benefit cap of $60,000 per year.

Additional information regarding compensation and benefits for trustees is set
forth below. The "Registrant" is the Trust, which currently consists of seven
operating series. As indicated in the notes accompanying the table, the amounts
relate to either the Registrant's last fiscal year ended June 30, 1996 or the
Fund Complex' last calendar year ended December 31, 1995.

COMPENSATION TABLE

<TABLE>
<CAPTION>
ESTIMATED TOTAL
PENSION OR ANNUAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS BEFORE DEFERRAL
COMPENSATION BENEFITS ACCRUED FROM FROM REGISTRANT
BEFORE DEFERRAL AS PART OF REGISTRANT AND FUND
FROM REGISTRANT UPON COMPLEX PAID TO
NAME(1) REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
- ------------------------------------- --------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan.................... $ 6,250 $ $ 6,500 $84,250
Dr. Richard E. Caruso................ 2,875 -0- -0- 57,250
Philip P. Gaughan.................... 2,875 -0- -0- 76,500
Linda Hutton Heagy................... 6,250 7,500 38,417
Dr. Roger Hilsman.................... 6,250 -0- -0- 91,250
R. Craig Kennedy..................... 7,000 7,500 92,625
Donald C. Miller..................... 7,000 -0- -0- 94,625
Jack E. Nelson....................... 7,000 7,500 93,625
David Rees........................... 4,375 -0- -0- 83,250
Jerome L. Robinson................... 7,000 -0- -0- 89,375
Lawrence J. Sheehan.................. 6,250 -0- -0- 91,250
Dr. Fernando Sisto................... 6,250 2,500 98,750
Wayne W. Whalen...................... 7,000 -0- 7,500 93,375
William S. Woodside.................. 6,250 -0- -0- 79,125
</TABLE>

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

(1) Mr. McDonnell, a trustee of the Trust, is an affiliated person of the VK
Adviser and AC Adviser and is not eligible for compensation or retirement
benefits from the Registrant. Messrs. Branagan, Caruso, Hilsman, Powell,
Rees, Sheehan, Sisto and Woodside were elected by shareholders to the Board
of Trustees on July 21, 1995. Ms. Heagy was appointed to the Board of
Trustees on September 7, 1995. Mr. Don G. Powell resigned from the Board of
Trustees on August 15, 1996, and did not receive any compensation or
benefits from the Fund while a trustee because he was an affiliated person
of the VK Adviser and AC Adviser. Messrs. Gaughan and Rees retired from the
Board of Trustees on January 26, 1996 and January 29, 1996, respectively.
Messrs. Caruso and Sheehan were removed from the Board of Trustees effective
September 7, 1995 and January 29, 1996, respectively.

(2) The amounts shown in this column are aggregated from the compensation paid
by each series in operation during the Registrant's fiscal year ended June
30, 1996 before deferral by the trustees under the deferred compensation
plan. The following trustees deferred all or a portion of their compensation
from the Registrant during the fiscal year ended June 30, 1996: Dr. Caruso,
$0; Mr. Gaughan, $2,875; Ms. Heagy, $1,250; Mr. Kennedy, $7,000; Mr. Miller,
$7,000; Mr. Nelson, $7,000; Mr. Rees, $2,750; Mr. Robinson, $7,000; Dr.
Sisto, $0; and Mr. Whalen, $7,000. The cumulative deferred compensation
(including interest) accrued with respect to each trustee from the
Registrant as of June 30, 1996 is as follows: Dr. Caruso, $0; Mr. Gaughan,
$7,342; Ms. Heagy, $1,279; Mr. Kennedy, $15,714; Mr. Miller, $14,933; Mr.
Nelson, $15,714; Mr. Rees, $4,292; Mr. Robinson, $15,133; Dr. Sisto, $0; and
Mr. Whalen, $12,244. The deferred compensation plan is described above the
Compensation Table. Amounts deferred are retained by the Fund and earn a
rate of return determined by reference to either the return on the common
shares of the Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
the Fund may invest in securities of those funds selected by the Non-
Affiliated Trustees in order to match the deferred compensation obligation.

B-26
<PAGE> 371

(3) The amounts shown in this column are aggregated from the Retirement Benefits
accrued by each series in operation during the Registrant's fiscal year
ended June 30, 1996. The Retirement Plan is described above the Compensation
Table.

(4) The amounts shown in this column are the estimated annual benefits payable
by the Registrant in each year of the 10-year period commencing in the year
of such trustee's retirement from the Registrant (based on $2,500 per series
for each series of the Registrant in operation) assuming: the trustee has 10
or more years of service on the Board of the respective series and retires
at or after attaining the age of 60. The actual annual benefit may be less
if the trustee is subject to the Fund Complex retirement benefit cap or if
the trustee is not fully vested at the time of retirement.

(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1995, before
deferral by the trustees under the deferred compensation plan. The following
trustees deferred compensation paid by the Registrant and the Fund Complex
during the calendar year ended December 31, 1995; Dr. Caruso, $41,750; Mr.
Gaughan, $57,750; Ms. Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller,
$65,875; Mr. Nelson, $65,875; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr.
Sisto, $30,260; and Mr. Whalen, $65,625. The deferred compensation earns a
rate of return determined by reference to the return on the common shares of
the Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap commenced on July 22, 1995 and
covered the period between July 22, 1995 and December 31, 1995. Compensation
received prior to July 22, 1995 was not subject to the cap. For the calendar
year ended December 31, 1995, while certain trustees received compensation
over $84,000 in the aggregate, no trustee received compensation in excess of
the pro rata amount of the Fund Complex cap for the period July 22, 1995
through December 31, 1995. In addition to the amounts set forth above,
certain trustees received lump sum retirement benefit distributions not
subject to the cap in 1995 related to three mutual funds that ceased
investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr.
Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen,
$27,332. The VK Adviser, AC Adviser and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell and Whalen, the trustees were not trustees of
such investment companies. Combining the Fund Complex with other investment
companies advised by the VK Adviser, AC Adviser and their affiliates, Mr.
Whalen received Total Compensation of $268,857 during the calendar year
ended December 31, 1995.

As of October 17, 1996, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund. As of October 17, 1996, no trustee or
officer of the Fund owns or would be able to acquire 5% or more of the common
stock of VK/AC Holding, Inc. Mr. McDonnell owns, or has the opportunity to
purchase, an equity interest in VK/AC Holding, Inc., the parent company of Van
Kampen American Capital, and has entered into an employment contract (for a term
until February 17, 1998) with Van Kampen American Capital.

As of October 17, 1996, no person was known by the Fund to own beneficially or
to hold of record as much as 5% of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER OCTOBER 17, 1996 SHARES OWNERSHIP
---------------------------------------------- ---------------- -------- ---------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company..... 291,723 A 8.10%
2800 Post Oak Blvd. 436,537 B 7.60%
Houston, TX 77056 15,330 C 4.81%
Smith Barney Inc. ............................ 32,495 C 10.19%
00187318495
388 Greenwich Street
New York, NY 10013-2375
</TABLE>

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

B-27
<PAGE> 372

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISORY AGREEMENT

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

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.,
which in turn is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding,
Inc. is controlled, through the ownership of a substantial majority of its
common stock, by The Clayton & Dubilier Private Equity Fund IV Limited
Partnership ("C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed
by Clayton, Dubilier & Rice, Inc., a New York based private investment firm. The
General Partner of C&D L.P. is Clayton & Dubilier Associates IV Limited
Partnership ("C&D Associates L.P."). The general partners of C&D Associates
L.P., are Joseph L. Rice, III, B. Charles Ames, William A. Barbe, Alberto
Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E.
Pearson, each of whom is a principal of Clayton, Dubilier & Rice, Inc. In
addition, certain officers, directors and employees of Van Kampen American
Capital, Inc. own, in the aggregate, not more than 6% of the common stock of
VK/AC Holding, Inc. and have the right to acquire, upon the exercise of options,
approximately an additional 12% 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
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.

B-28
<PAGE> 373

For the period ended June 30, 1994 and for the years ended June 30, 1995 and
June 30, 1996, the Fund recognized advisory expenses of $749,584, $874,190 and
$1,009,003, respectively.

OTHER AGREEMENTS

ACCOUNTING SERVICES AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares equally, together with the other 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 years ended June 30, 1995 and
1996, the Fund recognized expenses of approximately $5,300, $8,800 and $12,300,
respectively, representing the Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services 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 years, ended June 30, 1995 and
1996, the Fund recognized expenses of approximately $9,200, $9,200 and $10,100,
respectively, representing Van Kampen American Capital, Inc.'s cost of providing
legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

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

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

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-29
<PAGE> 374

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.

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 $57 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 more than 80 analysts devoted to various specializations.

B-30
<PAGE> 375

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.

For the period 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.

For the year ended June 30, 1996, the Fund recognized expenses under the Plans
of $145,428, $930,703 and $40,805 for the Class A Shares, Class B Shares and
Class C Shares, respectively, of which $120,117, $191,546 and $17,100 represent
payments to financial intermediaries under the Selling Agreements for Class A
Shares, Class B Shares and Class C Shares, respectively.

LEGAL COUNSEL

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

PERFORMANCE INFORMATION

B-31
<PAGE> 376

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

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

CLASS A SHARES

The average total return, including the payment of the maximum front-end sales
charge, with respect to the Class A Shares for (i) the one year period ended
June 30, 1996 was 13.01% and (ii) the approximately two year, 11 month period
from July 28, 1993 (the commencement of investment operations of the Fund)
through June 30, 1996 was 4.52%.

B-32
<PAGE> 377

The Fund's cumulative non-standardized total return, including the payment of
the maximum front-end sales charge, with respect to the Class A Shares from
their inception through June 30, 1996 (as calculated in the Prospectus under the
heading "Fund Performance") was 13.82%.

The Fund's cumulative non-standardized total return, excluding the payment of
the maximum front-end sales charge, with respect to the Class A Shares from
their inception through June 30, 1996 (as calculated in the Prospectus under the
heading "Fund Performance") was 20.74%.

CLASS B SHARES

The average total return, including the payment of the CDSC, with respect to
the Class B Shares for (i) the one year period ended June 30, 1996 was 15.08%
and (ii) the approximately two year, 11 month period from July 28, 1993 (the
commencement of investment operations of the Fund) through June 30, 1996 was
4.75%.

The Fund's cumulative non-standardized total return, including the payment of
the CDSC, with respect to the Class B Shares from their inception through June
30, 1996 (as calculated in the Prospectus under the heading "Fund Performance")
was 14.56%.

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, with respect to the Class B Shares from their inception through June
30, 1996 (as calculated in the Prospectus under the heading "Fund Performance")
was 18.06%.

CLASS C SHARES

The average total return, including the payment of the CDSC, with respect to
the Class C Shares for (i) the one year period ended June 30, 1996 was 18.00%
and (ii) the approximately two year, 11 month period from August 13, 1993 (the
commencement of distribution of the Class C Shares) through June 30, 1995 was
5.51%.

The Fund's cumulative non-standardized total return, including the payment of
the CDSC, with respect to the Class C Shares from their inception through June
30, 1996 (as calculated in the Prospectus under the heading "Fund Performance")
was 16.69%.

The Fund's cumulative non-standardized total return, excluding the payment of
the CDSC, with respect to the Class C Shares from their inception through June
30, 1996 (as calculated in the Prospectus under the heading "Fund Performance")
was 16.69%.

B-33
<PAGE> 378

INDEPENDENT ACCOUNTANTS' REPORT

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Utility Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, 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 American Capital Utility Fund as of June 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Chicago, Illinois
July 30, 1996

B-34
<PAGE> 379

PORTFOLIO OF INVESTMENTS

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 88.5%
ELECTRIC UTILITIES 53.1%
Allegheny Power Systems Inc. ................................ 114,000 $ 3,519,750
Carolina Power & Light Co. .................................. 88,000 3,344,000
Cinergy Corp................................................. 109,000 3,488,000
CMS Energy Corp. ............................................ 117,000 3,612,375
DPL Inc. .................................................... 98,700 2,405,813
DTE Energy Co. .............................................. 99,000 3,056,625
Duke Power Co. .............................................. 55,740 2,856,675
Edison International......................................... 194,000 3,419,250
Empresa Nacional de Electricidad - ADR (Spain)............... 22,000 1,377,750
Entergy Corp. ............................................... 113,000 3,206,375
Florida Progress Corp. ...................................... 96,000 3,336,000
FPL Group Inc. .............................................. 74,000 3,404,000
General Public Utilities Corp. .............................. 104,175 3,672,169
Houston Industries Inc. ..................................... 135,000 3,324,375
Illinova Corp. .............................................. 124,000 3,565,000
National Power PLC - ADR (UK)................................ 99,500 2,425,312
Nipsco Inc. ................................................. 108,800 4,379,200
Ohio Edison Co. ............................................. 143,000 3,128,125
Peco Energy Co. ............................................. 75,000 1,950,000
Pinnacle West Capital Corp. ................................. 115,400 3,505,275
Portland General Corp. ...................................... 110,000 3,396,250
Powergen PLC - ADR (UK)...................................... 84,000 1,743,000
Public Service Co. of New Mexico............................. 236,000 4,838,000
Scana Corp. ................................................. 129,000 3,628,125
Sierra Pacific Resources..................................... 100,000 2,537,500
Texas Utilities Co. ......................................... 80,000 3,420,000
-------------
82,538,944
-------------
OIL, GAS, PIPELINE AND DISTRIBUTION 14.5%
Columbia Gas Systems Inc. ................................... 56,000 2,919,000
El Paso Natural Gas Co. ..................................... 43,000 1,655,500
MCN Corp. ................................................... 75,000 1,828,125
MCN Corp. - Convertible Preferred............................ 32,200 821,100
Nicor Inc. .................................................. 92,211 2,616,487
Noram Energy Corp. .......................................... 200,000 2,175,000
Panenergy Corp. ............................................. 80,000 2,630,000
Questar Corp. ............................................... 74,000 2,516,000
Sonat Inc. .................................................. 40,000 1,800,000
Southwest Gas Corp. ......................................... 100,000 1,600,000
</TABLE>

See Notes to Financial Statements

B-35
<PAGE> 380

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
OIL, GAS, PIPELINE AND DISTRIBUTION (CONTINUED)
Williams Cos Inc. - Convertible Preferred.................... 25,000 $ 1,965,625
-------------
22,526,837
-------------
REAL ESTATE INVESTMENT TRUSTS 3.0%
Bay Apartment Community Inc. ................................ 82,500 2,134,687
Meditrust.................................................... 75,000 2,503,125
-------------
4,637,812
-------------
TELECOMMUNICATIONS 17.9%
Ameritech Corp. ............................................. 25,670 1,524,156
AT & T Corp. ................................................ 31,600 1,959,200
Bellsouth Corp. ............................................. 48,000 2,034,000
Cable & Wireless PLC - ADR (UK).............................. 76,000 1,501,000
Century Telephone Enterprises Inc. .......................... 46,000 1,466,250
Frontier Corp. .............................................. 50,000 1,531,250
GTE Corp. ................................................... 40,000 1,790,000
Lucent Technologies Inc. .................................... 12,300 465,863
MCI Communications Corp. .................................... 55,000 1,409,375
MFS Communications Inc. - Convertible Preferred.............. 24,000 1,524,000
Nextel Communications Inc. (b)............................... 60,000 1,143,750
Pasifik Satelit Nusantara - ADR (Indonesia) (b).............. 115,000 2,300,000
Portugal Telecom SA - ADR (Portugal) (b)..................... 80,200 2,105,250
SBC Communications Inc. ..................................... 57,000 2,807,250
Sprint Corp. - Convertible Debt.............................. 60,000 2,415,000
Telefonica de Espana - ADR (Spain)........................... 26,000 1,433,250
Teleport Communications Group (b)............................ 24,300 464,859
-------------
27,874,453
-------------
TOTAL COMMON AND PREFERRED STOCKS..................................... 137,578,046
-------------
FIXED INCOME SECURITIES 9.4%
CABLE TELEVISION 0.6%
Cox Communications Inc. ($1,000,000 par, 6.875% coupon, 06/15/05
maturity, S&P rating A-)............................................ 966,435
-------------
ELECTRIC UTILITIES 2.4%
Idaho Power Co. ($500,000 par, 8.000% coupon, 03/15/04 maturity, S&P
rating A+).......................................................... 523,572
Iowa Electric Light & Pwr Co. ($700,000 par, 8.625% coupon, 05/15/01
maturity, S&P rating A)............................................. 748,213
Texas Utilities Electric Co. ($1,000,000 par, 8.250% coupon, 04/01/04
maturity, S&P rating BBB+).......................................... 1,054,061
Union Electric Co. ($500,000 par, 7.375% coupon, 12/15/04 maturity,
S&P rating AA-)..................................................... 506,595
Virginia Electric & Pwr Co. ($1,000,000 par, 6.625%
coupon, 04/01/03 maturity, S&P rating A)............................ 976,270
-------------
3,808,711
-------------
</TABLE>

See Notes to Financial Statements

B-36
<PAGE> 381

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security Description Market Value
- ------------------------------------------------------------------------------------
<S> <C>
OIL, GAS, PIPELINE AND DISTRIBUTION 2.7%
Colorado Interstate Gas Co. ($500,000 par, 10.000% coupon, 06/15/05
maturity, S&P rating BBB-).......................................... $ 584,869
Enron Corp. ($1,000,000 par, 7.125% coupon, 05/15/07 maturity, S&P
rating BBB+)........................................................ 980,182
Laclede Gas Co. ($330,000 par, 8.500% coupon, 11/15/04 maturity, S&P
rating AA-)......................................................... 357,363
Panhandle Eastern Pipeline Co. ($500,000 par, 7.875% coupon, 08/15/04
maturity, S&P rating BBB)........................................... 513,770
Southwest Gas Corp. ($400,000 par, 9.750% coupon, 06/15/02 maturity,
S&P rating BBB-).................................................... 439,724
Texas Eastern Transmission Corp. ($100,000 par, 8.000% coupon,
07/15/02 maturity, S&P rating BBB).................................. 103,900
Texas Gas Transmission Corp. ($1,090,000 par, 8.625% coupon,
04/01/2004 maturity, S&P rating BBB)................................ 1,175,942
------------
4,155,750
------------
TELECOMMUNICATIONS 3.7%
360 Communications ($1,000,000 par, 7.125% coupon, 03/01/03 maturity,
S&P rating BBB-).................................................... 960,450
AT & T Corp. ($1,000,000 par, 7.500% coupon, 06/01/06 maturity, S&P
rating AA).......................................................... 1,023,813
GTE Corp. ($900,000 par, 9.375% coupon, 12/01/00 maturity, S&P rating
BBB+)............................................................... 983,117
MCI Communications Corp. ($1,000,000 par, 7.500% coupon, 08/20/04
maturity, S&P rating A)............................................. 1,021,841
Sprint Corp. ($1,000,000 par, 8.125% coupon, 07/15/02 maturity, S&P
rating BBB)......................................................... 1,054,145
United Telecommunications Kansas ($617,000 par, 9.750% coupon,
04/01/00 maturity, S&P rating BBB-)................................. 671,786
------------
5,715,152
------------
TOTAL FIXED INCOME SECURITIES......................................... 14,646,048
------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $140,319,058) (a)............................................. 152,224,094
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.7%......................... 1,120,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%............................ 2,214,895
------------
NET ASSETS 100%....................................................... $155,558,989
============
</TABLE>

* Zero coupon bond

(a) At June 30, 1996, cost for federal income tax purposes is $140,319,058; the
aggregate gross unrealized appreciation is $13,246,084 and the aggregate
gross unrealized depreciation is $1,341,137, resulting in net unrealized
appreciation including foreign currency translation of $11,904,947.

(b) Non-income producing security as this stock currently does not declare
dividends.

See Notes to Financial Statements

B-37
<PAGE> 382
STATEMENT OF ASSETS AND LIABILITIES

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $140,319,058) (Note 1).............. $152,224,094
Short-Term Investments (Note 1)........................................ 1,120,000
Cash................................................................... 2,575
Receivables:
Securities Sold...................................................... 3,243,936
Dividends............................................................ 498,736
Interest............................................................. 236,913
Fund Shares Sold..................................................... 46,803
Unamortized Organizational Expenses (Note 1)........................... 47,653
Other.................................................................. 16,263
------------
Total Assets..................................................... 157,436,973
------------
LIABILITIES:
Payables:
Fund Shares Repurchased.............................................. 962,642
Securities Purchased................................................. 388,800
Income Distribution.................................................. 232,295
Investment Advisory Fee (Note 2)..................................... 81,239
Distributor and Affiliates (Notes 2 and 5)........................... 59,399
Accrued Expenses....................................................... 102,995
Deferred Compensation and Retirement Plans (Note 2).................... 50,614
------------
Total Liabilities................................................ 1,877,984
------------
NET ASSETS............................................................. $155,558,989
============
NET ASSETS CONSIST OF:
Capital (Note 3)....................................................... $145,127,111
Net Unrealized Appreciation on Securities.............................. 11,904,947
Accumulated Undistributed Net Investment Income........................ 17,591
Accumulated Net Realized Loss on Securities............................ (1,490,660)
------------
NET ASSETS............................................................. $155,558,989
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $57,653,820
and 3,768,641 shares of capital stock issued and outstanding) (Note
3)................................................................. $ 15.30
Maximum sales charge (5.75%* of offering price).................... .93
------------
Maximum offering price to public................................... $ 16.23
============
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $92,943,641 and
6,076,415 shares of capital stock issued and outstanding) (Note
3)................................................................. $ 15.30
============
Class C Shares:
Net asset value and offering price per share (Based on net assets
of $4,961,528 and
324,501 shares of capital stock issued and outstanding) (Note 3)... $ 15.29
============
</TABLE>

*On sales of $50,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

B-38
<PAGE> 383

STATEMENT OF OPERATIONS

For the Year Ended June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $171,555)................ $ 6,679,775
Interest................................................................ 1,064,961
------------
Total Income........................................................ 7,744,736
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $145,428, $930,703 and $40,805, respectively) (Note 5)............. 1,116,936
Investment Advisory Fee (Note 2)........................................ 1,009,003
Shareholder Services (Note 2)........................................... 278,466
Trustees Fees and Expenses (Note 2)..................................... 48,791
Amortization of Organizational Expenses (Note 1)........................ 23,058
Legal (Note 2).......................................................... 12,810
Other................................................................... 400,091
------------
Total Expenses...................................................... 2,889,155
Less Expenses Reimbursed............................................ 18,112
------------
Net Expenses........................................................ 2,871,043
------------
NET INVESTMENT INCOME................................................... $ 4,873,693
============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments........................................................... $12,550,444
Foreign Currency Translation.......................................... (176,199)
------------
Net Realized Gain on Securities......................................... 12,374,245
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................... 319,167
------------
End of the Period:
Investments......................................................... 11,905,036
Foreign Currency Translation........................................ (89)
------------
11,904,947
------------
Net Unrealized Appreciation on Securities During the Period............. 11,585,780
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.......................... $23,960,025
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $28,833,718
============
</TABLE>

See Notes to Financial Statements

B-39

<PAGE> 384

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 4,873,693 $ 5,542,812
Net Realized Gain/Loss on Securities..................... 12,374,245 (11,154,213)
Net Unrealized Appreciation on
Securities During the Period........................... 11,585,780 15,931,333
---------- ----------
Change in Net Assets from Operations..................... 28,833,718 10,319,932
---------- ----------
Distributions from Net Investment Income:
Class A Shares......................................... (2,717,536) (2,381,991)
Class B Shares......................................... (3,509,438) (3,137,968)
Class C Shares......................................... (129,256) (46,441)
Class D Shares......................................... -0- (68)
--------- ---------
Total Distributions.................................. (6,356,230) (5,566,468)
--------- ---------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 22,477,488 4,753,464
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................................ 44,796,872 19,193,852
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................... 5,057,133 4,462,088
Cost of Shares Repurchased............................... (49,434,577) (32,083,914)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 419,428 (8,427,974)
---------- ----------
TOTAL INCREASE/DECREASE IN NET ASSETS.................... 22,896,916 (3,674,510)
NET ASSETS:
Beginning of the Period.................................. 132,662,073 136,336,583
------------ ------------
End of the Period (Including undistributed net investment
income of $17,591 and $1,563,610, respectively)........ $155,558,989 $132,662,073
============ ============
</TABLE>

See Notes to Financial Statements

B-40
<PAGE> 385

NOTES TO FINANCIAL STATEMENTS

June 30, 1996
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Utility Fund (the "Fund") is organized as a series
of the Van Kampen American Capital Equity Trust, a Delaware business trust and
is registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide its shareholders with capital appreciation and current income,
through investment in common stocks and income securities of companies engaged
in the utilities industry. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. SECURITY VALUATION--Portfolio securities are valued by using market
quotations or prices provided by market makers. Any securities for which current
market quotations are not readily available are valued at their fair value as
determined in good faith using procedures established by the Board of Trustees.
Securities with remaining maturities of 60 days or less are valued at amortized
cost.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1996, there were no when
issued or delayed delivery purchase commitments.

B-41

<PAGE> 386

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

security. The Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.

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

D. ORGANIZATIONAL EXPENSES--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $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
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, 1996, the Fund had an accumulated capital loss carryforward
for tax purposes of $1,490,660, 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 $176,199 were reclassified from
accumulated net realized gain/loss on securities

B-42
<PAGE> 387

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

to accumulated undistributed net investment income. Additional permanent
differences relating to the recognition of fund merger expenses (see Note 3) and
certain other expenses which are not deductible for tax purposes totaling
$115,125 were reclassified from accumulated undistributed net investment income
to capital.

Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains 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.

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, 1996, the Fund recognized expenses of
approximately $30,100 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund.

In July, 1995, the Fund began using ACCESS Investor Services, Inc.
("ACCESS"), an affiliate of the Adviser, as the shareholder servicing agent of
the Fund. For the year ended June 30, 1996, the Fund recognized expenses of
approximately $217,100, representing ACCESS' cost of providing transfer agency
and shareholder services plus a profit.

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

The Fund has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC.

At June 30, 1996, VKAC owned 8,095, 181 and 140 shares of Classes A, B and
C, respectively.

B-43
<PAGE> 388

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

At June 30, 1996, capital aggregated $53,821,005, $86,795,620 and $4,510,486
for Classes A, B and C, respectively. For the year ended June 30, 1996,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------
Sales:
Class A.................................. 1,081,909 $ 14,643,191
Class B.................................. 1,829,596 24,638,568
Class C.................................. 391,241 5,515,113
---------- ------------
Total Sales................................ 3,302,746 $ 44,796,872
========== ============
Dividend Reinvestment:
Class A.................................. 150,482 $ 2,178,398
Class B.................................. 193,231 2,794,761
Class C.................................. 5,689 83,974
---------- ------------
Total Dividend Reinvestment................ 349,402 $ 5,057,133
========== ============
Repurchases:
Class A.................................. (1,228,535) $(17,887,971)
Class B.................................. (2,010,741) (29,087,995)
Class C.................................. (167,791) (2,458,611)
========== ============
Total Repurchases.......................... (3,407,067) $(49,434,577)
========== ============
</TABLE>

B-44

<PAGE> 389
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

At June 30, 1995, capital 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>

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

B-45
<PAGE> 390
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

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, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$20,800 and CDSC on redeemed shares of approximately $595,700. Sales charges do
not represent expenses of the Fund.

On September 27, 1995, the Fund acquired all of the assets and liabilities
of the Van Kampen American Capital Utilities Income Fund (the "AC Fund"),
through a tax free reorganization approved by AC Fund shareholders on September
21, 1995. The Fund issued 606,825, 1,173,732 and 219,180 shares of Classes A, B
and C valued at $8,495,564, $16,432,324 and $3,068,523, respectively, in
exchange for AC Fund's net assets. Included in these net assets was a capital
loss carryforward of $357,695 which is included in accumulated net realized
gain/loss on securities and cumulative book and tax basis timing differences of
$2,408 which is a component of undistributed net investment income. The shares
issued in connection with this transaction are included in common share sales
for the current period. Combined net assets on the date of acquisition were
$160,940,399.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $183,915,696 and $183,466,376,
respectively.

B-46

<PAGE> 391

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

5. DISTRIBUTION AND SERVICE PLANS

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

Annual fees under the Plans of up to .25% for Class A 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, 1996, are payments to VKAC of approximately $685,400.

B-47

<PAGE> 392

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL BALANCED FUND

Van Kampen American Capital 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.

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the current Prospectus for the Fund (the "Prospectus")
dated as of the date hereof. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge, by calling (800) 421-5666. This Statement of Additional
Information incorporates by reference the entire Prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust................................................................ B-2
Investment Policies and Restrictions.................................................. B-3
Additional Investment Considerations.................................................. B-4
Description of Securities Ratings..................................................... B-14
Trustees and Officers................................................................. B-20
Investment Advisory and Other Services................................................ B-28
Custodian and Independent Accountants................................................. B-30
Portfolio Transactions and Brokerage Allocation....................................... B-30
Tax Status of the Fund................................................................ B-31
The Distributor....................................................................... B-31
Legal Counsel......................................................................... B-32
Performance Information............................................................... B-32
Independent Accountants' Report....................................................... B-35
Financial Statements.................................................................. B-36
Notes to Financial Statements......................................................... B-46
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1996

<PAGE> 393

THE FUND AND THE TRUST

The Fund is a diversified series of Van Kampen American Capital Equity Trust
(the "Trust"), an open-end management investment company. The Fund was
established pursuant to a Designation of Series dated May 10, 1995. At present,
the Fund, Van Kampen American Capital Utility Fund, Van Kampen American Capital
Growth Fund, Van Kampen American Capital Value Fund, Van Kampen American Capital
Great American Companies Fund, Van Kampen American Capital Prospector Fund and
Van Kampen American Capital Aggressive Growth Fund are the only series of the
Trust, although other series may be organized and offered in the future. Each
series of the Trust will be treated as a separate corporation for federal income
tax purposes.

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

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights. The Trust does not contemplate holding
regular meetings of shareholders to elect Trustees or otherwise. However, the
holders of 10% or more of the outstanding shares may by written request require
a meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940, as amended (the "1940
Act").

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

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

B-2
<PAGE> 394

INVESTMENT POLICIES AND RESTRICTIONS

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

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.

B-3
<PAGE> 395

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.

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> 396

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.

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

B-5
<PAGE> 397

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 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> 398

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
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.

B-7
<PAGE> 399

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.

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

B-8
<PAGE> 400

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.

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> 401

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.

B-10
<PAGE> 402

B-11
<PAGE> 403

B-12
<PAGE> 404

the prices of, foreign securities, currencies and other instruments. The value
of such positions also could be adversely affected by: (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lower trading volume and liquidity.

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

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

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

B-13
<PAGE> 405

or forward contract, it could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

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

DESCRIPTION OF SECURITIES RATINGS

1. DEBT

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

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

1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation:

2. Nature of and provisions of the obligation:

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

SPECULATIVE GRADE

B-14
<PAGE> 406

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.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.

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

NR: Not rated.

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

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

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

A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.

B-15
<PAGE> 407

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, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having significant speculative
characteristics.

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

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

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

3. VARIABLE RATE DEMAND BONDS

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

4. NOTES

A S&P note rating reflects the liquidity concerns 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.

5. PREFERRED STOCK

B-16
<PAGE> 408

The Preferred stock ratings are based on the following considerations:

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

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

1. LONG-TERM DEBT

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

B-17
<PAGE> 409

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 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 to B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

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

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

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

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

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

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

2. SHORT-TERM DEBT

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

B-18
<PAGE> 410

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.

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

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

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

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.

B-19
<PAGE> 411

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.

TRUSTEES AND OFFICERS

TRUSTEES

B-20
<PAGE> 412

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
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
Date of Birth: 03/31/20 Trust Company of Chicago and Continental Illinois
Corporation. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Date of Birth: 02/13/36 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.
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
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
155 Hickory Lane of Graduate School and Chairman, Department of Mechanical
Closter, NJ 07624-2322 Engineering, Stevens Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to the Van Kampen American Capital
Chicago, IL 60606 Funds, The Explorer Institutional Trust and the
Date of Birth: 08/22/39 closed-end investment companies advised by the VK
Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the
closed-end investment companies advised by the VK
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Date of Birth: 01/31/22 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>

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

B-21
<PAGE> 413

OFFICERS

B-22
<PAGE> 414

B-23
<PAGE> 415

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
<S> <C> <C>
ACAdviser.Tanya M. Controller Vice President of the VK Adviser and the AC
Loden................. Adviser. Controller of each of the Van
Date of Birth: Kampen American Capital Funds and other
11/19/59 investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso........ Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
03/01/65 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Huey P. Falgout, Jr..... Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
11/15/63 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin......... Assistant Secretary Senior Vice President, Deputy General
Date of Birth: Counsel and Assistant Secretary of Van
08/20/56 Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-24
<PAGE> 416

B-25
<PAGE> 417

COMPENSATION TABLE

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

B-26
<PAGE> 418

B-27
<PAGE> 419

As of October 17, 1996, no person was known by the Fund to own beneficially or
to hold of record as much as 5% of the Outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE OF
NAME AND ADDRESS OF HOLDER OCTOBER 17, 1996 SHARES OWNERSHIP
- ---------------------------------------------------------------- ---------------- -------- -------------
<S> <C> <C> <C>
Van Kampen American Capital Trust Company....................... 51,791 A 11.74%
2800 Post Oak Blvd. 56,293 B 10.20%
Houston, TX 77056 5,063 C 7.18%
Parker Hunter Incorporated FBO.................................. 20,941 C 29.89%
Frank Esparraguera IRA
Parker/Hunter Custodian
9 Glenview Avenue
Oil City, PA 16301-2137
Parker Hunter Incorporated FBO.................................. 18,534 C 26.27%
Dolores M.L. Esparraguera IRA
Parker/Hunter Custodian
9 Glenview Avenue
Oil City, PA 16301-2137
Donaldson Lufkin Jenrette....................................... 3,792 C 5.38%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>

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

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 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 12% 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.

B-28
<PAGE> 420

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.

For the year ended June 30, 1996 and the period ended June 30, 1995, the Fund
recognized advisory expenses of $0 and $0, respectively.

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, 1996 and the period ended June 30, 1995, the Fund
recognized expenses of approximately $0 and $4,200, respectively, representing
the Distributor's cost of providing certain support services.

ACCOUNTING SERVICES AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares equally, together with the other 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.

B-29
<PAGE> 421

For the year ended June 30, 1996 and the period ended June 30, 1995, the Fund
recognized expenses of approximately $0 and $3,900, respectively, representing
the Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital Funds advised by the VK Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: 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, 1996 and the period ended June 30, 1995, the Fund
recognized expenses of approximately $7,100 and $5,900, respectively,
representing Van Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

B-30
<PAGE> 422

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.

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 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 $57 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
more than 80 analysts devoted to various specializations.

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, 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."

B-31
<PAGE> 423

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

For the period 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 period ended
June 30, 1995, the Fund 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.

For the year ended June 30, 1996, the Fund recognized expenses under the Plans
of $13,183, $70,267 and $8,345 for the Class A Shares, Class B Shares and Class
C Shares, respectively, of which $10,558, $14,037 and $3,332 represent payments
to financial intermediaries under the Selling Agreements for Class A Shares,
Class B Shares and Class C Shares, respectively.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (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 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-32
<PAGE> 424

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, including payment of the maximum sales charge, with
respect to the Class A Shares for (i) the one year period ended June 30, 1996
was 8.45% and (ii) the period from June 24, 1994 (the commencement of investment
operations of the Fund) through June 30, 1996 was 9.89%.

The Fund's cumulative non-standardized total return, including payment of the
maximum sales charge, with respect to the Class A Shares from their inception
through June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 20.98%.

CLASS B SHARES

The average total return, including payment of the maximum CDSC, with respect
to the Class B Shares for (i) the one year period ended June 30, 1996 was 10.25%
and (ii) the period from June 24, 1994 (the commencement of investment
operations of the Fund) through June 30, 1996 was 10.84%.

The Fund's cumulative non-standardized total return, including payment of the
maximum CDSC, with respect to the Class B Shares from their inception through
June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 23.10%.

B-33
<PAGE> 425

CLASS C SHARES

The average total return, including payment of the maximum CDSC, with respect
to the Class C Shares for (i) the one year period ended June 30, 1996 was 13.25%
and (ii) the period from June 24, 1994 (the commencement of operations of the
Class C Shares) through June 30, 1996 was 12.38%.

The Fund's cumulative non-standardized total return, including payment of the
maximum CDSC, with respect to the Class C Shares from their inception through
June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 26.60%.

B-34
<PAGE> 426

INDEPENDENT ACCOUNTANTS' REPORT

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Balanced Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1996, and the related statement of operations for
the year then ended, and the statement of changes in net assets and the
financial highlights for the year then ended and 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.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Balanced Fund as of June 30, 1996, the results of its
operations for the year then ended, the changes in its net assets and financial
highlights for the year then ended and 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
August 2, 1996

B-35

<PAGE> 427

PORTFOLIO OF INVESTMENTS

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 52.5%
AEROSPACE & DEFENSE 0.6%
General Dynamics Corp.......................................... 900 $ 55,800
Rockwell International Corp.................................... 700 40,075
------------
95,875
------------
AUTOMOBILE 1.1%
Chrysler Corp.................................................. 900 55,800
Daimler Benz SA (Germany)...................................... 700 37,712
Fiat SA (Italy)................................................ 1,600 27,200
General Motors Corp............................................ 600 31,425
TRW Inc........................................................ 300 26,963
------------
179,100
------------
BANKING 2.7%
Bankamerica Corp............................................... 600 45,450
Bankers Trust NY Corp.......................................... 400 29,550
Chase Manhattan Corp........................................... 1,800 127,125
Corporacion Bancaria De Espana - ADR (Spain)................... 3,500 77,000
Fleet Financial Group Inc...................................... 800 34,800
Morgan, J.P. & Co. Inc......................................... 1,100 93,087
PNC Bank Corp.................................................. 900 26,775
------------
433,787
------------
BEVERAGE 0.3%
Anheuser Busch Cos., Inc....................................... 600 45,000
------------
BROADCAST, RADIO & TELEVISION 1.1%
Cox Communications Inc. (b).................................... 3,900 84,338
Tele Communications Inc. (b)................................... 4,900 88,812
------------
173,150
------------
CAPITAL GOODS 0.5%
Cooper Industries Inc.......................................... 700 29,050
Dover Corp..................................................... 400 18,450
Honeywell Inc.................................................. 500 27,250
------------
74,750
------------
CHEMICAL 1.8%
Betz Laboratories Inc.......................................... 1,000 43,875
Dow Chemical Co................................................ 900 68,400
Du Pont (E.I.) De Nemours Co................................... 300 23,738
Lyondell Petrochemical Co. .................................... 2,600 62,725
Praxair Inc. .................................................. 2,000 84,500
------------
283,238
------------
CONSUMER DURABLES 1.8%
Alco Standard Corp. ........................................... 800 36,200
</TABLE>

See Notes to Financial Statements

B-36

<PAGE> 428

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DURABLES (CONTINUED)
Caterpillar Inc. .............................................. 400 $ 27,100
Cooper Tire & Rubber........................................... 1,500 33,375
Ingersoll Rand Co. ............................................ 1,000 43,750
Johnson Controls Inc. ......................................... 200 13,900
Masco Corp. ................................................... 800 24,200
Maytag Corp. .................................................. 1,600 33,400
Newell Co. .................................................... 1,500 45,937
Sunbeam Oster Inc. ............................................ 2,100 30,975
------------
288,837
------------
CONTAINERS, PACKAGING & GLASS 0.4%
Crown Cork & Seal Inc.......................................... 800 36,000
Temple Inland Inc. ............................................ 500 23,375
------------
59,375
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 0.5%
General Electric Co. .......................................... 915 79,148
------------
ELECTRIC UTILITIES 6.0%
Carolina Power & Light Co. .................................... 200 7,600
Central & South West Corp. .................................... 1,600 46,400
Cilcorp Inc. .................................................. 400 17,100
DTE Energy Co. ................................................ 5,000 154,375
Florida Progress Corp. ........................................ 800 27,800
FPL Group Inc. ................................................ 1,400 64,400
Houston Industries Inc. ....................................... 3,000 73,875
Idaho Power Co. ............................................... 1,800 56,025
Illinova Corp. ................................................ 5,600 161,000
Minnesota Power & Light Co. ................................... 900 26,100
Northern STS Power Co. ........................................ 400 19,750
Ohio Edison Co. ............................................... 300 6,563
Oklahoma Gas & Electric Co. ................................... 400 15,850
Pacificorp..................................................... 1,300 28,925
Peco Energy Co. ............................................... 980 25,480
Portland General Corp. ........................................ 2,400 74,100
Southwestern Public Service Co. ............................... 1,300 42,412
Texas Utilities Co. ........................................... 1,300 55,575
Unicorn Corp. ................................................. 1,400 39,025
------------
942,355
------------
</TABLE>

See Notes to Financial Statements

B-37
<PAGE> 429

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 1.1%
Norsk Hydro AS - ADR (Norway).................................. 900 $ 43,987
Repsol SA - ADR (Spain)........................................ 2,000 69,500
Total SA (France).............................................. 1,100 40,838
YPF Sociedad Anonima - ADR (Argentina)......................... 1,100 24,750
------------
179,075
------------
ENGINEERING & CONSTRUCTION 0.7%
Fluor Corp..................................................... 400 26,150
Foster Wheeler Corp............................................ 800 35,900
J. Ray McDermott SA (b)........................................ 1,900 47,500
------------
109,550
------------
ENVIRONMENTAL 2.2%
Browning Ferris Industries Inc................................. 4,600 133,400
WMX Technologies Inc........................................... 6,500 212,875
------------
346,275
------------
FINANCIAL SERVICES 0.9%
Bear Stearns Cos., Inc......................................... 2,625 62,016
Franklin Resources Inc......................................... 800 48,800
Great Western Financial Corp................................... 1,000 23,875
------------
134,691
------------
FOOD 1.8%
CPC International Inc.......................................... 300 21,600
Heinz, H.J. & Co............................................... 1,600 48,600
Quaker Oats Co................................................. 500 17,062
Sara Lee Corp.................................................. 800 25,900
Unilever....................................................... 1,200 174,150
------------
287,312
------------
HEALTHCARE 1.1%
Johnson & Johnson.............................................. 1,000 49,500
Mallinckrodt Group Inc......................................... 3,300 128,288
------------
177,788
------------
INSURANCE 3.2%
Aetna Life & Casualty Co....................................... 1,200 85,800
AFLAC Inc. .................................................... 1,200 35,850
Allmerica Financial Corp. ..................................... 500 14,875
Allstate Corp. ................................................ 900 41,062
AMBAC Inc. .................................................... 600 31,275
American Bankers Insurance Group............................... 1,500 65,437
American General Corp. ........................................ 700 25,463
Cigna Corp. ................................................... 200 23,575
</TABLE>

See Notes to Financial Statements

B-38
<PAGE> 430

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE (CONTINUED)
MBIA Inc. ..................................................... 800 $ 62,300
Providian Corp. ............................................... 600 25,725
St. Paul Cos., Inc. ........................................... 700 37,450
Sunamerica Inc................................................. 950 53,675
------------
502,487
------------
LEISURE/ENTERTAINMENT 0.8%
International Game Technology.................................. 1,600 27,000
Time Warner Inc. .............................................. 1,800 70,650
Trump Hotels & Casino Resorts (b).............................. 1,000 28,500
------------
126,150
------------
MINING, STEEL, IRON & NON-PRECIOUS METAL 0.3%
Bethleham Steel Corp. (b)...................................... 4,000 47,500
------------
NATURAL GAS PIPELINE AND DISTRIBUTION 3.4%
Coastal Corp. ................................................. 2,100 87,675
El Paso Natural Gas Co. ....................................... 700 26,950
Pacific Enterprises............................................ 4,900 145,162
Panenergy Corp. ............................................... 4,100 134,788
Sonat Inc. .................................................... 3,000 135,000
------------
529,575
------------
OIL & GAS 4.1%
Amoco Corp. ................................................... 550 39,806
Atlantic Richfield Co. ........................................ 300 35,550
British Petroleum PLC - ADR (UK)............................... 200 21,375
Burlington Resources Inc. ..................................... 700 30,100
Chevron Corp. ................................................. 600 35,400
Enron Oil & Gas Co. ........................................... 700 19,513
Exxon Corp. ................................................... 300 26,063
Louisiana Land & Exploration Co. .............................. 400 23,050
Mobil Corp. ................................................... 400 44,850
Noble Affiliates Inc. ......................................... 800 30,200
Occidental Petroleum Corp. .................................... 1,900 47,025
Phillips Petroleum Co. ........................................ 600 25,125
Pogo Producing Co. ............................................ 1,100 41,937
Royal Dutch Petroleum Co. (Netherlands)........................ 300 46,125
Schlumberger Ltd............................................... 300 25,275
Seagull Energy Corp. (b)....................................... 1,500 37,500
Shell Transport & Trading PLC - ADR (UK)....................... 400 35,200
Texaco Inc..................................................... 700 58,712
</TABLE>

See Notes to Financial Statements

B-39

<PAGE> 431

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OIL & GAS (CONTINUED)
USX Marathon Group............................................. 1,600 $ 32,200
------------
655,006
------------
PAPER 2.1%
Boise Cascade Corp............................................. 3,500 128,187
Champion International Corp.................................... 600 25,050
Consolidated Papers Inc........................................ 300 15,600
Georgia Pacific Corp........................................... 500 35,500
International Paper Co......................................... 1,400 51,625
Mead Corp...................................................... 500 25,938
Willamette Industries Inc...................................... 900 53,550
------------
335,450
------------
PERSONAL & NON-DURABLE 1.4%
Bausch & Lomb Inc.............................................. 400 17,000
Colgate Palmolive Co........................................... 700 59,325
Dial Corp...................................................... 1,400 40,075
Kimberly Clark Corp............................................ 400 30,900
Tambrands Inc.................................................. 1,900 77,663
------------
224,963
------------
PHARMACEUTICALS 3.7%
Abbott Labs.................................................... 1,100 47,850
American Home Products Corp.................................... 1,200 72,150
Astra AB - ADR (Sweden)........................................ 600 26,250
Bristol Myers Squibb Co........................................ 2,640 237,600
Merck & Co. Inc................................................ 700 45,237
Schering Plough Corp........................................... 600 37,650
Smithkline Beecham PLC - ADR (UK).............................. 500 27,188
Warner Lambert Co.............................................. 1,600 88,000
------------
581,925
------------
PRINTING & PUBLISHING 0.3%
Gannett Inc.................................................... 300 21,225
New York Times Co. ............................................ 800 26,100
------------
47,325
------------
RETAIL 2.4%
Dayton Hudson Corp............................................. 300 30,938
Dillard Department Stores Inc. ................................ 2,100 76,650
Federated Department Stores Inc. (b)........................... 1,100 37,537
Harcourt General Inc. ......................................... 1,200 60,000
Kroger Co. (b)................................................. 1,500 59,250
Sears Roebuck & Co. ........................................... 1,300 63,212
</TABLE>

See Notes to Financial Statements

B-40

<PAGE> 432

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Shares Market Value
------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
Toys R Us Inc. (b)............................................. 900 $ 25,650
Wal-Mart Stores Inc. .......................................... 700 17,763
------------
371,000
------------
TECHNOLOGY 2.5%
3Com Corp. .................................................... 400 18,300
Avnet Inc. .................................................... 1,000 42,125
BMC Software Inc. (b).......................................... 400 23,900
Cadence Design Systems Inc. ................................... 600 20,250
Cisco Systems Inc. (b)......................................... 500 28,312
Computer Associates International Inc. ........................ 500 35,625
Gateway 2000 Inc. (b).......................................... 800 27,200
Intel Corp. ................................................... 200 14,688
International Rectifier Corp. (b).............................. 1,100 17,738
Lucent Technologies Inc. (b)................................... 500 18,937
Microsoft Corp. (b)............................................ 200 24,025
Motorola Inc. ................................................. 600 37,725
Newbridge Networks Corp. (b)................................... 200 13,100
SCI Systems Inc. (b)........................................... 600 24,375
Sun Guard Data Systems (b)..................................... 1,300 52,162
------------
398,462
------------
TELECOMMUNICATIONS 2.5%
Ameritech Corp. ............................................... 875 51,953
Bellsouth Corp. ............................................... 900 38,138
Ericsson L M Telephone Co. - ADR (Sweden)...................... 900 19,350
Nynex Corp. ................................................... 2,400 114,000
Sprint Corp. .................................................. 1,000 42,000
Tele Danmark AS - ADR (Denmark)................................ 3,900 98,962
Telefonica de Espana - ADR (Spain)............................. 500 27,563
------------
391,966
------------
TOBACCO 1.0%
Philip Morris Cos., Inc. ...................................... 1,300 135,200
RJR Nabisco Holdings Corp. .................................... 800 24,800
------------
160,000
------------
TRANSPORTATION 0.2%
Illinois Central Corp. ........................................ 1,200 34,050
------------
TOTAL COMMON STOCKS............................................ 8,295,165
------------
</TABLE>

See Notes to Financial Statements

B-41
<PAGE> 433

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Security
Description Market Value
------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT AND AGENCY FIXED-INCOME SECURITIES (U.S.) 35.1%
Federal Home Loan Bank Corp. Series P2 ($1,000,000 par, 8.50% coupon,
02/08/02 maturity, S&P rating AAA)..................................... $ 1,027,850
U.S. Treasury Bond ($3,900,000 par, 7.25% coupon, 05/15/16 maturity)... 3,995,238
U.S. Treasury Note ($500,000 par, 7.50% coupon, 02/15/05 maturity)..... 526,205
-----------
TOTAL GOVERNMENT AND AGENCY FIXED-INCOME SECURITIES (U.S.)............. 5,549,293
-----------
TOTAL LONG-TERM INVESTMENTS 87.6%
(Cost $13,472,057) (a)............................................... 13,844,458
SHORT-TERM INVESTMENTS AT AMORTIZED COST 11.5%
Student Loan Marketing Disc Note ($1,820,000 par, yielding 5.45%,
maturing 07/01/96)................................................... 1,820,000
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%............................ 143,713
-----------
NET ASSETS 100%....................................................... $15,808,171
===========
</TABLE>

(a) At June 30, 1996, cost for federal income tax purposes is $13,472,057; the
aggregate gross unrealized appreciation is $699,999 and the aggregate gross
unrealized depreciation is $327,598, resulting in net unrealized
appreciation of $372,401.

(b) Non-income producing security as this stock currently does not declare
dividends.

See Notes to Financial Statements

B-42
<PAGE> 434

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $13,472,057) (Note 1)................. $13,844,458
Short-Term Investments (Note 1).......................................... 1,820,000
Cash..................................................................... 7,589
Receivables:
Securities Sold........................................................ 155,366
Interest............................................................... 83,990
Fund Shares Sold....................................................... 48,750
Dividends.............................................................. 19,904
Unamortized Organizational Expenses (Note 1)............................. 47,648
-----------
Total Assets......................................................... 16,027,705
-----------
LIABILITIES:
Payables:
Securities Purchased................................................... 149,688
Distributor and Affiliates (Notes 2 and 5)............................. 33,464
Income Distributions................................................... 25,084
Fund Shares Repurchased................................................ 1,121
Deferred Compensation and Retirement Plans (Note 2)...................... 9,722
Accrued Expenses......................................................... 455
-----------
Total Liabilities.................................................... 219,534
-----------
NET ASSETS............................................................... $15,808,171
===========
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $14,428,476
Accumulated Net Realized Gain on Securities.............................. 999,594
Net Unrealized Appreciation on Securities................................ 372,401
Accumulated Undistributed Net Investment Income.......................... 7,700
-----------
NET ASSETS............................................................... $15,808,171
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $6,514,423 and 405,826 shares of capital stock issued and
outstanding) (Note 3)................................................ $ 16.05
Maximum sales charge (5.75%* of offering price)...................... .98
-----------
Maximum offering price to public..................................... $ 17.03
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$8,227,046 and 512,997 shares of capital stock issued and
outstanding) (Note 3)................................................ $ 16.04
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$1,066,702 and 66,511 shares of capital stock issued and outstanding)
(Note 3)............................................................. $ 16.04
===========
</TABLE>

* On sales of $50,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

B-43
<PAGE> 435

STATEMENT OF OPERATIONS

For the Year Ended June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................................. $ 371,050
Dividends (Net of foreign withholding taxes of $2,156).................... 183,927
----------
Total Income.......................................................... 554,977
----------
EXPENSES:
Investment Advisory Fee (Note 2).......................................... 91,893
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$13,183, $70,267 and $8,345, respectively) (Note 5)..................... 91,795
Custody................................................................... 82,553
Registration.............................................................. 68,699
Printing.................................................................. 41,455
Shareholder Services (Note 2)............................................. 23,504
Audit..................................................................... 18,620
Amortization of Organizational Expenses (Note 1).......................... 16,045
Trustees Fees and Expenses (Note 2)....................................... 12,699
Legal (Note 2)............................................................ 11,966
Other..................................................................... 5,984
----------
Total Expenses........................................................ 465,213
Less Fees Waived and Expenses Reimbursed ($91,893 and $236,400,
respectively)....................................................... 328,293
----------
Net Expenses........................................................ 136,920
----------
NET INVESTMENT INCOME..................................................... $ 418,057
==========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments.......................................... $1,765,158
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................................. 808,706
End of the Period:
Investments........................................................... 372,401
----------
Net Unrealized Depreciation on Securities During the Period............... (436,305)
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............................ $1,328,853
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS................................ $1,746,910
==========
</TABLE>

See Notes to Financial Statements

B-44
<PAGE> 436

STATEMENT OF CHANGES IN NET ASSETS

For the Year Ended June 30, 1996 and the Period June 24, 1994
(Commencement of Investment Operations) to June 30, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
From June 24, 1994
(Commencement of
Year Ended Investment Operations)
June 30, 1996 to June 30, 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 418,057 $ 375,863
Net Realized Gain/Loss on Securities.................. 1,765,158 (9,560)
Net Unrealized Appreciation/Depreciation on
Securities.......................................... (436,305) 808,706
--------- ---------
Change in Net Assets from Operations.................. 1,746,910 1,175,009
--------- ---------
Distributions from Net Investment Income:
Class A Shares...................................... (197,797) (156,268)
Class B Shares...................................... (216,743) (177,438)
Class C Shares...................................... (25,849) (13,922)
Class D Shares...................................... -0- (49)
--------- ---------
(440,389) (347,677)
--------- ---------
Distributions from Net Realized Gain on Securities
(Note 1):
Class A Shares...................................... (297,718) -0-
Class B Shares...................................... (408,895) -0-
Class C Shares...................................... (49,391) -0-
--------- ---------
(756,004) -0-
--------- ---------
Total Distributions................................... (1,196,393) -0-
--------- ---------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 550,517 827,332
--------- ---------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 5,236,767 13,761,643
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 972,782 264,667
Cost of Shares Repurchased............................ (3,021,589) (2,789,668)
--------- ---------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 3,187,960 11,236,642
--------- ---------
TOTAL INCREASE IN NET ASSETS.......................... 3,738,477 12,063,974
NET ASSETS:
Beginning of the Period............................... 12,069,694 5,720
--------- ---------
End of the Period (Including undistributed net
investment income of $7,700 and $28,186,
respectively)....................................... $15,808,171 $12,069,694
----------- -----------
</TABLE>

See Notes to Financial Statements

B-45

<PAGE> 437

NOTES TO FINANCIAL STATEMENTS

June 30, 1996
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Balanced Fund (the "Fund") is organized as a series
of the Van Kampen American Capital Equity Trust, a Delaware business trust and
is registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide its shareholders with current income, while also seeking to provide
shareholders with capital growth. The Fund commenced investment operations on
June 24, 1994, and has outstanding three classes of common shares, Classes A, B
and C. 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.

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-46

<PAGE> 438

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

A repurchase agreement is a short-term investment in which the Fund acquires
ownership of a debt security and the seller agrees to repurchase the security at
a future time and specified price. Repurchase agreements are collateralized by
the underlying debt security. The Fund will make payment for such securities
only upon physical delivery or evidence of book entry transfer to the account of
the custodian bank. The seller is required to maintain the value of the
underlying security at not less than the repurchase proceeds due the Fund.

C. INVESTMENT INCOME--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--The Fund has agreed to reimburse Van Kampen American
Capital Distributors, Inc. or its affiliates (collectively "VKAC") for costs
incurred in connection with the Fund's organization in the amount of $80,000.
These costs are being amortized on a straight line basis over the 60 month
period ending June 23, 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
in the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.

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. Distributions from net realized gains for book purposes
may include short-term capital gains which are included in ordinary income for
tax purposes. Permanent book and tax basis differences relating to expenses that
are not deductible for tax purposes totaling $1,846 were reclassified from
accumulated undistributed net investment income to capital.

B-47
<PAGE> 439

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

For the year ended June 30, 1996, 14.3% of the distributions from net
realized gains on securities was considered long-term capital gains for Federal
income tax purposes. Since this distribution was made in December of 1995, it
was reported to shareholders along with other 1995 calendar year distributions.

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, 1996, the Fund incurred expenses of
approximately $11,200 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund all of which was waived by VKAC.

In July, 1995, the Fund began using ACCESS Investor Services, Inc.
("ACCESS"), an affiliate of the Adviser, as the shareholder servicing agent of
the Fund. For the year ended June 30, 1996, the Fund incurred expenses of
approximately $15,400, representing ACCESS' cost of providing transfer agency
and shareholder services plus a profit, all of which was assumed by VKAC.

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

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.

At June 30, 1996, VKAC owned 106 shares each of Classes A, B and C.

B-48
<PAGE> 440

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

3. CAPITAL TRANSACTIONS

The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

At June 30, 1996, capital aggregated $5,958,597, $7,493,118 and $976,761 for
Classes A, B and C, respectively. For the year ended June 30, 1996, transactions
were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 160,539 $ 2,556,624
Class B....................................... 149,768 2,395,715
Class C....................................... 17,813 284,428
-------- -----------
Total Sales..................................... 328,120 $ 5,236,767
======== ===========
Dividend Reinvestment:
Class A....................................... 27,877 $ 437,407
Class B....................................... 33,104 518,661
Class C....................................... 1,066 16,714
-------- -----------
Total Dividend Reinvestment..................... 62,047 $ 972,782
======== ===========
Repurchases:
Class A....................................... (91,336) $(1,459,621)
Class B....................................... (96,683) (1,543,634)
Class C....................................... (1,160) (18,334)
-------- -----------
Total Repurchases............................... (189,179) $(3,021,589)
======== ===========
</TABLE>

B-49

<PAGE> 441

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

At June 30, 1995, capital 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-50

<PAGE> 442

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

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 period ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$10,100 and received CDSC on redeemed shares of approximately $31,200. Sales
charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales, excluding U.S.
Government Securities and short-term investments were $16,905,770 and
$17,212,426, respectively.

5. DISTRIBUTION AND SERVICE PLANS

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

B-51
<PAGE> 443

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

Van Kampen American Capital Growth Fund (the "Fund") seeks capital growth. The
Fund will attempt to achieve this investment objective by investing primarily in
a diversified portfolio of common stocks and other equity securities of growth
companies. Growth companies generally include those companies with established
records of growth in sales or earnings and companies with new products, new
services or new processes that the Fund's investment adviser believes offer
investors in the equity securities of such companies above average potential for
capital growth. There is no assurance that the Fund will achieve its investment
objective.

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the current Prospectus for the Fund dated the date
hereof (the "Prospectus"). This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge, by 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 (the "SEC"), Washington, D.C. These items may
be obtained from the SEC upon payment of the fee prescribed, or inspected at the
SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-3
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-11
Trustees and Officers................................................................ B-18
Legal Counsel........................................................................ B-26
Investment Advisory and Other Services............................................... B-26
Custodian and Independent Accountants................................................ B-28
Portfolio Transactions and Brokerage Allocation...................................... B-28
Tax Status of the Fund............................................................... B-29
The Distributor...................................................................... B-29
Performance Information.............................................................. B-30
Independent Accountants' Report...................................................... B-32
Financial Statements................................................................. B-33
Notes to Financial Statements........................................................ B-39
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1996.

<PAGE> 444

THE FUND AND THE TRUST

The Fund is a separate diversified series of Van Kampen American Capital
Equity Trust (the "Trust"), an open-end management investment company. The Fund
was established pursuant to a Designation of series dated September 7, 1995. At
present, the Fund, Van Kampen American Capital Utility Fund, Van Kampen American
Capital Balanced Fund, Van Kampen American Capital Value Fund, Van Kampen
American Capital Great American Companies Fund, Van Kampen American Capital
Prospector Fund and Van Kampen American Capital Aggressive Growth Fund are the
only series of the Trust, although other series may be organized and offered in
the future. Each series of the trust will be treated as a separate corporation
for federal income tax purposes.

The Trust is an unincorporated business trust established under the laws of
the State of Delaware by an Agreement and Declaration of Trust dated 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, par value $0.01 per share, for each portfolio. The Trustees can further
sub-divide each series of shares into one or more classes of shares for each
portfolio. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights. The Trust does not contemplate holding
regular meetings of shareholders to elect Trustees or otherwise. However, the
holders of 10% or more of the outstanding shares may by written request require
a meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").

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

The Trust originally was organized as the Van Kampen Merrit Equity Trust, a
Massachusetts business trust created by a Declaration of Trust dated March 26,
1987 (the "Massachusetts Trust"). The Massachusetts Trust was reorganized into
the Trust on July 31, 1995 pursuant to an Agreement and Plan of Reorganization
and Liquidation. The Trust was formed pursuant to an Agreement and Declaration
of Trust dated May 10, 1995 for the purpose of facilitating the Massachusetts
Trust's reorganization into a Delaware business trust. The Trust filed a
Certificate of Trust with the Delaware Secretary of State on July 28, 1995.

B-2
<PAGE> 445

INVESTMENT POLICIES AND RESTRICTIONS

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

1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its instrumentalities), if, as a
result, more than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer or, if, as a
result, such Fund would hold more than 10% of the outstanding voting
securities of an issuer; except that up to 25% of the Fund's total assets
may be invested without regard to such limitations. Neither limitation
shall apply to the acquisition of shares of other open-end investment
companies to the extent permitted by rule or order of the SEC exempting
the Fund from the limitations imposed by Section 12(d)(1) of the 1940 Act.

2. Invest more than 25% of its assets in a single industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of
the securities and other assets owned by any such company. (Neither the
U.S. Government nor any of its agencies or instrumentalities will be
considered an industry for purposes of this restriction.)

3. 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 borrowing); which
amount excludes 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 of senior securities, borrowings, delayed delivery and when
issued transactions and strategic transactions.

4. 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.

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

6. 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, except as permitted under the
1940 Act and except to the extent permitted by rule or order of the SEC
exempting the Fund from the limitations imposed by Section 12(d)(1) of the
1940 Act.

9. Invest in 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.

B-3
<PAGE> 446

single foreign government, or by all supranational organizations in the
aggregate, are considered to be securities of issuers in the same industry.

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

The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company. The Fund
may, from time to time, adopt a more restrictive limitation with respect to
investment in illiquid and restricted securities in order to comply with the
most restrictive state securities law, currently 10%. This policy does not
include restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, as amended, which the Board of Trustees or the
Fund's investment adviser has determined under Board-approved guidelines to be
liquid. The Fund's policy with respect to investment in illiquid and restricted
securities is not a fundamental policy and may be changed by the Board of
Trustees, in consultation with the Adviser, without obtaining shareholder
approval.

From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.

ADDITIONAL INVESTMENT CONSIDERATIONS

BORROWING

The Fund may borrow up to 33 1/3% of the value of its total assets from banks
(including entering into reverse repurchase agreements) which amount excludes no
more than 5% in borrowings and reverse repurchase agreements with any entity for
temporary purposes. The Fund has no current intention to borrow money other than
for temporary purposes.

Borrowing by the Fund creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as potential changes in
the net asset value of the Shares and in the yield on the Fund's portfolio.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. Borrowing will
create interest expenses for the Fund which can exceed the income from the
assets retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely, if the
income from the assets retained with borrowed funds is not sufficient to cover
the cost of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced.

B-4
<PAGE> 447

STRATEGIC TRANSACTIONS

The Fund may, but is not required to, utilize various other investment
strategies as described below. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, equity and fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and 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
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 protest 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.

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.

B-5
<PAGE> 448

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

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

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options 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.

B-6
<PAGE> 449

that the terms of the OTC option will be satisfied. The Fund will engage in OTC
option transactions only with United States government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers", or
broker dealers, domestic or foreign banks or other financial institutions which
have received (or the guarantors of the obligation of which have received) a
short-term credit rating of "A-1" from Standard & Poor's Ratings Group ("S&P")
or "P-1" from Moody's Investor Services, Inc. ("Moody's") or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO"). The staff of the SEC currently takes the position that, in general,
OTC options on securities other than U.S. Government securities purchased by the
Fund, and portfolio securities "covering" the amount of the Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its assets in illiquid securities.

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

B-7
<PAGE> 450

on a daily basis as the mark to market value of the contract fluctuates. The
purchase of options on financial futures involves payment of a premium for the
option without any further obligation on the part of the Fund. If the Fund
exercises an option on a futures contract it will be obligated to post initial
margin (and potential subsequent variation margin) for the resulting futures
position just as it would for any position. Futures contracts and options
thereon are generally settled by entering into an offsetting transaction but
there can be no assurance that the position can be offset prior to settlement at
an advantageous price nor that delivery will occur.

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

The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. 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.

B-8
<PAGE> 451

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 of 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.

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 the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see 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.

RISK 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 and 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 interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.

B-9
<PAGE> 452

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

OTC options entered into by the Fund, including those on securities,
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, 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. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks with
respect to the open futures or option position as well as with respect to the
portfolio securities segregated against such position. To the extent that the
market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position

B-10
<PAGE> 453

and the value of such portfolio securities, which has the effect of leveraging
the Fund's portfolio assets and increasing the Fund's investment risk.

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

DESCRIPTION OF SECURITIES RATINGS

1. DEBT

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

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

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

1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

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

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

B-11
<PAGE> 454

circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

SPECULATIVE GRADE

BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as
having significantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.

CC: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.

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

NR: Not rated.

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

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.

B-12
<PAGE> 455

2. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

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

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".

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

B Issues rated "B" are regarded as having significant speculative
characteristics.

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

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

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

3. VARIABLE RATE DEMAND BONDS

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

4. NOTES

-- 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.

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<PAGE> 456

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

SP-3 Speculative capacity to pay principal and interest.

5. PREFERRED STOCK

The preferred stock ratings are based on the following considerations:

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 law of bankruptcy and other laws affecting
creditors' rights.

<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality, fixed income
security. The capacity to pay preferred stock obligations is very strong, although
not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
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. While such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a nonpaying issue.
D A preferred stock rated "D" is a nonpaying issue with the issuer in default on debt
instruments.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a particular type
of obligation as a matter of policy.
PLUS (+) or MINUS (-): To provide more detailed indications of preferred stock
quality, ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
</TABLE>

B-14
<PAGE> 457

information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.

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

1. LONG-TERM DEBT

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

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 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.

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.

B-15
<PAGE> 458

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

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

2. SHORT-TERM DEBT

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

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

--Leading market positions in well-established industries.

--High rates of return on funds employed.

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

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

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

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

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

3. PREFERRED STOCK

Preferred stock rating symbols and their definitions are as follows:

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

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

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

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.

B-16
<PAGE> 459

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

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

C: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "AA" through "BB" 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.

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<PAGE> 460

TRUSTEES AND OFFICERS

TRUSTEES

B-18
<PAGE> 461

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
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
Date of Birth: 03/31/20 Trust Company of Chicago and Continental Illinois
Corporation. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Date of Birth: 02/13/36 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.
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
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
155 Hickory Lane of Graduate School and Chairman, Department of Mechanical
Closter, NJ 07624-2322 Engineering, Stevens Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom, legal counsel to the Van Kampen American Capital
Chicago, IL 60606 Funds, The Explorer Institutional Trust and the
Date of Birth: 08/22/39 closed-end investment companies advised by the VK
Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the
closed-end investment companies advised by the VK
Adviser.
William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Date of Birth: 01/31/22 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>

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

B-19
<PAGE> 462

OFFICERS

B-20
<PAGE> 463

B-21
<PAGE> 464

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
<S> <C> <C>
John L. Sullivan........ Treasurer First Vice President of the VK Adviser and
Date of Birth: the AC Adviser. Treasurer of each of the
08/20/55 Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Tanya M. Loden.......... Controller Vice President of the VK Adviser and the AC
Date of Birth: Adviser. Controller of each of the Van
11/19/59 Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso........ Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
03/01/65 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Huey P. Falgout, Jr..... Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
11/15/63 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin......... Assistant Secretary Senior Vice President, Deputy General
Date of Birth: Counsel and Assistant Secretary of Van
08/20/56 Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-22
<PAGE> 465

B-23
<PAGE> 466

COMPENSATION TABLE

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

B-24
<PAGE> 467

B-25
<PAGE> 468

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER OCTOBER 17, 1996 SHARES OWNERSHIP
- ---------------------------------------------------------------------- ---------------- -------- ---------
<S> <C> <C> <C>
BENEFICIAL AND RECORD HOLDER:
Van Kampen American Capital........................................... 7,000 A 69.41%
Attn: Dominick Cogliandro 6,500 B 100%
One Chase Manhattan Plaza 6,500 C 100%
37th Floor
New York, NY 10005-1401
Jeff D. New & Valerie New Jt Ten...................................... 1,990 A 19.74%
5719 Rocky Brook
Kingwood, TX 77345-1417
Van Kampen American Capital TR Cust................................... 1,017 A 10.09%
IRA A/C Glen O. Willis
140 April Waters Dr. N
Montgomery, TX 77356-8823
RECORD HOLDER ONLY:
Van Kampen American Capital Trust Company............................. 1,041 A 10.33%
2800 Post Oak Blvd.
Houston, TX 77056
</TABLE>

LEGAL COUNSEL

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

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, Inc. own, in the aggregate, not more than 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon exercise
of options, approximately an additional 12% 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 between the Adviser and the Fund provides
that the Adviser will administer the business affairs of the Fund, supervise the
Fund's overall investment activities in the context of

B-26
<PAGE> 469

implementing the Fund's investment objectives, furnish offices, necessary
facilities and equipment, provide administrative services, and permit its
officers and employees to serve without compensation as Trustees of the Trust
and officers of the Fund if duly elected to such positions.

The Adviser's activities are subject to the review and supervision of the
Trustees to whom the Adviser renders periodic reports of the Fund's investment
activities.

The investment advisory agreement remains in effect from year to year if
specifically approved by the Trustees (including the independent Trustees) on
behalf of the Fund or the Fund's shareholders 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 Adviser has undertaken to reimburse the Fund for annual expenses of the
Fund which exceed the most stringent limit prescribed by any state in which the
Fund's shares are offered for sale. Currently, the most stringent limit in any
state would require such reimbursement to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million, 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.

For the period ended June 30, 1996, the Fund recognized advisory expense of
$0.

OTHER AGREEMENTS

ACCOUNTING SERVICES AGREEMENT. The Fund has also entered into an accounting
services agreement pursuant to which the VK 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 25% of the remaining 75% of such cost
being paid by the Fund and such other funds based proportionally on their
respective net assets.

For the period ended June 30, 1996, the Fund paid expenses of approximately
$0, representing the Adviser's cost of providing accounting services.

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

For the period ended June 30, 1996, the Fund paid expenses of approximately
$0, representing Van Kampen American Capitals cost of providing legal services.

B-27
<PAGE> 470

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firm's professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund or the Adviser, including quotations necessary
to determine the value of the Fund's net assets. Any research benefits derived
are available for all clients of the Adviser. Since statistical and other
research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to materially reduce its
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, the Fund's Adviser may take into
consideration that certain firms have sold or are selling shares of the Fund and
that certain firms provide market, statistical or other research information to
the Fund and the Adviser, and may select firms that are affiliated with the
Fund, its Adviser or its Distributor.

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 Fund's Adviser are considered at or about
the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective size of the Fund and other
investment companies and clients and the amount of securities to be purchased or
sold. Although it is possible that in some cases this procedure could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned, it is also possible that the ability to participate in volume
transactions and to negotiate lower brokerage commissions will be beneficial to
the Fund.

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

B-28
<PAGE> 471

Portfolio turnover is calculated by dividing the lesser of purchases or sales
of portfolio securities by the monthly average value of the securities in the
portfolio during the year. Securities, including options, whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from such calculation. The Fund anticipates that the annual portfolio turnover
rate of the Fund's portfolio will generally be less than 100%. If the turnover
rate for the Fund does reach or exceed this percentage, the Fund's brokerage
costs may increase and the Adviser will monitor the Fund's trading practices to
avoid potential adverse tax consequences.

TAX STATUS OF THE FUND

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

THE DISTRIBUTOR

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. 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-29
<PAGE> 472

For the period ended June 30, 1996, the Fund has paid expenses under the Plans
of $0, $0 and $0 for the Class A Shares, Class B Shares and Class C Shares,
respectively, of which $0 and $0 represent payments to financial intermediaries
under the Selling Agreements for Class A Shares and Class B Shares respectively.

PERFORMANCE INFORMATION

The Fund's yield quotation is determined on a daily basis with respect to the
immediately preceding 30 day period; yield is computed by first dividing the
Fund's net investment income per share of a given class earned during such
period by the Fund's maximum offering price (including, with respect to the
Class A Shares, the maximum 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 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 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.

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

B-30
<PAGE> 473

CLASS A SHARES

The average total return with respect to the Class A Shares for the period
from December 27, 1995 (the commencement of investment operations of the Fund)
through June 30, 1996 was 65.07%.

The Fund's cumulative non-standardized total return, excluding payment of the
maximum front-end sales charge, with respect to the Class A Shares from their
inception through June 30, 1996 (as calculated in the Prospectus under the
heading "Fund Performance") was 37.00%.

CLASS B SHARES

The average total return with respect to the Class B Shares for the period
from December 27, 1995 (the commencement of investment operations of the Fund)
through June 30, 1996 was 74.92%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum CDSC, with respect to the Class B Shares from their inception
through June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 33.00%.

The Fund's cumulative non-standardized total return, excluding payment of the
maximum CDSC, with respect to Class A Shares from their inception through June
30, 1996 (as calculated in the Prospectus under the heading "Fund Performance")
was 37.00%.

CLASS C SHARES

The average total return with respect to the Class C Shares for the period
from December 27, 1995 (the commencement of investment operations of the Fund)
through June 30, 1996 was 82.74%.

The Fund's cumulative non-standardized total return, including the payment of
the maximum CDSC, with respect to the Class C Shares from their inception
through June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 36.00%.

The Fund's cumulative non-standardized total return, excluding payment of the
maximum CDSC, with respect to the Class A Shares from their inception through
June 30, 1996 (as calculated in the Prospectus under the heading "Fund
Performance") was 37.00%.

B-31
<PAGE> 474
[KPMG PEAT MARWICK LLP LETTERHEAD]

INDEPENDENT ACCOUNTANTS' REPORT

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Growth Fund (the "Fund"), including the portfolio of
investments, and the related statement of operations, the statement of changes
in net assets and the financial highlights for the period from December 27, 1995
(commencement of investment operations) to June 30, 1996. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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, 1996, 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 American Capital Growth Fund as of June 30, 1996, the results of its
operations, the changes in its net assets and financial highlights for the
period from December 27, 1995 (commencement of investment operations) to June
30, 1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
August 15, 1996

B-32
<PAGE> 475
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

PORTFOLIO OF INVESTMENTS

June 30, 1996
- ------------------------------------------------------------------------------

Security Description Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 94.0%
CONSUMER NON-DURABLES - 11.0%
Designer Holdings Ltd. (b) 200 $ 5,325
Fila Holdings-ADR (Italy) 50 4,312
Liz Claiborne Inc. 130 4,501
Nautica Enterprises Inc. (b) 140 4,025
Oakley Inc. (b) 100 4,550
Philip Morns Cos. Inc. 80 8,320
Tommy Hilfiger Corp. (b) 70 3,754
-------
34,787
-------

CONSUMER SERVICES - 13.2%
Career Horizons Inc. (b) 100 3,500
Evergreen Media Corp. Class A (b) 150 6,412
First USA Paymentech Inc. (b) 200 8,000
Intelliquest Information Group (b) 200 6,550
Outback Steakhouse Inc. (b) 120 4,138
RAC Financial Group Inc. (b) 200 5,650
Sonic Corp. (b) 150 3,638
United Waste Systems Inc. (b) 120 3,870
-------
41,758
-------

FINANCE - 6.9%
Green Tree Financial Corp. 150 4,687
Money Store Inc. 200 4,425
Olympic Financial (b) 150 3,450
PennCorp Financial Group 150 4,762
SunAmerica Inc. 80 4,520
-------
21,844
-------

HEALTH CARE - 9.6%
Arterial Vascular Engineering (b) 200 7,250
Dura Pharmaceuticals Inc. (b) 60 3,360
Elan-ADR (Ireland) (b) 40 2,285
ESC Medical Systems Ltd. (b) 150 4,238
Guidant Corp. 100 4,925
Orthodontic Centers of America (b) 100 2,650
Renal Treatment Centers Inc. (b) 200 5,750
-------
30,458
-------

PRODUCER MANUFACTURING - 2.7%
Case Corp. 90 4,320
Greenfield Industries Inc. 130 4,290
-------
8,610
-------
</TABLE>

See Notes to Financial Statements

B-33
<PAGE> 476
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

JUNE 30, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Security Description Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>

RAW MATERIALS/PROCESSING INDUSTRIES - 2.0%
Praxair Inc. 150 $ 6,337
--------
RETAIL - 7.0%
Eckerd Jack Corp. (b) 200 4,525
Saks Holdings Inc. (b) 200 6,825
TJX Cos. Inc. 130 4,388
U.S. Office Products Co. (b) 150 6,300
--------
22,038
--------

TECHNOLOGY - 39.0%
Adaptec Inc. (b) 90 4,264
ADC Telecommunications Inc. (b) 100 4,500
Analog Devices Inc. (b) 100 2,550
Ascend Communications Inc. (b) 60 3,375
Aspect Telecommunications Corp. (b) 100 4,950
BMC Software Inc. (b) 70 4,182
Boston Communications Group (b) 300 4,950
Check Point Software Tech (b) 200 4,800
Cisco Systems Inc. (b) 100 5,662
Computer Association International Inc. 70 4,987
Farallon Communications (b) 200 2,950
Inference Corp. Class A (b) 150 3,600
McAfee Associations Inc. (b) 90 4,410
Medic Computer System Inc. (b) 70 5,679
Netscape Communications Corp. (b) 50 3,112
Octel Communications (b) 200 3,950
Oracle System Corp. (b) 135 5,324
PC Docs Group International Inc. (b) 150 2,981
Proxim Inc. (b) 110 4,428
Sapient Corp. (b) 150 6,338
SCI Systems Inc. (b) 100 4,063
Siebel Systems Inc. (b) 200 6,150
Sun Microsystems Inc. (b) 100 5,888
Tellabs Inc. (b) 60 4,013
TSX Corp. (b) 150 4,163
U.S. Robotics Corp. (b) 100 8,550
Wind River Systems Inc. (b) 100 3,450
--------
123,269
--------

</TABLE>

See Notes to Financial Statements

B-34
<PAGE> 477
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

PORTFOLIO OF INVESTMENTS

June 30, 1996
- ------------------------------------------------------------------------------

Security Description Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>

UTILITIES - 2.6%
WorldCom Inc. (b) 150 $ 8,306
--------

TOTAL LONG-TERM INVESTMENTS 94.0%
(Cost $239,188) (a) 297,407
OTHER ASSETS IN EXCESS OF LIABILITIES 6.0% 19,139
--------
NET ASSETS 100% $316,546
========
</TABLE>

(a) At June 30, 1996, cost for federal income tax purposes is $239,188; the
aggregate gross unrealized appreciation is $62,035 and the aggregate gross
unrealized depreciation is $3,816, resulting in net unrealized appreciation
of $58,219.

(b) Non-income producing security as this stock does not currently declare
dividends.

See Notes to Financial Statements

B-35

<PAGE> 478
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:

Investments at Market Value (Cost $239,188) (Note 1) $297,407
Cash 14,766
Receivables:
Securities Sold 13,234
Distributor 4,961
Dividends 99
Other 1,404
Unamortized Organizational Expenses (Note 1) 36,100
--------
Total Assets 367,971
--------

LIABILITIES:

Payables:
Organizational Expenses 40,000
Securities Purchased 8,600
Deferred Compensation and Retirement Plans (Note 2) 2,825
--------
Total Liabilities 51,425
--------
NET ASSETS $316,546
========

NET ASSETS CONSIST OF:
Capital (Note 3) $235,843
Net Unrealized Appreciation on Securities 58,219
Accumulated Net Realized Gain on Securities 22,484
--------
NET ASSETS $316,546
========

MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES:
Net asset value and redemption price per share
(Based on net assets of $138,510 and 10,113 shares
of capital stock and outstanding) (Note 3) $ 13.70
Maximum sales charge (5.75% of offering price) 0.84
--------
Maximum offering price to public $ 14.54
========

CLASS B SHARES:
Net asset value and offering price per share
(Based on net assets of $89,018 and 6,500 shares
of capital stock issued and outstanding) (Note 3) $ 13.70
========

CLASS C SHARES:
Net asset value and offering price per share
(Based on net assets of $89,018 and 6,500 shares
of capital stock issued and outstanding) (Note 3) $ 13.70
========

* On sales of $50,000 or more, the sales charge
will be reduced.

</TABLE>

See Notes to Financial Statements

B-36
<PAGE> 479

VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 27, 1995 (COMMENCEMENT
OF INVESTMENT OPERATIONS) TO JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 517
Interest 217
--------
Total Income 734
--------

EXPENSES:

Audit 7,500
Trustees Fees and Expenses (Note 2) 5,250
Amortization of Organizational Expenses (Note 1) 3,900
Investment Advisory Fee (Note 2) 1,018
Legal (Note 2) 1,000
Custody (Note 1) 618
Other 2,013
--------

Total Expenses 21,299
Less: Fees Waived and Expenses Reimbursed
($1,018 and $18,298, respectively) 19,316
Earnings Credits on Cash Balances (Note 1) 219
--------
Net Expenses 1,764
--------
NET INVESTMENT LOSS $ (1,030)
========

REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:

Net Realized Gain on Investments $ 23,514
--------

Net Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period 0
End of the Period:
Investments 58,219
--------
Change in Net Unrealized Appreciation on
Investments During the Period 58,219
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 81,733
========
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 80,703
========
</TABLE>

See Notes to Financial Statements

B-37

<PAGE> 480
VAN KAMPEN AMERICAN CAPITAL GROWTH FUND

STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 27, 1995
(COMMENCEMENT OF INVESTMENT OPERATIONS)
TO JUNE 30, 1996

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

FROM INVESTMENT ACTIVITIES:
<TABLE>
<S> <C>
Operations:
Net Investment Loss $ (1,030)
Net Realized Gain on Securities 23,514
Net Unrealized Appreciation on Securities During the Period 58,219
--------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 80,703
--------

FROM CAPITAL TRANSACTIONS (NOTE 3):

Proceeds of Shares Sold 35,843
--------
TOTAL INCREASE IN NET ASSETS 116,546

NET ASSETS:
Beginning of the Period 200,000
--------
End of the Period $316,546
========

</TABLE>

See Notes to Financial Statements

B-38
<PAGE> 481
VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Growth Fund (the "Fund") is organized as a series of
Van Kampen American Capital Equity Trust (the "Trust"), a Delaware business
trust and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek capital growth by investing primarily in a diversified
portfolio of common stocks and other equity securities of growth companies. The
Fund commenced investment operations on December 27, 1995, with three classes of
common shares, Class A, Class B and Class C.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

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 or, if not available, their fair value as determined 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.
A repurchase agreement is a short-term investment in which the Fund
acquires ownership of a debt security and the seller agrees to repurchase the
security at a future time and specified price. The Fund may invest independently
in repurchase agreements, or transfer uninvested cash balances into a pooled
cash account along with other investment companies advised by Van Kampen
American Capital Investment Advisory Corp. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.

C. INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis.

D. ORGANIZATIONAL EXPENSES - The Fund has agreed to reimburse Van Kampen
American Capital Distributors, Inc. or its affiliates ("collectively VKAC") for
costs incurred in connection with the Fund's organization in the amount of
$40,000. These costs are being amortized on a straight line basis over the 60
month period ending December 27, 2000. 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 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 and gains
to its shareholders. Therefore, no provision for federal income taxes is
required.
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 - Distributions from net investment income
and net realized gains, if any, are made annually. Distributions from net
realized gains for book purposes may include short-term capital gains. All
short-term capital gains are included as ordinary income for tax purposes. This
tax basis ordinary income is offset by the net investment loss for tax purposes
of $1,126. As a result, this permanent book and tax basis difference has been
reclassified from accumulated net realized gain on securities to accumulated
undistributed net investment income.

G. EXPENSE REDUCTIONS - During the period ended June 30, 1996, the Fund's
custody fee was reduced by $219 as a result of credits earned on overnight cash
balances.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- ---------------------------------------------------------------------
<S> <C>
First $500 million .75%

Next $500 million .70%

Over $1 billion .65%
</TABLE>

B-39
<PAGE> 482
VAN KAMPEN AMERICAN CAPITAL
GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
(CONTINUED)

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 period ended June 30, 1996, the Fund incurred expenses of
approximately $1,000 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost. All of this cost has
been waived by VKAC.

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.

At June 30, 1996, VKAC owned 7,000 shares of Class A and 6,500 shares each
of Classes B and C, respectively.

3. CAPITAL TRANSACTIONS

The Fund has outstanding three classes of common shares, Classes A, B and C,
each with a par value of $.01 per share. There are an unlimited number of shares
of each class authorized.

At June 30, 1996, capital aggregated $105,843, $65,000 and $65,000 for
Classes A, B and C, respectively.

For the period ended June 30, 1996, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Sales:

Class A 3,113 $35,843
===== =======
</TABLE>

Class B and Class 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 Class C shares bear the expense of their respective deferred
sales arrangements, including higher distribution and service fees and
incremental transfer agency costs.

3. CAPITAL TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Class B Class C
Year of Redemption Shares Shares
- -----------------------------------------------------------------------------
<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>

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $453,171 and $237,497, respectively.

5. DISTRIBUTION AND SERVICE PLANS

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

The Fund's net assets are subject to annual fees under the Plans of up to
.25% for Class A shares and 1.00% each for Class B and Class C shares. No fees
related to the Plans have been accrued by the Fund as the Fund is currently
owned solely by affiliated persons.

B-40
<PAGE> 483

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL VALUE FUND

Van Kampen American Capital Value Fund (the "Fund") seeks long-term growth of
capital. The Fund will attempt to achieve this investment objective by investing
primarily in a diversified portfolio of common stocks and other equity
securities of medium and larger capitalization companies that are believed by
the Fund's investment adviser to be selling below their intrinsic value and to
offer the opportunity for significant growth of capital. There is no assurance
that the Fund will achieve its investment objective.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for the Fund dated the date
hereof (the "Prospectus"). This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge by calling (800) 421-5666. This Statement of Additional
Information incorporates by reference the entire Prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-3
Additional Investment Considerations................................................. B-4
Description of Securities Ratings.................................................... B-11
Trustees and Officers................................................................ B-18
Legal Counsel........................................................................ B-26
Investment Advisory and Other Services............................................... B-26
Custodian and Independent Accountants................................................ B-27
Portfolio Transactions and Brokerage Allocation...................................... B-27
Tax Status of the Fund............................................................... B-28
The Distributor...................................................................... B-28
Performance Information.............................................................. B-29
Independent Accountants' Report...................................................... B-32
Financial Statements................................................................. B-33
Notes to Financial Statements........................................................ B-38
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1996.

<PAGE> 484

THE FUND AND THE TRUST

The Fund is a separate diversified series of the Van Kampen American Capital
Equity Trust (the "Trust"), an open-end management investment company. The Fund
was established pursuant to a Designation of Series dated May 10, 1995. At
present, the Fund, Van Kampen American Capital Utility Fund, Van Kampen American
Capital Balanced Fund, Van Kampen American Capital Growth Fund, Van Kampen
American Capital Great American Companies Fund, Van Kampen American Capital
Prospector Fund and Van Kampen American Capital Aggressive Growth Fund are the
only series of the Trust, although other series may be organized and offered in
the future. Each series of the Trust will be treated as a separate corporation
for federal income tax purposes.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights. The Trust does not contemplate holding
regular meetings of shareholders to elect Trustees or otherwise. However, the
holders of 10% or more of the outstanding shares may by written request require
a meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Trust
will assist such holders in communicating with other shareholders of the Fund to
the extent required by the Investment Company Act of 1940 (the "1940 Act").

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

The Trust originally was organized as the Van Kampen Merritt Equity Trust, a
Massachusetts business trust, created by a Declaration of Trust dated March 26,
1987 (the "Massachusetts Trust"). The Massachusetts Trust was reorganized into
the Trust on July 31, 1995 pursuant to an Agreement and Plan of Reorganization
and Liquidation. The Trust was formed pursuant to an Agreement and Declaration
of Trust dated May 10, 1995 for the purpose of facilitating The Massachusetts
Trust's reorganization into a Delaware business Trust. The Trust filed a
Certificate of Trust with the Delaware Secretary of State on July 28, 1995.

B-2
<PAGE> 485

INVESTMENT POLICIES AND RESTRICTIONS

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

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, except as permitted under the
1940 Act and except to the extent permitted by order of the SEC exempting
the Fund from the limitations imposed by Section 12(d)(1) of the 1940 Act.

9. Invest in 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.

B-3
<PAGE> 486

For purposes of the concentration policy of the Fund contained in limitation
(2) above, the Fund intends to comply with the SEC staff position that
securities issued or guaranteed as to principal and interest by any one single
foreign government, or by all supranational organizations in the aggregate, are
considered to be securities of issuers in the same industry.

From time to time the Fund may commit to more stringent restrictions in order
to be able to offer its shares to residents in particular states.

ADDITIONAL INVESTMENT CONSIDERATIONS

BORROWING

B-4
<PAGE> 487

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 fixed-income indices and other
financial instruments and purchase and sell financial futures contracts and
options thereon and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps and 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
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 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.

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.

B-5
<PAGE> 488

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 are cash settled
for the net amount, if any, by which the option is "in-the-money" (i.e., where
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options 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.

B-6
<PAGE> 489

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 fixed-income market
changes 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,
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, 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.

B-7
<PAGE> 490

The Fund also may invest in foreign stock index futures traded outside the
United States. Foreign stock index futures traded outside the United States
include the Nikkei Index of 225 Japanese stocks traded on the Singapore
International Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese
stocks traded on the Osaka Exchange, Financial Times Stock Exchange Index of the
100 largest stocks on the London Stock Exchange, the All Ordinaries Share Price
Index of 307 stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33
stocks on the Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks
on the New Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto
Stock Exchange. Futures and futures options on the Nikkei Index are traded on
the Chicago Mercantile Exchange and United States commodity exchanges may
develop futures and futures options on other indices of foreign securities.
Futures and options on United States devised index of foreign stocks are also
being developed. 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.

B-8
<PAGE> 491

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 of 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.

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 the value of schillings will decline against the U.S. dollar, the
Adviser may enter into a contract to see 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.

COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions and 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 interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.

B-9
<PAGE> 492

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

OTC options entered into by the Fund, including those on securities,
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, 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. To the extent such assets are
other than cash or cash equivalents, such assets will be marked to market on a
daily basis. To the extent that the Fund segregates assets other than cash or
cash equivalents in connection with the purchase or sale of a futures contract
or the sale of an option thereon, the Fund will be subject to market risks with
respect to the open futures or option position as well as with respect to the
portfolio securities segregated against such position. To the extent that the
market value of such position and of such portfolio securities have a high
degree of positive correlation, market fluctuations may adversely affect both
the value of such position

B-10
<PAGE> 493

and the value of such portfolio securities, which has the effect of leveraging
the Fund's portfolio assets and increasing the Fund's investment risk.

DESCRIPTION OF SECURITIES RATINGS

1. DEBT

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

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

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

1. Likelihood of payment--capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;

2. Nature of and provisions of the obligation;

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

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

B-11
<PAGE> 494

circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

SPECULATIVE GRADE

CC: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.

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

NR: Not rated.

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.

B-12
<PAGE> 495